Merger Approaches One Year Mark – Theories Abound
It was nearly one year ago that the news of a proposed merger between Sirius and XM was made public. During the past year, consumers have weighed in, hearings have been held, additional information has been sought and supplied. During the past year the ARB play has been as generous as 27% and as stingy as 8%.
Theories on the merger are a dime a dozen. Mine is no more valuable than the next guys, but some theories that I have seen simply struck me as quite odd or humorous:
THE LONGER IT TAKES THE MORE LIKELY A NEGATIVE DECISION THEORY
This theory is a classic. Proponents of this theory come to a conclusion that a long and drawn out process means that the results can not possibly be good. The more interesting aspect of this theory comes from those that believed the merger would fail in the first place. They initially gave low odds to merger passage and seemed steadfast in their opinion, almost as if the regulators would slam the merger in short order. When it did not happen, they switch gears and shift to the “It’s Taking A Long Time” mode. They say that the reason for the lack of a decision is because regulators are shoring up their case for denial so that their decision will not be overturned in Court. The problem… if it was such a slam dunk as a denial, how hard would it be to shore up the case against the merger? The fact of the matter is that the length of time involved is neither a positive nor a negative with regard to whether the merger will pass or not. Those who felt the odds of passage were 40% or less initially lose credibility when they take this stance.
THE LONGER IT TAKES THE MORE LIKELY IT IS TO PASS THEORY
This group sees the length of the process as validation that the regulators are strongly considering passing the merger, and merely working out the details or ensuring that each “I” is dotted and each “T” is crossed. Yes, the DOJ will make every effort to ensure that all of the details are in order, but that process has been happening all along. The group that felt that passage would happen no matter what get frustrated by the length of the process, and the length of time it has taken simply adds to that frustration. The length of time is frustrating for anyone following the sector, however, the fact that this has taken a year does not mean that the odds of passage have increased. Personally I tend to think that the length of time that has passed is positive in the sense that a denial has not happened. Those that felt the odds were 60% or better have taken shots on the chin because of the length so far, but their argument is a better one than the 40% or less crowd above.
THE POLITICAL PRESSURE IS STRONG THEORY
This theory actually has some merit if looked at as a factor of the merger. Political pressure is indeed strong, but it is also well known why that pressure exists. This merger involves a segment of the market (media) that has had their fingers in Washington for quite some time. The opinions of congressional members, either for or against the merger, carry weight, but also grains of salt that regulators are well aware of. Early political stances against the merger arrived at the FCC prior to even all of the merger related information being distributed. With very few exceptions, these same congressmen have not filed anything stating that they have reviewed details further and still maintain the same opinion. It is political pressure and oversight that perhaps have been factors in the length of time involved. This merger is under a microscope, and thus regulators are following procedures and likely triple checking their work. The political pressure is strong on both sides. Another factor when looking at political pressure is what a political figure has to gain in the process. Do they expend political points in taking their stance? What carries more political risk? Being against the merger or for the merger? What do they gain or lose by supporting it? What do they gain or lose by coming out against it? These factors are considered by all in the process.
COMPETITIVE OPPOSITION IS STRONG AND THUS BAD FOR THE MERGER
Of course it is strong. How often do you see competitors politely stand aside as a merger in their sector transpires? NEVER. The comments from competitors in the sector get due consideration, but at the end of the day they need to demonstrate that the merger would hamper competition. In this case, the issue is how the market is defined.
THE MARKET WILL BE NARROWLY DEFINED THEORY
Think about this one. Everywhere we turn, there are companies hopping into sectors and business that they typically were not in before. Companies are EXPANDING their presence, not getting more narrow and concentrated. Radio is expanding. Thousands of radio stations now broadcast on the Internet. Clear Channel is more than a radio business. It is a media business. Look at a billboard. Chances are that you will see Clear Channel on it. Media Cross Ownership was just recently decided on. It now allows expansion of media ownership and cross ownership between radio stations, television stations and news papers. This is happening because the barriers that once existed are substantially lower now. The Internet is a force that has companies with IT departments dedicated to increasing web presence, as well as other methods of exposure. In the last five years technology has boomed. A cell phone is no longer just a phone. iPods dominate the MP3 world as consumers find new avenues to get their audio entertainment. The regulators look at not only the competitive landscape today, but into the future as well. Even record companies are considering getting into the consumer end of the business. Any reasonable person will not conclude that things will stand still.
Clearly the lack of a decision is frustrating no matter what your position on the merger is, but what investors need to do is consider the various aspects of this merger from as many perspectives as possible and come to a decision as to their course of action. No decision yet… that’s right… changing your basis on merger odds because of it… questionable behavior in my opinion.
Position – Long Sirius, XM
If they say yes they want to make sure that their decision will not have any weak points because they know that special interests could sue.
If they say no they want to make sure that Sirius will not be able to win this in court.
I do not want to think that they are stalling this to death because I want to believe that they have some honesty.
In my opinion, they worry too much. Or they are serving some special interest. Why? When you have 50% of free sat-radio trials not becoming subscriptions then you can not define the market as sat-radio only.
This will not stand in court except if you can prove that people that decide not to get sat-radio listen to nothing in their cars.
Mel knows his business. I think they know that he has a point.
Hi Tyler, I personally would just like a decision at this point ether way. Although I think the merger is a good thing for both, and have shares in both(more SIRI then XMSR). I believe it has been too much of a distraction on the fundamentals of a speculative play. The growth is still there, losses have come down, and revenues are way up (more so SIRI then XMSR). Yet they trade for less then when the merger was annouced. I also believe it has hurt the retail end of sales. That many do not want to buy a radio that may be outdated in a years time, be it true or not alot of people think this. What do you think; would the price be lower today without the merger in play or higher, have the fundamentals gotton worse or better. I am SIRI, XMSR long so the swings dont bother me, and if the merger gos through I am not in it for just a 2 to 3 dollar jump. Just wondering what your opinion is.
The merger is a good thing, and I am not just saying that because I am a share holder of both XM and SIRI. I say that as a long time subscriber. This merger has gone on WAY too long. It is time for a decision. I will not lie, I do plan on selling all my shares after the merger just for the pop in price. when it comes down and stabilizes, I will buy back in for long term. I think the business of satelite radio is a winner and I want to be along for the ride.
>>> The merger is a good thing, and I am not just saying that because I am a share holder of both XM and SIRI. I say that as a long time subscriber.
As a subscriber, how do you expect to benefit?
I expect to benefit by being able to subscribe to one service that allows me to listen to the NFL and MLB.
>>> I expect to benefit by being able to subscribe to one service that allows me to listen to the NFL and MLB.
Not going to happen.
I believe many who support the merger are expecting this, but it is very difficult to envision a scenario under which this comes to pass.
The reason(s) this won’t happen are
a) Bandwidth. There simply isn’t enough bandwidth on Sirius to broadcast the MLB games, and while it is less of a problem, it would be a squeeze to put NFL on XM as well; and
b) Money. A merger of Sirius and XM does not in any way result in Sirius getting the right to broadcast MLB/NHL games, nor for XM to broadcast NFL games. If they want to have those rights, they are going to have to fork over a TON of money to do it, and frankly, the entire point of the merger is to CUT costs, not increase them.
If you get past the money issue, the resolution to the bandwidth issue is a “dual-mode” receiver, with two subscriptions (essentially, the same thing you can do today by purchasing two inexpensive receivers). According to Karmazin, such dual-mode receivers cost $700 to build, so the receiver cost is prohibitive if he is telling the truth.
There are other reasons why it would be insane for them to try and do what you’re suggesting (having to do with the waste of bandwidth and the increased difficulty of eliminating that waste over time), but they are beyond the scope of this discussion.
The main point is that it is very hard to see a scenario where they would do what you’re suggesting.
>>>Bandwidth. There simply isn’t enough bandwidth on Sirius to broadcast the MLB games, and while it is less of a problem, it would be a squeeze to put NFL on XM as well
Not true at all. Sportscasting (talk) takes up far less bandwidth than any kind of music. If bandwidth were in fact an issue (not that I think it is) the issue would be with music channels.
>>>Money. A merger of Sirius and XM does not in any way result in Sirius getting the right to broadcast MLB/NHL games, nor for XM to broadcast NFL games. If they want to have those rights, they are going to have to fork over a TON of money to do it.
The synergies will produce more than enough to cover costs.
>>>Not going to happen.
Lets make a deal right now. If it does happen you have to jam a 20lb turnkey on your head and run around Times Square and if it does not happen I will do the same. Deal?
Not to mention you base your whole argument on current existing technology which is extremely naive.
>>> If it does happen you have to jam a 20lb turnkey on your head and run around Times Square and if it does not happen I will do the same. Deal?
The synergies aren’t there in the first place, but if they were, they wouldn’t be spending the savings to put up more content on both services. They need to become profitable.
As to the bandwidth, yes, you use 1/4 the bandwidth for a talk vs. music channel. But they have already committed, as a condition of merger approval, to squeeze 10 more channels onto each service. There is simply no way in hell they’re going to get enough channels to add MLB PBP to Sirius. Not happening.
But it is a fact that the money is the big problem. MLB gets 60M/year from XM now; NFL gets > 30M/year from Sirius now. These companies are in no position to commit 100M, or even half that, to doing as you suggest.
As to “technology”, if anyone is naive it is you — there are not going to be major improvements in compression technology from where they are now. XM has special low-bitrate encoding for voice that can really wring all that can get all you’re going to get out of these streams.
It is a fundamental fact of compression technology that the first 90% is pretty easy to get, but after that, improvements are minuscule.
So, yeah, I’ll take the deal. At most, you’re going to each broadcasting a key game or two from the other; the entire lineup? No way.
>>>But they have already committed, as a condition of merger approval, to squeeze 10 more channels onto each service.
Do you know something that we dont? What is this 10 more channels you are talking about?
>>>According to Karmazin, such dual-mode receivers cost $700 to build, so the receiver cost is prohibitive if he is telling the truth.
Yes, and he also said that they do not subsidise these radios at this point because they cannot gaurentee a subscription from it (with the companies seperate). Once the two companies are one, they will indeed subsidise those radios because no matter which service they choose or go with best of both, they get a subscription.
They will not squeeze MLB onto Sirius any more than they will squeeze NFL onto XM. They will use this as a “nudge” to get people to buy the new radios… the more they sell, the less they have to subsidize. As a subscriber, I understand this and I am fine with it. With any technilogical advance comes change. With change, comes new costs. The cost of a new radio will get you more programming.
Tell me that you dont run to the computer store and expect them to upgrade your computer for free everytime a new operating system comes out or a better video card or processor is developed, do you? Dont expect Sirius/XM to give away more for free either.
The synergies expected from this merger are in the BILLIONS. While they will not be overnight, the synergies will begin to be realized in the second year (estimated end of FY 09/begining of FY10) and increase from there.
>> Do you know something that we dont? What is this 10 more channels you are talking about?
No, I don’t — they have committed to a “best of Sirius” on XM, and a “best of XM” on Sirius, to consist of 10 channels. These will have to be carved out of the existing bandwidth for each service, somehow.
>>> Once the two companies are one, they will indeed subsidise those radios because no matter which service they choose or go with best of both, they get a subscription.
Simply put, they cannot AFFORD to subsidize these receivers sufficiently to make them marketable. If they cost $700, by the time they get to market they’ve got to be at least $850 or $900. Even if XM only subsidized half that total, you have no buyers, and therefore the receivers will not benefit from a scaling of production.
I should say that I don’t believe for a minute they can’t produce these for under $700. But that’s Mel’s figure, and I’m in no position to argue with it. At that cost, you cannot make money on satellite radio. Period, end of story.
Another problem with the scenario is that it adds more Sirius-dependent receivers in the channel. As I’ve stated elsewhere, I believe they will move quickly to eliminate the Sirius broadcasts altogether. And part of that means they quit selling Sirius-capable receivers as soon as possible.
If they continue to put Sirius-capable receivers into users’s hands, that is just that much longer they have to continue wasting bandwidth (which means satellite infrastructure, repeater costs, etc.) on transmitting duplicate programming. Without doing this, they have no shot at the billion-dollar synergies that have been claimed.
>>> The synergies expected from this merger are in the BILLIONS. While they will not be overnight, the synergies will begin to be realized in the second year (estimated end of FY 09/begining of FY10) and increase from there.
There is no evidence to support this claim. Even the analysts, who are all onboard with it, can’t come up with cogent explanations of where these massive savings are coming from; the ones who have “shown their work” are easily ripped to shreds.
I do think that synergies can arise, but only by eliminating the Sirius broadcasts ASAP and biting the bullet on replacing deprecated Sirius receivers, thereby eliminating the duplicated infrastructure costs going forward. THEN, and only then, do you have significant savings. Even that requires a massive up front outlay.
We could discuss the synergies issue all day, because it is all speculation. But in the year since the announcement, NOT ONE PERSON has been able to show with a meaningful analysis where these savings will come from. And no analysis I’ve seen takes into account the massive cost to integrate these two disparate technologies, costs which will be substantial.
This is one of the most ill-conceived mergers I’ve seen in 30 years of investing.
Hey guys, dont bother with FrontMed. The information he gives is his opinion, and conjecture. He in most cases cant tell you were he gets his information from or if he does he twist it to suit his;** The merger is a total monopoly, goes against every antitrust law, XMSR is the way better company that Mel has hoodwinked (Board of directors, shareholders,and CEOs) into this merger, I dont believe any other analyst but unemployed John Jacopys(formaly employed by B of A) opinion**. When you prove him wrong, he then will change the argument to something totally different. The proof: goto partnerships “Toyota rolls out 2009 Corolla-XM feature”.
Bill, and Newman; he has no glue what the merged company can or will do. He says its too expensive to get MLB and NFL (90 million) they pay that now, except it comes from two companies instead of one(I’ll bet they dont pay that much for them after the old contract runs out if merged). He says 700 is Mels figure and he is in no position to argue with that, Well thats a first, because he disagrees with eveything else Mel says. He has no idea what people will pay or how much the company will subsidize (they both have radios that cost the consumer over 400 now and you only get one sevice with it). I personally have not paid for a phone sence I started with Verizon (they now retail for 350 to 400), they get it back in what they charge me for having the service.
>>> I personally have not paid for a phone sence I started with Verizon (they now retail for 350 to 400), they get it back in what they charge me for having the service.
Is your phone service generating only $11/month in revenue to Verizon?
Look, you and others here can hurl insults at me all day long, but I have not posted ANYTHING here that isn’t well documented fact, unless I have stated it as an opinion. That you are either too ignorant or too lazy to do your own homework isn’t my problem.
>>> When you prove him wrong, he then will change the argument to something totally different. The proof: goto partnerships “Toyota rolls out 2009 Corolla-XM feature”.
I certainly wasn’t proven “wrong” in that post; hell, I’ve been right from the outset (December, ’04) when Sirius claimed to have a deal they never had.
Tyler was claiming Sirius had a “deal” with Toyota. Meanwhile, I was pointing out that SIRI’s deal was NOT with Toyota, but was with Penske & later with JM. I recognized this fact on the night of the lying, bogus Midnight PR from Joe Clayton and pointed it out on all these sat radio threads.
To date, there has NOT BEEN ONE SIRIUS RECEIVER FACTORY INSTALLED BY TOYOTA. NOT ONE.
Proved wrong, indeed.
Yet for example when asked to give the post were you got your dates (because I told you were I got mine), you switch to another aguement. Also if you are not the pot calling the kettle black, my god you have hurled much worse (Siriots(people who invest in SIRI are idiots), clueless, and much much more).
P.S. I dont know what Verizon gets in profit each month per customer. I dont invest in it so I have not done any research.
Ah that name…
Hiya StackPointer! Good to see you over here. I like listening to your arguments, even if I dont agree with them
Jump on the Forums for some healthy discussion would ya?
And BTW: If they DO come out with Interop radios, it DOES NOT continue the use of Sirius’s infrastructure. Well, it does temporarily, but every Interop radio that is capable of recieving both signals is a step in the right direction. When they have enough of these on the roads, they just switch over to broadcasting in the AAC+ codec and leave Sirius’s behind. Thats been my theory all along. You have said that economically there is absolutely no reason for them to produce and interop radio. There is their reason.
Newman
I do believe you have described one possible alternative.
However, if they move quickly (as I believe they will) to collapse all ~140 XM/SIRI music channels into ~70, the value of an interoperable is minimal — it would leave about 160 channels, of which well more than half are duplicated content (FNC, CNN, traffic/wx, etc.).
I just think they’re going to quickly realize that it is good money after bad to build the interoperable receiver — with most of the content duplicated, the number of potential subscribers is incalculably small.
But like everyone else who is speculating about it, I have no idea what they’ll do. My guesses are based solely on the $$$$ involved.
As to the discussion, I don’t agree with you a lot either. But I do believe you present well-reasoned, logical arguments that have merit — which is what I try to do as well.
In the end, though, it is all sheer speculation. The engineers at both companies are awfully smart people and I wouldn’t pretend to have that kind of knowledge, at all. I just find it entertaining to speculate about it; for me, it is just killing time between compiles.
>>>The synergies aren’t there in the first place, but if they were, they wouldn’t be spending the savings to put up more content on both services. They need to become profitable.
My opinion…they will spend to lock up more content. Just like they did with Howard, that is what brings in the revenue.
>>>As to the bandwidth, yes, you use 1/4 the bandwidth for a talk vs. music channel. But they have already committed, as a condition of merger approval, to squeeze 10 more channels onto each service. There is simply no way in hell they’re going to get enough channels to add MLB PBP to Sirius. Not happening.
Thank you for acknowledging the fact that more talk isn’t the issue. They will trim the fat and realign for channels that they know will bring in more subs. All that is assuming current technology. I don’t think adding more channels will be an issue in the future.
>>>It is a fundamental fact of compression technology that the first 90% is pretty easy to get, but after that, improvements are minuscule.
That is based on tech as of today. 20 years ago Bill Gates said that it would be a fundamental fact that no one would need more than a few hundred k of RAM. I don’t know about you but they found a way to cram 3 Gigs into mine. 2 Years ago they had a hard time make a 1Ghz processor, now we have processors capable for times that. DON’T COUNT OUT TECHNOLOGY…that would be naive. They wont be looking for more compression they will be looking to increase the amount of data transfer. I have had the same router for 4 years and recently I picked up a new wireless adapter and my signal is at least 50% better than it use to be.
>>>So, yeah, I’ll take the deal. At most, you’re going to each broadcasting a key game or two from the other; the entire lineup? No way.
You said it would never happen period…now you are backing off a bit.
Gobble Gobble!
Frontmed….
I do not think anyone has ever claimed a factory installed Sirius Radio in a Toyota. The original PR stated quite clearly port and dealer installation.
Sirius has been in Toyota Corporate literature and on Toyota’s Corporate website since that time.
Look here for the relationship:
“We write on behalf of Toyota North America, Inc, and the U.S. affiliates of Toyota Motor Corporation, including Toyota Motor Sales, USA, Inc. (collectively Toyota)…..
…..Toyota currently offers XM and Sirius as an option on it’s vehicles. (However, Toyota only offers XM as a factory installed option).”
http://fjallfoss.fcc.gov/prod/.....6519558031
You can claim that this document does not exist, you can claim that the corp website and literature does not exist, but at the end of the day, your claim is moot because these things do exist.
I understand that this is frustrating for you.
Wow you really cant get any clearer then that can you, well played Tyler
>>> My opinion…they will spend to lock up more content. Just like they did with Howard, that is what brings in the revenue.
You’re entitled to your opinion, but since the day Mel arrived at Sirius they have done nothing but cut content expense. This was predicted, as they blew the entire bundle on Stern. But they are NOT going to be spending MORE on content, post-merger. If you think they are, you have not followed what has happened in this industry. Both companies are cutting back content expenditures in every way possible at this point.
>>> All that is assuming current technology. I don’t think adding more channels will be an issue in the future.
Both services are maxed out on the channels right now without majorly killing sound quality. If you think new technologies will materially improve the compression picture, it is because you don’t know much about data compression. There is a basic amount of information that must be contained in the stream, and both companies are just about at that point. Might they gain 1% or 2% over time? Possibly. But there is very little additional compression to be done.
>>> That is based on tech as of today. 20 years ago Bill Gates said that it would be a fundamental fact that no one would need more than a few hundred k of RAM.
No, he didn’t say that — he said, “640k ought to be enough for anybody” — and it was more like 25 years ago. But you are conflating two totally unrelated concepts.
It is a known, historical fact that software developers will use more memory if it is available to them. When I started writing software we only had 16kw to work with and it all had to fit — so you manual overlays with your linker to make it happen. In effect, it is EASIER to use MORE memory, not less, so long as it is available. Which is why bloated code has proliferated.
It is a known, historical fact about compression that it becomes increasingly difficult to increase the level of compression over time. At some point, you have compressed it to the limit, beyond which the substantial data cannot be recovered. This applies whether it is lossless or lossy. Thus, it becomes HARDER to increase compression levels over time.
I appreciate your analogy, but it just doesn’t work here.
>>> DON’T COUNT OUT TECHNOLOGY…that would be naive. They wont be looking for more compression they will be looking to increase the amount of data transfer.
Fine, if you want to go that route, you still have problems. You cannot increase the symbol rate without increasing the power (SIRI’s Hierarchical Modulation implementation has not lived up to expectations, giving them only a 15% increase versus the 25% they planned, because of interference with legacy receivers). Now, SIRI’s new sats will aid in this area, but honestly, they’re just playing catch-up to XM (the new GEO will probably give them the better infrastructure, but they’re looking at another billion in expense to get it all up and running for the next 15-year period).
>>> I have had the same router for 4 years and recently I picked up a new wireless adapter and my signal is at least 50% better than it use to be.
If you look at what is getting more out of today’s wireless routers, it boils down to power/antenna improvements — neither of which is available to the sat broadcasters (except in 15-year increments). While the movement from 802.11a/b to 802.11n provides material improvement, protocol-based improvements are getting harder to come by as time marches on, and it will. Eventually, it will ALL come down to pushing the symbol rate, which means power.
>>> You said it would never happen period…now you are backing off a bit.
I’m not “backing off” one iota. It will not happen — you will NOT be getting MLB and NFL on both services as a result of the merger. It is entirely possible you’ll get a “game of the week” or something of that nature, but you are not going to be getting the MLB games on Sirius.
>>> Toyota currently offers XM and Sirius as an option on it’s vehicles. (However, Toyota only offers XM as a factory installed option).”
Exactly. TOYOTA does not install Sirius. It does allow the importer to do so, however.
Nothing has changed.
You told us Sirius would be available in Nissans. I told you it wouldn’t. I was right. I am telling you today, as I have so many times in the past, that if the merger doesn’t happen, you will not be able to get Sirius in Toyotas in the future. Sirius is available as PIO only because they paying one of the importers a ton of money (as is evidenced by their willingness to eat the cost of an OEM XM unit) to keep a foot in the door.
Now, now boys….
Lets take this to the FORUMS!!
I posted a few thoughts on Interop radios over there. Check it out.
https://siriusbuzz.com/forum/showthread.php?t=344