SiriusBuzz

Cramer finally speaks up and tells the Feds to wake the @*%$ up! Well, not literally, but he is calling for the regulators to take action. Cramer mentions in this video segment that if the government is so worried about antitrust, why did it hold only one hearing on the far bigger, far more monopolistic Exxon-Mobil merger? Or how about the Chevron-Texaco deal? He says that the politicians have their pockets filled with terrestrial radio money. As I wrote in a previous post here on Siriusbuzz, the wait for this is absolutely ridiculous. Cramer believes that this is not a monopoly at all. He discusses what we all know, the competition from various media such as IPODS, terrestrial, Internet, etcetera.

Cramer also states that the combined company would have more offerings and pricing plans that have clear benefits for the consumer, which is precisely what the FCC is looking for. Cramer predicts that if the deal is sealed, the cost savings for the combined company will be huge. Sirius, under $3 now, will likely go much, much higher and if the deal breaks apart, Jim said Sirius still works. It’s adding more subscribers and is expected to grow sales faster than its rival/partner, XM, even though it has greater operating losses. It’s also better prepared to expand outside of the players built into cars, where XM leads. Both are small and unprofitable, but Sirius’ higher sales growth makes it the clear winner to Cramer.

Check out clip from Friday’s episode of Mad Money.

You are about to embark upon the Great Merger Crusade, toward which we have striven these many months. The eyes of the financial and radio world are upon you. The hopes and prayers of radio free of commercials and FCC regulations march with you. In company with our brave listeners on other fronts, you will bring about the destruction of the terrestrial radio war machine, the elimination of NAB tyranny over the oppressed peoples of satellite radio, and freedom to yourselves in a free radio world.

Your task will not be an easy one. The NAB, FCC, and DOJ are well trained, well equipped and battle-hardened. The Axis will fight savagely…but this is the year 2008! Much has happened since Tesla, Marconi, and Alexanderson discovered the breakthrough that allowed Fessenden to transmit the human voice across a long distance in 1906. The satellite listeners have in­flicted upon the Axis great defeats, in online forums, through shareholder votes, and letters written to the FCC. Our on-line offensive has seriously reduced their strength to wage war on the ground. Our satellite radio believers have given us an overwhelming superiority in intelligence and preparedness for war, and placed at our disposal great reserves of trained fighting believers. The tide has turned! The free men of the world are marching together to Victory!

I have full confidence in shareholder’s courage, devotion to satellite radio and skill in defeating the dark side of the Axis. We will accept nothing less than full merger. Good Luck! And let us all beseech the blessing of Mel Karmizin, Howard Stern, and all those at Siriusbuzz upon this great and noble undertaking. Always remember the sacrifices of the D-Day invasion and the many soldiers who followed. These men made it possible for us to have freedoms we enjoy today.

The HD Radio Digital Alliance has taken a tact on the merger that goes against Ibiquity, and they have filed that opinion with the FCC. Ibiquity, the company behind HD Radio has not taken an official stance on the merger. Instead they are requesting that all satellite radio tuners be equipped with HD radio as a condition to the Sirius/XM merger, and that satellite radio deals with auto manufacturers be terminated. The Alliance comes out and states that they oppose the merger. Is this a rift in the HD Radio community? Only time will tell.

The Alliance starts off their letter by stating that at this point it can not be considered a competitive alternative to satellite radio

1. According to their website they already have 1,133 stations on air right now.

2. According to their website there are 1,471 stations licensed

3. According to their website they have over 3,000 stations committed, and 402 are already multicasting.

4. The Alliance touts that they are subscription free, and even has sales kits to compete directly with satellite radio.

5. HD Radio already has deals with auto manufacturers, and the Alliance website even sports new car window stickers that show HD Radio as an option in the car.

The Alliance states that there are barriers that exist because of satellite radio’s deals with auto manufacturers.

Volvo, Ford, Jaguar, Hyundai, and BMW all have deals with HD Radio.

The argument that the Alliance makes is that Sirius and XM have far more relationships with auto manufacturers than does HD Radio. The important distinctions that the Alliance leaves are are…

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Satellite Radio subscribers would be in for a treat if Vinnie Politan gets a morning drive slot.

In March of 2006 Sirius Satellite radio entered in a content relationship with Court TV to create Court TV Radio. The channel was an outstanding example of the wide array of programming that satellite radio could offer listeners. In my opinion, the highlight of the channel was the Vinnie Politan Show which aired weekdays from 6:00 am to 9:00 am. Politan was a breath of fresh air on radio airwaves, and his experience as an attorney brought a combination of real world experience and topical information to listeners across the nation.

Vinnie Politan came to Sirius through his position at Court TV. This past December Court TV went off the air and was replaced by Tru TV, a new network seeking a new direction. With the disappearance of Court TV, the Vinnie Show went off of the air. This event, while frustrating for listeners and fans, could well be a blessing in disguise, as it frees up Vinnie Politan to negotiate directly with Sirius, and would allow Sirius to market Vinnie in an entirely new direction.

While Howard Stern is indeed popular, and carries a large audience, there is not much of an alternative for those that would rather listen to a less “edgy” yet highly topical show. Vinnie Politan is charismatic, carries a great radio voice, and puts on a terrific show. Free from the confines of a pure “Court” theme, it is my opinion that Politan could become even a bigger radio commodity than he was under the Court TV brand.

It is my opinion that Sirius is missing something important in the morning drive slot. A viable alternative to Howard Stern. Sirius’ flagship station, Sirius Stars offers Angels On Call, Jane Radio, Judith Regan and Candice Bushnell in the morning drive time-slot. Now, I am not trying to speak down about these shows, but it is my feeling that a mixed bag in the Sirius Stars morning drive slot is not the caliber of programming that it takes to hold a morning drive slot. Listeners want something consistent to enjoy with their morning coffee. With Vinnie Politan free to create a new Vinnie Politan Show that is not typecast into a court themed show, there is a potential to create an alternative to Howard Stern that can have a much wider appeal than a show such as Angels On Call.

Politan has a fan base of Sirius subscribers that would like to see him return to the air, and I would agree that Sirius should find a way to bring Vinnie Politan back in a way that is even better than before. 110ers.com has done a great job of following Vinnie Politan, and has also been instrumental in getting the word out about the show, and showing support.

Sirius Buzz contacted Vinnie and his agent Julie Eckhert and they were kind enough to give us an interview about Vinnie’s experience on satellite radio, what he is doing now, and his desire to return to the radio airwaves on a national basis. For merger watchers, we even got Vinnie’s opinion on the proposed transaction between Sirius and XM. Interview after the jump…

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Jimmy Schaeffler of Carmel Group published an interesting article regarding the merger. Carmel Group did some initial studies on the merger, and I have in the past conversed with Mr. Schaeffler, and conducted an in depth interview based on his opinions. That article is available in the archives of Satellite Standard Group.

As with any opinion there are opposing points of view. In his article Schaeffler offers a comparison between the wine industry and the satellite radio industry and draws a conclusion that the merger is not a good thing for consumers. In summary the article offers the following example of an event in the wine industry”

The 2-Buck-Chuck Test

“‘The 2-Buck-Chuck Test’ title comes from the remarkable wine product offered by vintner Charles Shaw, who, several years ago, began competing with the significantly higher-priced wines in the national market place by, for example, selling a bottle of quality cabernet for two dollars. The move was revolutionary because not only did Shaw sell a remarkable quantity of spirits, but the competition was forced to respond (and produce more value), and the consumer was treated to a stunningly valuable offering (which the consumer loves, I can assure you from talking with my friends in the wine industry). All three parts of this consuming cycle benefited, and the economic model called basic capitalism did best what it does best: It competed head-to-head and things improved.”

From this example Mr. Schaeffler goes to this:

“Satellite radio is really just a varietal among many other choices. And the problem there is that if you allow the XM-Sirius merger, it is the equivalent of allowing Gallo to purchase the sole remaining competitive cabernet sauvignon producer, leaving just one single maker of cabernet sauvignon. I drink what Gallo gives me (and only that).

I can still go out and purchase merlot, or a zinfandel, or really a lot of other red wines. But what if I just want to purchase cabernet sauvignon - or, in our example, satellite radio - and the merger means there is now only one maker and one choice of cabernet sauvignon … or satellite radio? Is that the best way to run an economy? You pick a business and simply eliminate competition by permitting mergers and telling consumers that other, different types of products or services are adequate substitutes (even if they are not)?

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Rumors are swirling once again regarding the proposed merger of Sirius and XM. While this does add some excitement into the trading day, I would recommend that sector watchers exercise caution with regard to any merger speculation. Remember, we are dealing with government agencies here, and things in government tend to move slow. If you have ever been next in line at the Registry of Motor Vehicles, and still waited an hour only to find out you need to wait in another line, you already know what I am speaking of.

While there has been a substantial amount of time that has passed since the early December merger rumors, there has been nothing concrete to indicate that any decision is imminent. Most sources seem to tie back to Briefing.com on this latest speculation. It is interesting to note that analysts have not touched this rumor as yet, and one would think that if it was indeed concrete that reports would be crossing the wires already.

Perhaps the best strategy for investors is to continue with your strategy prior to all of the speculation that existed today. in point of fact, the likelihood of the merger passing remains the same today as it did yesterday prior to the swirling rumors. personally I believe that the DOJ will indeed act first, and that they were likely close to some action when analysts Peck and Cowen published reports late in Q4. Those reports generated so much press that it probably became politically impossible for the decision to be announced, and thus a longer wait happened.

Use caution with regard to the merger, but keep your eye on the news.

Position - Long Sirius, XM

We have all heard that the retail channel is weaker in 2007 vs. 2006. There is no doubt about this, however, the weakness may not be as steep as perceived by many. As we await XM Satellite Radio’s subscriber announcement, I felt it would be prudent to put out some comparisons so that investors can make informed decisions.

NPD Group data is often cited when looking at the retail picture. NPD tracks retail sales at many of the bigger retailers in the country, and because these big box retailers account for quite a few sales, the data gives an illustration of how well sales of a particular product are going. Some who do not like the results of NPD data will call the data flawed. In point of fact, the data is not flawed at all. It is a simple tracking of actual sales. Where the flaw exists is how people interpret the data. To be perfectly clear, I will reiterate that point. The NPD data is not flawed….interpretation of the data or how it is applied is where the flaws exist.

Having tracked this sector for quite some time, I have seen how fluctuations can exist over a period of time. Such a transformation happened in 2007 with retail sales. Retail sales were down this year over last. Commonly people will associate the level the sales are down by the NPD Data. However, a more accurate gauge is available if people would only take the time to look a bit deeper.

In 2006, NPD captured roughly 50% of the sales of XM radios. This is obtained by looking at the gross retail subscribers as reported by XM and comparing it to the sales as tracked by NPD. If someone were to go into 2007 with the assumption that NPD represents half of the retail additions, they would have made a grave error. In fact, the highest capture rate for NPD this year has been 43% in the second quarter. Looking at the historic data, NPD gets a better capture rate in Q2 and in Q4 every year. This stands to reason because these quarters have the two biggest satellite radio holiday’s of the year. Father’s Day and Christmas.

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In a filing with the FCC Sirius and XM outlined in greater detail the benefits of A-La-Carte pricing plans. The satellite radio carriers state the following:

1. “CONSUMERS WILL HAVE MORE CHOICE OVER WHAT THEY RECEIVE AND THE MARKET WILL DICTATE WHAT IS OFFERED”

Sirius and XM state that they will offer both a-la-carte as well as smaller packages. The packages can be offered because of cost savings, synergies, and the fact that a less expensive satellite radio option should generate a wider subscriber base as it makes satellite radio not only more affordable, but targets a consumers ability to choose the programming they want.

2. “THE A-LA-CARTE AND OTHER PACKAGES OFFERED BY THE COMBINED COMPANY WILL PROVIDE CONSUMERS MORE CONTROL OVER PROGRAMMING AND THE OPTION TO ONLY PAY FOR THE PROGRAMMING THEY WANT”

Consumers will have many choices from which to design their own channel line up. Consumers who feel that some content is objectionable can not only block that channel, but also do not have to pay for such a channel. This is accomplished through family friendly programming and the ability to block channels.

3. “CONSUMER CHOICE WILL LEAD TO PROGRAMMING DECISIONS THAT ARE INFORMED BY THE MARKET, LEADING TO MORE PROGRAMMING THAT CONSUMERS VALUE”

Because consumers will have choices, the combined company will be better able to determine market sentiment on various programming options. A-La-Carte gives the combined company a “real-time” survey of what consumers are listening to.

The filing goes on to point out that in particular, A-La-Carte programming has the potential to deliver to a consumer true value in their service in an across the board nature. The filing also points out the serious flaw in the NAB argument that the cost per channel is more expensive. For the NAB to come to that conclusion, they would have to believe that consumers value each channel the same. Realistically, this is not the case. Would the NAB value the number one terrestrial radio station in New Your the same as the least popular station. Of course not.

The merger of Sirius and XM is fast approaching 1 year since announcement. It is time for the DOJ and FCC to come to their decisions. The consumers have spoken, shareholders have spoken, the time is here for regulators to decide.

Position - Long Sirius, Long XM

Lucas Binder of UBS has released a note on satellite radio. The analyst is neutral on Sirius as well as XM, and has taken his price targets down.

REPORT EXCERPTS

Expect Weak Retail to Have Longer Tail Impact

Lower subscriber outlook negatively impacts valuation
We have lowered our price targets for both SIRI and XM to $3.00 and $12.00 from $3.90 and $16.00, respectively. We have reduced our subscriber growth estimates for both SIRI and XMSR to reflect weaker retail growth in the industry. We expect OEM penetration to drive industry growth, however, we do not expect it to be enough to drive y/y growth in net adds in the foreseeable future.

Merger outlook still key focus for investors
According to press reports, the FCC Chairman, Kevin Martin, stated that he hopes that the SIRI/XMSR merger is ruled on by the end of 1Q08. He also said that theFCC has not finished its review of the merger and that the commission has follow-up questions for the companies. The FCC does not expect to reach a decision on the merger before the Department of Justice announces its ruling. We remain 50/50 on the likelihood of a deal going through.

Valuation: Reduce price target to $3.00 and $12.00 for SIRI and XMSR We base our price targets on a detailed DCF analysis. In both cases we use a 3.0% growth in perpetuity and a 13.0% WACC

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The NPD data for December 2007 has been released. The NPD Group is the leading global provider of consumer and retail market research information for a wide range of industries. They provide critical consumer behavior and point-of-sale (POS) information and industry expertise across more industries than any other market research company.

The December now gives retail data for Q4, as well as the whole year. Data shows that overall satellite radio retail sales are still down on a year over year comparison basis. For Sirius December NPD tracked sales were down 36% as compared to December 2006. For XM December NPD tracked sales were down 41%. This translated into sector sales being down 37.5% on a December year over year basis. Sirius has maintained an NPD share advantage for 28 consecutive months.

YEAR OVER YEAR COMPARISON (DEC 07 vs. DEC 06)

• SIRI - Down 36%
• XMSR - DOWN 41%
• SECTOR - DOWN 37.5%

MONTH OVER MONTH COMPARISON (DEC 07 vs. NOV 07)

• SIRI - UP 268%
• XMSR - UP 244%
• SECTOR - UP 260%

In all, NPD tracked sales in satellite radio captured a bit over 700,000 less retail sales in 2007 vs. 2006. While this indeed suggests that retail has slowed, there are factors involved that investors in the sector should be aware of.

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