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XM-Sirius Merger May Encounter Technical Difficulties

Please Stand By; It's Not as Simple as It Sounds

By Truman Lewis
ConsumerAffairs.com

March 19, 2007

• House Passes New Internet Radio Legislation • XM-Sirius Merger Approval Nears Completion • No Surprise: FCC Chair Decides to OK Sirius-XM Merger • Consumer Groups Urge FCC to Reject XM-Sirius Merger • States Raise Questions about XM-Sirius Merger • XM-Sirius Merger Gets Antitrust OK • Senate, FCC Chairman Spar Over Media Consolidation • Wisconsin Seeks To Block Satellite Radio Merger • XM/Sirius Merger Gets a Boost • Webcasters, Music Industry Reach Accord On Royalties • Karmazin "Clarifies" XM-Sirius Merger Plans • Last Minute Stay Of Execution For Web Radio • Dead Air Ahead: Court Denies Webcasters' Appeal • Notes From The Future Of Radio • Senators Throw Support Behind Internet Radio • Internet Radio Gets a Reprieve • Web Broadcasters Lose Music License Appeal • Feds Agree To Rethink Internet Radio Royalties • Reception Poor at Senate Sirius-XM Hearing • XM-Sirius Merger May Encounter Technical Difficulties • The End Of Internet Radio As We Know It • XM-Sirius Merger Encounters Serious Opposition • XM, Sirius Agree to Merge • Record Companies, Congress Take On Satellite Radio • Satellite Radio Looks Wobbly --- Consumer Comments • Sirius • XM Radio

To hear Sirius CEO Mel Karmazan tell it, combining the competing satellite services now offered by XM and Sirius is so simple even a radio executive could do it.

In sworn testimony before Congress, Karmazan promised that combining the two services would provide consumers with more, not less, choice.

"We want subscribers on both systems to be able to listen to both the NFL and Major League Baseball," Karmazin said. "Both the PGA and NCAA basketball; both Oprah Winfrey and Martha Stewart."

But as a Washington Post report today illustrates, the sales guys aren't always up on all the technical details. Industry experts say the competing companies are already using nearly all of the spectrum space on their systems and would have a hard time adding programming to either system.

Executives of both companies have promised, sometimes under oath, that no existing XM or Sirius radio receiver would become obsolete as the result of the proposed merger. But since the two companies use different spectrum space, it's difficult to see how all of the existing programming on both systems could be combined so that owners of both Sirius and XM radios could hear all of the combined programming.

"We'll take the XM content and feed that on the Sirius system," Karmazin said in his March 7 testimony before an Antitrust Task Force Subcommittee hearing in the House of Representatives. Conversely, he said, Sirius content would be fed to XM receivers via XM satellites.

Engineers say the only way a majority of the existing programming could be fed on both channels would be with much higher audio compression that would noticeably degrade the audio quality of the signal. Already, audio enthusiasts say the satellite signals are noticeably more compressed than a strong local FM signal.

"Listening to WETA (the Washington, D.C., NPR classical station) is like being in the concert hall. Listening to XM Classics is like listening to the radio," said a former Washington-area broadcaster who no longer has any interests in terrestrial or satellite broadcasting.

Big Savings?

The companies have also promised that by merging, they would realize significant savings that would enable them to cut prices and also turn a profit instead of continuing to lose millions of dollars per year.

But, the Post article noted, most of the programming that would presumably be combined -- canned music formats from the 60s, 70s, etc. -- is relatively inexpensive to produce since much of it is automated, while the expensive, big-name disc jockeys and sports contracts would be retained, according to the companies' sworn testimony. That leaves combining back office operations and advertising as the major source of savings.

Nor is it clear how the combined services would save money for consumers. Both now charge $12.95 per month for their service. It is unusual to argue that eliminating competition would lower prices for consumers and neither company has yet provided any explanation of why that would work in this case.

At his March 7 appearance on Capitol Hill, Karmazin never delved into the specifics of how a single service would generate savings for consumers.

After the hearing, Karmazin bolted out a side door. ConsumerAffairs.com was the only publication that got to ask him a question: "What sort of savings can consumers expect?"

"A lot," he replied with a laugh, then exited the room.

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