When the FCC authorized two satellite radio operators in 1997, it specifically prohibited the nationwide systems from merging. Nothing has occurred in the 10 years since to warrant changing the rules for XM and Sirius. XM and Sirius are unique in their ability to provide portable radio service on a nationwide scale. Clearly a merger between these two satellite radio giants would create a monopoly. Companies who make bad business decisions, such as spending hundreds of millions of dollars to secure talent, should not expect a government bailout. If that's the case, the floodgates will be open to bailout the more than 30,000 companies that filed for bankruptcy in 2006. The precedent is clear based on the FCC's action in the DirecTV/Echostar proposed merger ? the FCC prohibited that merger, finding that even if they considered the merger in the context of the whole market, they could not find the merger "in the public interest."
Cut through all the posturing and it is clear that the radio folks are scared. Their mature cash flow business has been in trouble for years. That is why LBO firms run the show now. Moreover many listeners are bored with terresterial radio because it has increasingly adopted cookie cutter corporate approach to radio. The stations are all the same and there are too many ads.
Nobody in the radio business wants to deal with a bigger and stronger satellite competitor that will essentially have a lock on the automobile industry. Drive time listeners are the heart of the radio business and a few months of free satellite radio to all new car buyers leads to a lot of subscribers.
However I think there is an even greater threat to the radio business. Radio's share of the advertising dollar has been under attack for years, first cable and more recently from the Web. Despite his new post atop a "commercial Free" subscription radio company, Mel Karmazin's is still one of the greatest advertising salesmen in the broadcasting. That is how he started his career, how he made Infinity great and how he built CBS radio. It is his strength.
If the merger goes through he will have a company with a 14 million subscribers around the nation and in Canada. He also has content deals with some great franchises, from Howard Stern to Nascar, NFL, Oprah. I listen to Sirius and I can tell you that, yes there is advertising on talk shows. And it is significant. The problem is most of it is schlocky. Things like Mangroomer, a back hair remover or diet pills or adult web sites.
I have also noticed that since Karmazin arrived advertising revenues have grown rapidly from $6 million in 2005 to $31 million last year. I believe that once the two companies audiences are combined, Mel can and will step up his advertisting effort to national advertisers at higher prices. More subscribers will also mean better talent on his radio stations and the ability to attract A-list guests on his talk shows.
As a Sirius subscriber, I dont think Karmazin is a very good subscription marketer. My experiences with customer service have not been good. And if you cant keep your existing paying customers happy, it generally means big trouble for the business. As an advertising salesman Karmazin rules. This will be a big boon for Sirius/XM and hopefully they will hire a great subscription marketer to set that important side of the business straight.
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