FCC Commissioner has withdrawn his original merger proposal offer from the table and cast a no vote on the deal. This leaves the decision on the shoulders of commissioner Tate, who will perhaps cast her deciding vote in very short order.

In a statement Adelstein said, “”I was hoping to forge a bipartisan solution that would offer consumers more diversity in programming, better price protection, greater choices among innovative devices and real competition with digital radio. Instead, it appears they’re going to get a monopoly with window dressing. We missed a great opportunity to reach a bipartisan agreement that would have benefited the American people.”

The Adelstein statement seems to indicate that he feels Tate will approve the deal with minimal added concessions.

Position - Long Sirius, XM

Pioneer has been very vocal in their position with one particular “concession” that has been a frequent subject of the proposed merger between Sirius and XM. The audio equipment manufacturer believes that there should be no requirement to install HD radio chipsets in all SDARS receivers.

Pioneer met with the democrat commissioners (Copps and Adelstein) on Monday, July 21, 2008. This happens to be the same day that commissioner Copps rendered his decision to vote against the merger without taking the opportunity to offer a counter proposal for consideration.

It is Pioneers position that manufacturers should not be required to include HD Radio chipsets into SDARS receivers, and that in fact, a free market should determine whether or not these chipsets are installed.

One item to note is that Pioneer did not meet with commissioner Tate. Tate is widely seen as being the third vote needed for the merger to gain approval, and the fact that Pioneer did not meet with her may be indicative that she sides with the Pioneer position with regard to this issue.

[ FCC Filing ]

SiriusBuzz Radio Live Thursday’s At 9:00 PM EST

Position: Long Sirius, XM.

Analyst Tom Watts was quick to the keyboard after it was announced that commissioner Copps had voted no on the proposed merger of Sirius and XM. The analyst noted that the Copps vote was “no surprise”, and that he was still looking to FCC commissioner Tate for the final approving vote on the merger deal.

Watts notes several points which have been oft discussed by this publication, including the fact that it is enforcement issues, and perhaps not more stringent concessions that commissioner Tate is seeking. “The focus remains on Republican Commissioner Deborah Taylor Tate. Her key concern is reported to be the companies. prior violations of FCC rules in their deployment of repeater towers. An announcement of an enforcement action by the FCC came out last Friday, however, the matter has been under consideration by the FCC for some time. We expect the companies to reach an arrangement that could include a fine and/or a timetable for bringing all repeaters into compliance. Such an arrangement should address Commissioner Tate’s concerns, enabling her to vote in
favor of the deal.”

Watts calls Adelstein a “fallback option” for Sirius and XM, stating that Adelstein has expressed a willingness to negotiate his proposal. Personally I see Adelsteins proposal as a deal breaker, and he would need to move substantially to come to a deal that the satellite radio companies would feel comfortable with. To his credit, Watts see it more likely that the merger will gain approval with Tate rather than with Adelstein, a position I agree with.

Position: Long Sirius, XM.

FCC Commissioner Copps has opted not to bring a counter proposal to the table, and simply go with a “NO” vote on the proposed Sirius and XM merger.

According to the Wall Street Journal, Copps rendered his decision on Monday, July 22nd. The “NO” vote by Copps represents the first commissioner to go against the proposed merger. The merger now has had three of the five commissioners cast their votes:

• MARTIN - YES
• MCDOWELL - YES
• COPPS - NO
• ADELSTEIN - UNDECIDED
• TATE - UNDECIDED

It is widely anticipated that commissioner Tate will vote in favor of the deal, but wants some “teeth” in the deal to ensure regulatory compliance. Adelstein has offered a counter proposal to the Draft Order Issued by Martin, and has stated he is open to negotiation.

Most who follow the sector believe that Sirius and XM are negotiating with Tate, who in theory would want fewer concessions than Adelstein, in hopes of obtaining the third vote needed.

Position: Long Sirius, XM.

FCC Commissioner Adelstein has made statements that there is wiggle room in his position on the merger. According to Broadcasting and Cable, the democrat commissioner has indicated that he is willing to negotiate the terms that he outlined last week.

Adelstein said Monday at an annual Minority Media & Telecommunications Council conference in Washington, D.C., that his conditions were negotiable: “I am always open to discussion about what the best outcome is, so, it is not fixed in stone. I am certainly open to discussion”

Likely the largest stumbling block in Adelsteins proposal centers on the requirement to give up 25% of the spectrum. How far Adelstein is willing to negotiate is anyone’s guess. In my opinion, Sirius and XM are likely concentrating on commissioner Tate, who many view as having a more favorable stance on the merger, and would by extension have fewer concessions.

Many feel that Tate will seek more stringent regulatory control rather than concessions such as a give-back of spectrum.

At this point we have the following:

• Martin: YES
• McDowell: YES
• Tate: Undecided
• Adelstein: Undecided
• Copps: Undecided

Position: Long Sirius, XM.

XM Satellite Radio Holdings Inc. (Nasdaq: XMSR) today announced preliminary results for the second quarter of 2008. XM added 322,000 new net subscribers in the second quarter of 2008 for a total of 9,653,000 subscribers, a 17 percent increase in subscribers since the end of the second quarter of 2007. Total gross additions for the quarter were 1,081,000, including a record 857,000 OEM gross additions, the fifth consecutive quarter of record OEM gross additions, and 224,000 retail gross additions.

Second quarter 2008 churn improved to 1.67 percent, compared to both second quarter 2007 churn of 1.84 percent and to first quarter 2008 churn of 1.77 percent. XM also announced that subscription revenue for second quarter 2008 is expected to be in the range of $283 million to $288 million and that the second quarter 2008 adjusted operating loss is expected to be in the range of $32 million to $38 million (excluding the impact of any FCC settlement). Conversion rate for promotional subscribers is expected to be in the range of 52.7 percent to 53.4 percent.

XM announced its preliminary results in connection with XM and Sirius’s merger-related offering of senior notes, announced separately today. XM’s independent accountants have not completed their review of the second quarter financial information and XM is still in the process of completing its normal quarter-end closing process. Accordingly, actual results may vary from the above amounts and such variance could be material. The company expects to file its 10-Q report for the second quarter 2008 in the next few days.

I have been considering all that has happened in this circus merger process, and I have been reviewing some of my fellow posters articles, as well as my own. It has occurred to me that one of the things that has been criticized the most, could in fact be the turning point to this merger, and that is HD radio. What do we know about HD radio?

1. A slew of Attorney Generals have proposed it as a condition.
2. A ton of Congressmen have proposed it as a condition to merger.
3. iBiquity has proposed it as a condition to the merger.
4. Even Commissioner Addelstein has proposed it as a condition to merger.

So by agreeing to install HD into all future models of SatRads, Sirius/XM could potentially swing a large amount of support towards the side of approval. This would have to be done with some stipulations, of course.

1. All FUTURE models would be designed with HD radio. All current models are exempt from this requirement.
2. iBiquity or the HD alliance would have to provide the funding to pay for all of the HD chipsets that would be installed into the radios.
3. iBiquity or the HD alliance would have to assist with design costs for the inclusion of HD radio.
4. iBiquity or the HD alliance would have to share the cost of subsidies for the installation of Satellite/HD radio combos to manufactures. Sirius/XM would still be on their own regarding revshare, etc.
5. The agreement does not mandate Sirus/XM or any of their partners to provide any advertising or technical assistance in regards to HD radio, other than that guaranteed by the unit’s warranty.

This proposal would show that Sirius/XM are willing to help support HD radio, as long as they are willing to support themselves. To me, HD is not a deal breaker, as long as Sirius/XM do not have to foot the bill. Is the HD Alliance willing to put some money into the deal or are they simply looking for a free ride?

Feel free to comment here, or head on over to the Sirius Buzz Forums to discuss this further.

Position: Long Sirius, XM.

A seemingly boring, news-free Saturday night changed drastically this evening when a memo was circulated that was allegedly sent out this evening to Ford dealers. From message boards to blogs the story captures the imagination. The opening line is the reason for the buzz. It states that “SIRIUS will be changing the format of their broadcast on July 22, 2008 to allow for additional programming.”

Also of note is that this is a firmware update that will take 5 hours to complete. Speculation is running rampant as to what this could mean. There is talk that it may be preparation for Sirius to broadcast some Xm channels while others think this could be the first real case of interoperability. I personally like the interoperability argument as most of the meetings involving Commissioner Tate with Sirius and Xm executives seemed to center around enforcement matters. Proving the existence of interoperable radios could go a long way towards satisfying those critics who say that Sirius did not comply with the interoperable mandate.

[ Ford Memo ]

Thanks crfceo.

Another day, another outrage. The lines are forming down the street. There seems to be no end to the parade of groups looking to steal a piece of the previously bid, bought and paid for spectrum that belongs to the shareholders of Sirius and XM satellite radio. A subscription based, pay radio service.

Some recent opposition points to the increased value of the spectrum since it was bid, bought and paid for by the companies as unfair. I wonder if they would feel that way if their own homes appreciated in value. Perhaps they also feel that because my home has appreciated in value, I should be forced and willing to give up 25% of my land.

This utterly repulsive suggestion does not end there, however. These groups and individuals want to use this spectrum, to broadcast whatever the highest bidder pays them to broadcast. They claim to want a minority ownership interest which may not translate into minority directed broadcasting. They wish to assume total control of the spectrum, so in theory, they could broadcast things that would make Howard Stern cringe. The effect of such actions would be the destruction of satellite radio. They could sell their rights to terrestrial radio, and satellite radio would be inundated with 60 channels of commercial laden music channels or even worse, dead air.

They want to do this on radios that were subsidized, marketed and installed at shareholder expense. They want to accomplish this by using the equipment and satellites built, deployed and paid for by the shareholders. They want to profit from advances made from the research and development paid for by the shareholders of Xm and Sirius. Some even propose doing this at the expense of the shareholders, with few lease proposals hitting the table.

I have a suggestion to make this proposal reasonable. First. Let’s put a dollar value on the spectrum. Recent auctions would indicate a combined value of about 30-40 billion dollars. At 25%, Sirius/Xm should receive 7.5 - 10 billion dollars for the spectrum itself. The person who pays the 10 billion dollars can then go out and launch their own satellites and produce their own radios and broadcast whatever minority and public interest programming they choose. They can sell it to Clear Channel. I don’t care! They can have their very own satellite radio service, but in my opinion, the proposed theft of shareholder value must come to an abrupt end.

As has been pointed out dozens of times, Sirius and Xm currently offer a higher percentage of minority and public interest programming than all of terrestrial radio combined! And they do it without government intervention.

Position: Long Sirius, XM.

I wanted to expand a bit on the problems that people see with the slowdown in OEM sales. Tyler covered part of it in his weekly radio show (which I got home just in time to hear the last 45 seconds of). He also wrote a piece about the concerns of the OEM side of the Satellite Radio Industry. In his recent article, Tyler points out that HD will likely have a hard time getting into the dashboard of vehicles because of the lack of subsidy. The lack of vehicle sales is of great concern to the Satellite Radio sector, I agree, but I also see the struggles of the OEMs as a positive. How you may ask?

Im glad you asked.

1. OEMs are looking to cut costs at every turn. This is obvious. But don’t you think they would also be looking to MAKE money at every turn? I sure would be. OEMs like GM and Ford make a pretty decent amount of money off of the revenue sharing and subsidies. Obviously, they make more money off of it than they put into it, or it would never have been a smart business move. Because of this, they may ramp up installation rates faster than expected to milk out the extra income when they need it most.
2. I just purchased a 2008 Chevy Tahoe. The sticker price on that vehicle was 49,000. I negotiated a deal with the dealership for 39,000 and 0% financing. Sure, large vehicles may not be selling well right now because of gas prices, but by getting the Tahoe, I was able to save a significant amount of money, and actually improve my gas mileage over the Chevy Silverado I had previously. A win/win for me. These large vehicles are selling VERY cheap right now, making them more attractive. The large vehicles are the ones that have the best (read: Lowest) churn rates amongst any other.
3. While vehicle sales are slipping (plunging?), install rates are still ramping up. Those radios are going to be going somewhere. People that are buying new vehicles now either do not care about the slowdown in economy or are downgrading to save money, either on the car payment itself, or on gas prices. With that savings in money, comes a bit more freedom. With that freedom, perhaps they can spare an extra $12.95 a month for Satellite Radio? The New York Times seems to agree.
4. Many of the vehicles that are getting traded in right now are the large gas guzzlers (like my Chevy Silverado). These are the ones that the OEMs first started installing Sirius and XM in. These Satellite Radio equipped vehicles are now hitting the used car lots, and can possibly provide an additional source of subsidy-free income to the SatRad industry. Sure, revshare still has to be paid, but no more subsidy.
5. As Tyler mentioned on the radio show, less installs means less radios, means less subsidies. So at least they would still be saving some money.

In conclusion, the OEM meltdown slowdown is definitely something to keep an eye on, but I do not think that it is the doom and gloom some analysts have made it out to be.