Two days ago FCC Chairman Kevin Martin only stated the obvious - that the current rules prohibit a merger. As a result, both stocks took a nose dive. Then yesterday, Martin again only stated the obvious - that the rules can always be change. As a result, both stocks were sent soaring.
Whether or not a merger would or would not happen (and remember this is all based on speculation), you have to wonder why everyone is so worked up over this issue. More importantly, why are we not concerned about it?
Mark Ramsey puts it perfectly, "A merger is not a business strategy in a time of apparently declining demand, is it? It's a retreat strategy."
Originally this merger talk seemed to be just a distraction, just hype meant to drive the stocks up. But now the subject seems to be getting more and more pressing. Nearly every analyst is now talking about a possible merger. And there's something concerning to me about this increase sense of urgency.
It's not screaming to me anything about "synergies" and a "stronger position" in the market. It's telling me that both companies screwed up the business model. It's saying that they overestimated the number of potential total subscribers. It's saying that unless they join forces to create an unnatural balance of power, that there's little chance for this media/technology to survive.
And none of that sounds good to me.
Wow. The fact that you are saying this is really significant, I think. And I really hope the satrad folks are listening..er..reading.
I don't think it's so much that the duopoly is totally unworkable as much as both sides (and the analysts)realizing that a merger would be a much, much lazier and quicker way to a higher level of profitability. I think the consensus is that even if XM and Sirius end up sustainable companies (likely), they won't exactly be bathing in cash. XM+Sirius of course would fare better.
I still think both companies- especially XM- can get there on their own. Maybe I'm wrong about how close CFBE is to "actual" profitability, but it seems to me that in a few years both companies will be near 10 mil subs and that alone (30-70% more sub revenue than now) should be enough to run a company on. At that point it's just a matter of offsetting churn losses and managing costs.
People.....Dont you realize in order to make this merger thing fly, one or both of the sats have to show they cant survive without it--If they were both to show that they were doing so well, and BOTH becoming a monster, would the FCC favor them combining--The merger has to be done as a last chance and they have to show the FCC that one will go out anyway....
and for the record--one of them if not both are having serious problems so.....
melvins a smart man with a solid team of thinkers onboard,as is xm......I'm honestly thinking mels used the media to reach his end end game.which may be having the Fcc force xmsr and sirius into the interoperal device game as mandated by the fcc..which would allow access to all the partners dashboards or devices, where it would become clearly a quality of content question for the consumer...
the fcc gave very wide birth to satellite to do what ever they liked, they never excluded a merged operation of platforms they indicated clearly a common concept was in everybodys best interest....
its clear the fcc wanted and hoped both providers would come to the understanding (its in the public interest) that it was the best and most cost effective route for all parties sirius,xmsr,oem,device manufactures along with listener choice.
how could the fcc consider a change without questioning the mandated interoperal device issue..?
I dont see a merger getting done, the platform and operations side may be forced or allowed to consolidate ..
maybe all of noise is just to open the issue.via the fcc
this process would most likely trigger reworking all the oem and device manufacture deals.
sometimes it better to have outside forces bring about change ........
Mmmmm....didn't Sirius just paid Howard an $83 million bonus due to their underestimating the number of potential total subscribers?
Ryan said: "It's not screaming to me anything about "synergies" and a "stronger position" in the market. It's telling me that both companies screwed up the business model. It's saying that they overestimated the number of potential total subscribers."
Couldn't say it any better.
IMHO the screw up started by overpaying for content. Face it, $600 million for one man, followed by the other paying $650 million for one sport, and back and forth. If these clowns showed FISCAL RESPONSIBILITY when signing these contracts, then they'd be in a much better situation WHEN they realized that the SDARS market isn't going to be 60+MM strong.
Now they'll never make it past 15-18M a piece and continue to dole out money at content when current contracts expire. Advertising revenue will never achieve great heights because there will be too few people listening per channel compared to an equivalent terrestrial or television channel.
Content may attract subs, but with so much other competition for listenership now, the COST to acquire and keep those subs is ridiculous.
Can somebody here prove to me that if XM maintains current sub growth and churn they will NOT make a significant profit? Sure XM's growth is slowing, but this trend could be easily halted by new OEM distribution channels.
I am not convinced XM is in a downward spiral. Satellite and or WiFi is here to stay. Sirius on the other hand with its deferred payments is much less attractive.
I did'nt have a good feeling about the merger from a consumer perspective but after reading Ryan's comments I agree that something is wrong with the satellite radio business model. I hope this gets straighted out .
Are you kidding me....even with the stumbles that XM has made this is still the fastest growing category ever for consumer electronics.
For the last year and a half SIRIUS has met and/or exceeded EVERYONES projections. Mel can't help the fact that Hugh can't do his job. Heck, a couple of years ago he said "SIRIUS isn't even in the game"...
Mr. Tim Walick.....
Yes, yes, yes, yes, yes, yes, yes yes again. Someone finally got it.
I do think there will be a merge, but I think Mel played an absolutely brilliant - No lose hand.
He forces questions upon XM's viability. He opens up dual radios to future OEM contacts that he has nothing to do but gain from. He weakens the RIAA argument that XM/Siri are making a killing.....
Yes Mr. Tim. You are right on !
Good Lord Orbitcast! I can't take it anymore. First its great that O&A go to free radio for publicity for satellite??? That comment was absurd enough but then you write that a merger won't happen because of a rule that was written before Ipods and HD Radio were invented??? Now you don't see that "the sense of urgency" is because they have to get through regulatory approval before the administration changes in Washington. Its only been written in about every article on the rumors and every analyst report. Ryan - You seem to write well and love the satellite industry, but where in the world is the media business research?? Do you follow the business side at all?
A merger is not a business strategy??? WHAT!!! Mel took Infinity from 3 radio stations to hundreds of radio stations that merged into Viacom in 2000 at a $20 Billion market value. ALL THROUGH MERGERS AND ACQUISTIONS. The name of the game in media is content, distribution and consolidation. Always has been, always will be!
Hundreds? Karmazin and Infinity started out with 3 radio stations in 1981 and grew it to 43 radio stations in 1996. He then sold Infinity to Westinghouse/CBS, who had 130+ radio stations of their own. He remained on and eventually became the CEO of CBS.
The number of stations under him peaked at 185... not hundreds. With 130+ of those coming from the company he sold his own company to.
http://www.fcc.gov/Bureaus/Mass_Media/News_Releases/nrmm6034.txt
3 years later he sold CBS to Viacom and left a few years after that.
Sorry but that is incorrect. CBS/Westinghouse did not have 130 radio stations when Mel merged Infinity into them. As Mel who stayed as CEO of Infinity under CBS (And later became CEO of all of CBS), acquired a huge number of radio stations to supplement the combination of Infinity and CBS radio stations. Not only did they acquire more radio but they bought OSI the largest outdoor billboard advertising firm for over 6 billion dollars, and CBS then bought King World Television syndication under Mel and then offered to buy Viacom before agreeing to merger CBS and Infinity with Viacom. Consolidation is the name of that game.
As proof that CBS/Westinghouse did not own those 130 stations when Mel merged Infinity into them in 1996
98 stations purscased by Mel in 1997
http://prnewswire.com/cgi-bin/stories.pl?ACCT=104&STORY=/www/story/9-19-97/320824&EDATE=
Excerpt -
Mel Karmazin, chairman and chief executive officer of the CBS Station
Group, commented: "The acquisition of American Radio is financially and
strategically attractive for CBS. This investment will significantly
strengthen CBS's position in the fast growing radio industry. It will enable
CBS Radio to expand into new top 50 markets and increase its position in its
existing major markets. American Radio's stations are located in very
attractive radio revenue growth markets where the Company expects to further
consolidate its position."
You still missed the point. Karmazin was not the head of Westinghouse/CBS at the time of the ARS merger, Michael Jordan was. Karmazin was the head of the radio division only.
Karmazin originally sold Infinity to CBS first and then took the job of President of the radio division ONLY while Michael Jordan was the head of Westinghouse/CBS, which bought ARS. Karmazin was only along for the ride.
As I said, Karmazin only had 43 stations when he sold out to Westinghouse/CBS who had around 34 stations. Then Group W bought ARS and their 98 stations a short time later. But that was not done by Karmazin's Infinity group at that point. It was by Jordan's Westinghouse group.
By the way, after that merger, Karmazin had a sissy fit that caused Peter Lund to resign and Mel began to look over both the radio and TV stations. Shortly after that, Karmazin successfully pushed his way into the CEO's job there at CBS, as they sold off the Westinghouse division. While Michael Jordan "retired", most knew he was forced out by Karmazins actions.
By the way, all those acquisitions you claim Mel did for CBS, such as OSI and King World, those were actually done by Michael Jordan and Westinghouse/CBS. Mel at the time was only the President of the radio division. He later became the President overall after forcing out Jordan and Lund, by being the Wall Street darling.
I'm sorry you are incorrect again. King World was purchased by CBS when Karmnazin was CEO of CBS and Jordan had left. Infinity purchased OSI after it was spun out as a different stock with Mel as the CEO of Infinity. Mel originally tried to buy the CBS stations but WX got them. At the merger press conference of WX and Infinity, Mel said he offered to buy the WX radio division but agreed to merge into WX. Same thing happened with Viacom a few years later. The whole point of this is Mel built his media empire by mergers and consolidation. Buying and merging companies. 3 rules in media - Content, distribution, and consolidation. Ryan's post was about it being a retreat strategy?? Exactly opposite - Its how media companies grow! In Infinity's merger deals it turned into Explosive Growth.
Also the sense of urgency has been written about in every press and analyst report. It usually takes at least year to get through regulatory approvals on big media mergers and they would want to get it done through the current administration. They will never have a more merger friendly administration. Thats the sense of urgency.
Mergers and consolidation are something that ebbs and flows. In my area, all the media company's were bought up by two big corporations about ten years ago. Today, it's all coming apart, those 2 corporations are laying off employees in droves and they in turn are starting more small media shops than ever. The trend right now is against media condolidation.