The proposed merger of Sirius and XM was announced 1 year ago, and still there has been no decision made. Comments have been requested and submitted. Information has been requested and submitted. Concessions have been discussed, and we now wait on the government to render decisions.
In the past year Sirius and XM have been trapped in a trading pattern that is dictated by the merger. Investors have been leery to jump on board, and the arbitrage spread has never seen a position stronger than 7%. Analysts seem to be riding the safe road with many simply giving odds of approval that equate to a coin toss. One year has passed, and people are simply waiting.
Opponents of the merger say that it will create a monopoly. Of course, most of the mergers opponents are companies and mediums that dominate the audio entertainment landscape. Proponents of the merger argue that the competitive landscape is diverse and healthy.
A-La-Carte programming was thought to be one silver bullet that Sirius and XM had in their arsenal. They offered up a variety of programming packages at various price points to entice not only regulators, but perhaps additional consumers as well. A study of the subscriber metrics shows that there are many who when exposed to satellite radio simply elect not to subscribe. The OEM take rate is 50%. If lower pricing structures could get the take rate to above 60% it would be a positive. A higher take rate would translate to better penetration. Lowering prices to garner a larger audience could very well prove the point that the ability of a merged satellite company to hike prices without restraint simply does not exist. Yes, some core subscribers would hang on with higher prices, but is that group large enough to ultimately constitute the ability to turn a profit? The answer is likely no. These companies require a larger subscriber base than they currently have to reach a profit stage.
The merger has been about many things. A-La-Carte programming, interoperability, licenses, bandwidth, the competitive landscape, and synergies. The merger has had it's share of "pork-barrel" hangers on with Primosphere looking for a license and spectrum, Ibiquity seeking inclusion into satellite receivers, U.S. Electronics trying to use the FCC to argue their arbitration case, and Georgetown Partners seeking a 20% spectrum and support handout, just to name a few
In the end, the same few questions are what will direct the decision. Is the merger proposal good for consumers? Is the merger proposal good for the competitive landscape? and what the political landscape will be when the decision is considered and rendered.
The Department of Justice and the Federal Communications Commission have all of the information they need, and have had it for quite some time. It is time to deliver decisions. For consumers, for investors, and for the competitive landscape.
Position - Long Sirius, XM