SIRIUS XM SATELLITE RADIO NEWS

Mazda Motor of America, is providing a new way for its dealers to promote the Sirius Satellite Radio they already offer in many of their vehicle models, as well as a method for getting the message out about new Mazda models and other dealership news.

With the help of Applied Media Technologies Corporation (AMTC), the national provider of Sirius to businesses, all U.S. Mazda dealerships are able to reach out to their customers with music and customized marketing messages both in the showroom and during telephone “on-hold” time.

“When we opened our new Mazda Retail Revolution dealership in Temecula, Cal., the only things missing were quality in-store music and a telephone on-hold messaging solution. To our surprise, both services could be found from one source, AMTC,” Temecula Mazda Vice President Bill Brumbaugh said. “With AMTC’s help, we installed Sirius Satellite Radio and TelAdvantage messaging, engaging customers both in the dealership and over the phone. Sirius provides crystal-clear digital sound with 67 channels to choose from, and TelAdvantage allows us to customize our on-hold messages to our liking.  Often, our guests comment on the quality and selection content while visiting and calling our dealership. We explain to our customers that when you purchase a Mazda from us, you can have this same SIRIUS Satellite Radio experience in your vehicle every day. I can’t tell you how many guests turn into customers for life.”

Retail studies have shown that music greatly influences customers’ purchasing patterns and decision-making processes, helping to establish the mood, motivate the subconscious, and create a lasting impression on existing and potential customers. However, in order for a business to reap these benefits, performance royalties must be paid per song, and stiff fines await those who neglect the payment of these fees. Businesses also face the challenge of finding suitable music to play in their establishments. CDs are repetitive, and terrestrial radio comes fraught with aggravating commercials, and worse, advertising for competitors.

Position - Long Sirius

Goldman Sachs analyst Mark Weinkes outlined a bearish situation for SDARS that sent both Sirius and XM plummeting lower on heavy volume. Weinkes, who has been bearish for quite some time went grizzly bearish. Both Sirius and XM had staved off previous anticipated Goldman lows now, but new price targets set even lower seem to have taken the feet right out from under satellite radio.

Weinkes established new price targets of $1.75 and $6.50 for Sirius and XM respectively. These new prices are down from $2.25 and $11.50. The new prices would give more implied room at the bottom than many previously anticipated, and the new lower targets could well have given short traders more confidence that a short position would pay off better than they previously had thought.

Goldman cites slowdowns in subscriber growth, debt refinancing, existing costs associated with debt, and a lower revenue per subscriber as some of the reasons for their latest thoughts on this sector. The lower price targets even with a merger are frustrating enough for longs, but a $1.00 stand alone price on Sirius shows that Weinkes is no fan of the satellite radio business model.

All of this transpires just as it appears that Sirius and XM may be on the verge of FCC approval of the license transfer, paving the way for the companies to merge. Goldman sits at the direct opposite end of the spectrum than Citigroup, which has much higher price targets for a merged company. So far it would appear that Goldman has a large audience listening to their analysis.

Position - Long Sirius, Long XM

Live From New York City……It’s Sirius Buzz Radio. That’s right, I am in New York, and eager to share my thoughts on the recent activity with Sirius and XM. Martin’s endorsement, the concessions, and even some commentary on the opinions of those speaking out against the merger.

Sirius Buzz Radio airs each week at 10:00 PM. Callers are welcomed and can participate by dialing 347-945-7995. Tune into the live show - Sirius Buzz Radio

Position - Long Sirius, XM.

Retail sales for satellite radio according to NPD Group were stronger in May than they were than April. NPD Group tracks retail sales from various major stores, but does not include all retail sales. Sales made directly by Sirius and XM are not counted either.

While month over month comparisons show progress, the year over year comparisons were a split decision in the SDARS sector. Sirius was of 2% on a year over year basis while XM was off 36%.

June will be the telling month on the retail channel. Father’s Day and Graduations typically represent a boost in retail sales. So far NPD tracked retail sales are progressing ahead of the first quarter, which is a good sign. In Q1 XM had negative NET retail additions, and Sirius had a modest NET retail gain of a bit over 2,500 subscriptions.

According to Stifel analyst Kit Springs, Sirius is pacing ahead of what was anticipated, and XM is on pace with what was anticipated, meaning that expectations on the sector as a whole are ahead of the analysts projections.

Retail is not hitting on all cylinders, but perhaps more problematic is the OEM channel which is seeing decreased production and poor sales. OEM was anticipated to be the driver for SDARS in 2008, but even as analysts are seeing better than expected retail, they are having to now adjust their OEM models.

Retail sales have likely been impacted by the lack of new hardware, merger confusion, and a slumping economy. SDARS needs a strong June to finish off the first half of the year.

Position - Long Sirius, Long XM

Yesterday we indicated in our article Merger Signed Sealed And Awaiting Delivery , that the formal letter outlining the concessions of the merger would be posted to the FCC website this morning. This has now happened, and the market will now be able to digest exactly what the FCC commissioners are voting on. This letter represents the agreements that Sirius and XM have made regarding the merger, and the issues that the commissioners will consider with the draft order issued by the FCC Chairman Kevin Martin. Concessions include:

A-LA-CARTE PROGRAMMING

• 50 channels for $6.99 with additional channels priced at $.25 cents each. Capped at $12.95
• 100 channels for $14.99
• A-La-Carte radios will be available within three months

BEST OF BOTH PROGRAMMING

• Subscriber will receive their base service (Sirius or XM) and will get the best of the other service for $16.99

MOSTLY MUSIC OR SPORTS NEWS AND TALK

• Available for $9.99

FAMILY FRIENDLY

• An $11.95 price for base subscriptions and a $14.95 price for the best of both subscriptions.

PUBLIC INTEREST CHANNELS

• The combined company will set aside 4% of the full time channels. Part time channels get aggregated. This currently represents 6 channels from Sirius and 6 channels from XM.
• An additional 4% will be leased to a qualified entity which Sirius and XM have no editorial control. The 4% will be maintained as compression technology advances.

OPEN ACCESS

• To be included within 1 year of the merger.

SERVICE TO PUERTO RICO

• Service within three months of merger

INTEROPERABLE RECEIVERS

• Available within 1 year of merger

RATE FREEZE

• 36 month rate freeze

In my opinion the concessions outlined are not overly burdensome, and do not strip away synergies of the merger. many concessions are outlined for public interest, and in the interest of the consumer. Sirius and XM maintain control over their network, and can grow their business as technology advances.

[ FCC Filing ]

Position - Long Sirius, XM.

Today it was made public that Chairman Martin not only would be issuing a draft order regarding the merger of Sirius and XM, but that he indeed supported the merger. This is probably the most positive news that SDARS has seen since the DOJ announced approval back in March.

What today’s activities mean, at a minimum, is that Sirius and XM have reached an agreement in principal with the Chairman of the FCC, and likely some of the other commissioners as well that would allow the merger to progress.

I have stated that I expected the draft order to be circulated by Wednesday. I would expect that Sirius and XM have already made a filing outlining not only the voluntary concessions that could not be mandated by the FCC, but also the other concessions that were within the power of the FCC to mandate. I would anticipate this filing to be published on the FCC website as early as tomorrow morning. This filing will give the basis for the vote that the commissioners will have within the next couple of weeks. The filing will also give the street their first look at the concession list.

It is my opinion that at this point all concession negotiations are now essentially complete, and the vote is the finish line that sector watchers have been looking and yearning for. All of this is now within site.

Understanding that 1) negotiations are complete and 2) that Martin, who supports the merger, would not call a vote unless he was relatively sure of the outcome causes me to conclude that a positive outcome is only two weeks or so away.

For whatever reason, the street was still a bit gun shy with today’s news, but that may well change tomorrow when we get concrete evidence of the exact conditions of approval. Today, analysts offered various opinions:

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The National Association of Broadcasters issued statements today regarding the events surrounding recent comments by FCC Chairman Kevin Martin. In their statements, the NAB said nothing relating to the public interest issue that the FCC uses to make their determination. Instead, the NAB focused on interoperability, repeater networks, and FM modulators.

NAB Executive Vice President Dennis Wharton stated, “Given their systematic breaking of virtually every rule set forth by the FCC in their 11 years of existence, it would be curious if the Commission now rewards XM and Sirius with a monopoly.”

It would appear that the National Association of Broadcasters has no real argument against the public interest benefits of the merger going forward given their recent focus on past issues, most of which have already been dealt with by regulators, or are in the hands of regulators currently.

The NAB has also shifted in who the “face” of the NAB is with regard to the merger process. Early on, David Rehr was the spokesperson for the association. After intense scrutiny, Dennis Wharton has taken on the leading role. Should the NAB lose their merger fight, Rehr will have been able to at least partially distance himself from recent activity.

[ NAB Press Release ]

Citigroup analyst Tony Wible has become even more bullish on satellite radio given today’s activity. As a result of recent news surrounding the merger of Sirius and XM, Wible has adjusted his 12 month price target on Sirius to $9.00 from $7.50. Wible also raised the near term price target of XMSR to $12.75 from $12, citing near term approval as the catalyst for the change.

Wible is among the more bullish of the analysts following the sector. Likely, given that it appears that the merger issue will go into a draft order status at the FCC, several analysts will be weighing in with their opinion. At this point Wible is the early bird.

Wible noted, “We continue to believe that spectrum concessions represent the key hurdle that could torpedo the deal. Advocates and other public interest groups had been pushing for up to 20%. In our view, 8% represents a far more palatable request and one that is more amendable to both companies.”

The analyst sees merger probability at 90%

Position - Long Sirius, Long XM

Sirius and XM met with Martin, McDowell, and Tate late last week according to Exparte filings with the FCC published today. It would appear to be a case of shoring up the votes that anyone following the issue have always thought were the most likely to support the marriage between the two satellite radio operators. It is possible that there were also meetings with Copps and Adelstein, but records of such a meeting have not yet made the FCC’s filing system.

Approval of the license transfer has been before the FCC for well over a year. The issue had become highly political in recent weeks, and at times, the street began to question whether the political pressure would be too strong. However, the commissioners that do support the deal have always had the ability to cite the public interest as a method of cutting through the fog of other issues that have arisen during the process. With voluntary concessions such as what have been outlined, it would appear that the issue is ready for circulation.

The power of being the Chairman of the FCC is the ability to circulate the draft and call the vote. With logical thinking, because Martin supports the deal, one would imagine that he has held off until he at least has a comfort level that he will win the vote when the time comes. It would appear at this point that Martin is prepared to proceed. It is possible that the concessions outlined can deliver a 4-1 or even a 5-0 vote, but it is too early to speculate on that. Getting a result that is 4-1 or 5-0 would be a political victory for Martin, and would dampen the hopes of those organizations that oppose the deal.

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According to the Associated Press, and multiple sources, FCC Chairman Kevin Martin is recommending approval of the proposed merger between Sirius and XM. As reported late last week, rumors of circulation of a draft order from the Chairman were imminent. Here at Sirius Buzz, we pointed out that one possible prerequisite for the draft order would be voluntary concessions by Sirius and XM.

The Associated Press report cites that possible concessions include:

• Turning 24 channels over to non-commercial and minority programming.
• Three year price freeze
• Open Access
• A-La-Carte pricing available within 3 months of deal closure

Chairman Martin stated, “As I’ve indicated before, this is an unusual situation. I am recommending that with the voluntary commitments they (the companies) have offered, on balance, this transaction would be in the public interest.”

It would appear that given that a draft order is imminent, that a vote could be held at any point. We estimate that there is a distinct possibility that the vote will take place in the next couple of weeks, but that investors should be ready for a decision at any time.

Shares of Sirius and XM have risen sharply on the news.

AP Article

Position - Long Sirius, XM.