March 2008 Archives

"This is strictly confidential, but all the paperwork is signed and ready to go, and XM has fully acquired Sirius Radio. Come May, there will be a substantial price increase for XM Radio, as it will, in June or so, host all the Sirius channels. It would be best to simply extend your XM plan as we will honor your current contract price per month before we begin hosting the Sirius stations."

A gaggle of state Attorneys General today urged the FCC to impose restrictions on the merger of Sirius Satellite Radio, Inc. and XM Satellite Radio Holdings Inc.

The AGs - coming from 11 states that include Connecticut, Ohio, Missouri, and Iowa - told the Commission that they were "disappointed" by DOJ's decision to let the deal proceed without conditions.

"The combination of these companies will result in a single corporation controlling access to all nationally available satellite radio," the attorneys general said.

And what do they want?

The states are saying that the FCC should consider requiring Sirius and XM to make interoperable radios available to customers (uhm, ok), offer different packages of channels on an a la carte basis (uh huh), and divest some radio spectrum that would allow another competitor into the business (it depends, how much?).

"Our offices stand ready to share with you our thoughts on the potential value of various remedial conditions available, such as mandatory publicly available interoperable receivers, a la carte pricing, and divestiture of spectrum."

[via Reuters, RadioInk]

"The merger's approval serves as a powerful validation that competitors should play by the same set of rules. On the heels of this decision, the logic for a performance right for terrestrial radio has never been clearer. Terrestrial radio - unlike satellite, Internet and cable radio - continues to reap special interest subsidies in the form of free government spectrum and an outdated exemption from compensating artists and record companies. It's time for that to change and for Congress to provide an economic marketplace where there is parity amongst all delivery platforms."

UPDATE: I just want to point out that the AP story has been updated to be somewhat less misleading. Previously it read "More Choice in Satellite Radio Years Off" but now the article, written by Christopher S. Rugaber, reads: "'A La Carte' Satellite Radio a Year Away."

Also, there's a bit of confusion surrounding the timing. Understand that the "3 years" cited here is based off of Barrington Research's estimates for OEM radios (due to the lag time that automakers tend to require) that does not mean Retail radios will suffer the same slowness in getting to market. Sirius and XM have said, from the beginning, that the A La Carte receivers will be available to customers within one-year after the merger is complete. I just wanted to make sure this was clear.

Perhaps 5% to 10% of current subscribers "might go through the trouble" of buying new radios for the "a la carte" option, Stifel Nicolaus analyst Kit Spring wrote in a recent note to clients.

"Yesterday's decision by the Department of Justice not to oppose the merger of Sirius and XM was a victory for consumers. Kudos to the DOJ for recognizing that antitrust laws should not look only at narrow, formalistic, definitions the market, but instead at the realities of the marketplace. As our research has shown, the radio market is highly competitive - with satellite radio only one among many competing options for listeners. And by allowing satellite radio to become more efficient, this merger promises to increase that competition. Now it's up to the FCC to complete this year-long process by granting its own approval. It should do so expeditiously, without conditions."

• If you're an XM subscriber:
  You'll continue to receive your existing XM service, and gain the ability to receive certain Sirius programming.
  
  
• If you're a Sirius subscriber:
  Sirius customers would continue to receive their existing Sirius service, and be able to obtain certain XM programming.

• View the XM channel lineup after the merger
• View the Sirius channel lineup after the merger
  

• Benjamin Swinburne, Morgan Stanley:
  Following closing of the merger, both Sirius and XM "should benefit from some lift in demand from combined programming offerings." But a critical factor, from an investor's standpoint, will be the ability to renegotiate large OEM and programming contracts, in addition to creating new demand and increasing conversions.
  
  "The challenges facing the industry, however, will not go away as a result of the merger," writes Swinburne. Now the focus shifts to free cash-flow.
  
  
• Jeff Wlodarczak, Wachovia Capital Markets:
  "With the DOJ decision now out of the way, FCC approval would appear to be a foregone conclusion," writes Wlodarczak in a recent note, noting that there are likely to be conditions placed by the Commission.
  
  Wachovia doubts the merger will "materially reignite demand" for satellite radio, but "realistically as a combined entity they have a much greater chance for long-term survival," in their view.
  
  
• David Bank, RBC Capital Markets:
  RBC continues to "remain on the sidelines" from an investor's view, noting that "any 'bounce' from potential completion of the merger may largely factored into current valuation."
  
  But what of the FCC? Bank notes that the FCC tends to "follow in the DOJ's footsteps" so they're more confident in final approval.
  
  "In terms of timing, it's difficult to know, but some time in the next 2 weeks to 8 weeks would seem realistic given chatter we are hearing from our Industry sources," write the RBC analyst. The question now is the conditions that the FCC will impose.
  
  
• Blair Levin, Stifel Nicolaus:
  Aside from what was already posted, Stifel Nicolaus notes that there has been some significant negotiations regarding conditions at the FCC. And that there's one wildcard still out there: The NAB.
  
  "If the FCC clears the deal, it's possible the NAB could challenge the FCC decision in court," writes Levin. "But we would expect the broadcasters' legal prospects to be uphill."

"We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius's refusal to deliver on a promise of interoperable radios is nothing short of breathtaking."

"We believe the companies will likely be able to [win FCC clearance]," writes Levin in a recent note reflecting on the DOJ's announcement. "While there is always a risk that three commissioners could decide the merger is not in the public interest -- and in this case we suspect at least one and maybe two commissioners will vote that way -- we note the FCC has never, to our knowledge, rejected a merger approved by the DOJ. We don't believe this one is likely to be the first."

"After a careful and thorough review of the proposed transaction, the Division concluded that the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers. The Division reached this conclusion because the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers for several reasons, including: a lack of competition between the parties in important segments even without the merger; the competitive alternative services available to consumers; technological change that is expected to make those alternatives increasingly attractive over time; and efficiencies likely to flow from the transaction that could benefit consumers.

"The Division's investigation indicated that the parties are not likely to compete with respect to many segments of the satellite radio business even in the absence of the merger. Because customers must acquire equipment that is specialized to the satellite radio service to which they subscribe, and which cannot receive the other provider's signal, there has never been significant competition for customers who have already subscribed to one or the other service. For potential new subscribers, past competition has resulted in XM and Sirius entering long-term, sole-source contracts that provide incentives to all of the major auto manufacturers to install their radios in new vehicles. The car manufacturer channel accounts for a large and growing share of all satellite radio sales; yet, as a result of these contracts, there is not likely to be significant further competition between the parties for satellite radio equipment and service sold through this channel for many years. In the retail channel, where the parties likely would continue to compete to attract new subscribers absent the merger, the Division found that the evidence did not support defining a market limited to the two satellite radio firms that would exclude various alternative sources for audio entertainment, and similarly did not establish that the combined firm could profitably sustain an increased price to satellite radio consumers. Substantial cost savings likely to flow from the transaction also undermined any inference of competitive harm. Finally, the likely evolution of technology in the future, including the expected introduction in the next several years of mobile broadband Internet devices, made it even more unlikely that the transaction would harm consumers in the longer term. Accordingly, the Division has closed its investigation of the proposed merger."

• Georgetown feels that leasing the broadcast infrastructure from Sirius-XM "is required to restore competition" because building and launching a satellite would take, in their opinion, at least 5-7 years.
• The "public interest would be served" by Georgetown broadcasting a free, advertiser-supported service.
• Georgetown would broadcast the service to all satellite radio receivers, not just to subscribers - an estimated 17 million radios (50% of the total).
• Finally, Georgetown said that if it is the lessee, it would comply with all FCC indecency regulations.

• Judith Regan (host of Sirius' The Judith Regan Show) with Rachel Marsden (ex-girlfriend of Wikipedia founder who sold his stuff on eBay after he broke up with her via his website)
  
• Judith Regan, again, with private eye Vito Colucci, Jr. on catching spouses in the act
  
• Bill Bennett (host on Sirius Patriot) with Senator John McCain discussing the story
  
• Andrew Wilkow (host on Sirius Patriot) with New York GOP Assembly Leader James Tedisco
  
• Larry Flick (host on Sirius OutQ) with Ed Koch
  
• Ron Silver (host on Indie Talk) with Alan Dershowitz
  
• Alex Bennett (host on Sirius Left) with Dennis Hof, owner of Moonlight Bunny Ranch in Nevada on prostitutes and politicians
• And, of course, The Playboy Radio Morning Show will talking to high-priced prostitutes about the scandal
  

"Were the Commission inclined to approve the merger, nonetheless, it should, at a minimum, impose the following conditions that would be essential to remain even remotely faithful to Commission precedents and policies regarding competition, spectrum and preservation of a viable, locally-oriented, free, over-the-air radio broadcast system," the company wrote in an ex parte filing.

1. No less than 50% of broadcast capacity be made available for lease to create "a viable competitive alternative" to the merged company.
2. No less than 5% of capacity be set aside for public interest programming, modeled after the 4-7% requirement for DBS services. (This, interestingly enough, is identical to Public Knowledge's requests.)
3. That Sirius-XM be subject to indecency regulations. Because, "one of the primary potential dangers to free, over-the-air radio posed by this merger is siphoning popular, including 'edgy' content, with consequent loss of advertising revenue."
4. Sirius-XM be prohibited from broadcasting local content, (this goes against Public Knowledge's requests).
5. Following #4, Sirius-XM be prohibited from receiving local advertising revenue.
6. And finally, the FCC require that HD Radio capabilities be built in to all satellite radio receivers. (Similar to iBiquity's most recent filing, except that they seem to specifically target OEM installations.)
   

...iBiquity urges that any Commission approval of the proposed merger be undertaken in conjunction with the following addition to the Commission's rules:

Proposed Rule

25.144 Licensing provisions for the 2.3 GHz satellite digital audio radio service.

(a)(3)(iv) Each licensee will certify no later than June 1 of each calendar year, in accordance with the dates specified below, that any newly introduced satellite radio receiver models that operate with the licensee's satellite DARS system and includes the ability to receive terrestrial analog AM/FM signals, will also include the ability to receive digital AM/FM signals in accordance with the technical specifications for terrestrial digital radio specified in MM Docket No. 99-325. This requirement will be effective three years from the effective date of this rule for new model Original Equipment Manufactured ("OEM") automobile receivers and one year from the effective date of this rule for new model non-OEM receivers.

"XM's continued use of 'XM Radio Online' is clearly causing confusion as well as diluting the distinctive quality, of our registered trademark within the radio broadcast and Internet radio arenas," stated Radio Online co-founder and Managing Editor Ron Chase. "We constantly face confusion with XM's own customer base, who frequently contact us for support. Or every time XM issues a press release that includes our name, there are those who think the companies have merged."

Chase continued, "Both satellite operators said a merger was necessary because it did indeed compete with the radio broadcast and Internet radio industries. Hello McFly! Have you seen RADIO ONLINE? Mr. Davis, it's time you stop using our name. I hear XMRadio.com is available." (emphasis added)

"It is with mixed emotions that I announce to the company that Lee Abrams has resigned," wrote EVP of Programming Eric Logan in a letter to XM employees.

"Lee's impact on XM and the entire satellite radio industry would be impossible to capture in an email. However, everyone in our company knows that Lee's vision and creative force is a key reason why XM is as successful as we are today," added Logan. 

"Lee's mark on our medium will be remembered forever and we are grateful to have had Lee as one of our founding programmers and architect of our programming philosophy."

"This case is not even a close call under the antitrust laws -- it's plainly a merger to monopoly. Moreover, it is an important case with great precedential value. Indeed, the Justice Department decision on the Sirius/XM merger is the litmus test for everything that follows, including Microsoft/Yahoo. If this case does not provoke antitrust enforcement from the department, no forthcoming merger proposal could be ruled impossible."

The FCC source suggested that it would have been imprudent for Martin to pick a resignation date because it could have diminished the agency's ability to cope with some pressing matters, and because Martin is considering remaining at the FCC, even if he is no longer chairman.

Reid spokesman Jim Manley declined to comment on the matter.

[Multichannel News]

XM Satellite Radio will be airing complete coverage of the Masters Tournament live from Augusta, Georgia from April 7th through April 13th.

This year will mark the 3rd consecutive year that XM has been the satellite radio provider of the Masters, and in fact XM will provide more live radio coverage of the event than any other broadcaster.

XM's Masters Week programming starts on April 7th with Peter Kessler's daily morning show "Making the Turn." XM then will be at Augusta starting on April 8th with the pre-event press conferences at Augusta National Golf Club.

Hear an in-depth preview of the Masters and interviews from the Par 3 Contest on April 9th. And finally live play-by-play coverage can be heard April 10th to 13th, from the first tee to the green jacket ceremony.

Tune in to XM's PGA Tour Channel (ch 146) for all the coverage.

Nissan's sales fell 3%, which includes a decline of 3.2% for its Nissan brand, and a relatively minor 0.4% dip for its luxury Infiniti brand.

However, Honda sales edged higher as truck sales, led by its Pilot and CR-V SUVs, actually rose about 2 percent.

It's hard to say whether the famed "credit crunch" is the cause of all this, or if it's a reflection of the ridiculous gas prices we're all enjoying right now. Either way, the trend away from trucks and SUVs (at least for The Detroit Three) might have more of an effect on satellite radio than just the drop in production.

Last week, XM Satellite Radio CEO Nate Davis said that there are two main factors that cause the conversion rate to vary by OEM partner: the type of vehicle sold, and the engagement level.

"We expanded across new platforms, delivering free podcasts of select XM programs via XM Radio and Apple's iTunes store. And I might add that two of our podcasts consistently ranked in iTunes' top ten."

"On the iPod front, as you know, we've begun to podcast some of our original content through the iPod relationship and we have talked with Apple on a number of fronts of additional things we could do. I would not call it a strategic relationship. I would simply say we have a good marketing relationship and we continue to talk to them about additional things we can do. So yes, we have ongoing conversations; no, they're not strategic. They strictly center around making sure that more people can get XM content not only on XM radio but also get that content through the front page of iTunes."

To celebrate the channel's extended run, Bruce Springsteen himself sat down for an interview with rock historian and critic Dave Marsh. The interview will air on Thursday, March 6th at 4pm ET with encores on Friday, March 7th at 8am and 4pm ET, and on Saturday, March 8th at 8am and 6pm ET.

During the interview Springsteen discusses the next leg of the Magic tour and album, plus Bruce gets political and talks about his thoughts on the presidential primaries.