This should make for a weekend of fun comments.

I'm willing to gamble and say #3 and #4 are by far the largest hurdles.

Aaaaah, the good (cough) 'ol NAB.

Imagine them merging and six months later when the average Joe finally realizes he's only getting half the content with the new radio he bought....

Thirteen million radios to replace, 13,000,000. That's a scary number, and a ton of money down the drain rather quickly.

Remember, the NAB was able to convince the FCC to mandate that XM and Sirius halt production until the Part 15 (FM modulator) issue was fixed. That was just FM modulators! Imagine the roadblocks they'd put into place if XM and Sirius were to try to push this merger through?

It's funny to hear people like Jim Cramer touting the merger merger merger issue, and the only benefit that he'll provide is that they're "too distracted on each other." The 18-months of distraction if they DID try to get this through would be even worse.

Hey Ryan,

You should have put the picture of the crying baby, in number three reason.

here's a thought... keep hinting at a merger just to throw off the NAB. heck.. Hint a Video too see what stirrs the NAB more. We all know they want Sat rad to go away at any price. So then XM and Sirius need to keep themselves as high profile as possable both for exposure to new customers but to keep and crying by the NAB as obvious crying. I would love XM execs to openly talk about it but mention that they are not in talks.

However.. XM should right now hace crossed CFBE on the way to profitability. With the larger number of subscribers comming via OEM over the next two years XM does not need a merger. Sirius on the otherhand needs to whip up the hype as many notes and other long term debt will start becomming due and this is before the new sat costs are factored in. Sirius is doing well but still has a tough road ahead. XM is much closer.

That was very well said Ryan and I find that you’ve done your homework on it. If you don’t mind, I’ll expound a bit more on some of your comments – because I too, think this is going to be much more difficult than most understand; and that the synergies are not as wide spread as the media would have you believe.

1. The FCC
Beyond getting FCC approval, there is a process for doing such things. Typically, both companies would need to file a “Public Interest” statement on why a merger would be in the public’s interest. And the FCC would base their decision after much debate. But what’s being missed is that there is already a regulation in place that prevents “one license holder from acquiring the other”; it is stated in the Report & Order for satellite radio. To get by this rule, XM and Sirius would have to file their Public Interest statement AND petition the FCC for a waiver of the rule. The FCC would then file a Public Notice on the petition – where it would be for 30 days and anyone/everyone could officially comment on the petition. The FCC would have to consider all comments in their final decision. There are MANY commentators that will have a lot to say AGAINST the merger – and this is where they could be heard.

2. The Dems
The FCC is currently made up of 3 Republicans and 2 Democrats – Adelstein and Copps have been very much against, and very vocal about media consolidation. When all is said and done, the odds of a “yea” vote from those 2 are “slim and none”, IMHO. There are a number of Democrats in Congress putting pressure on the FCC about media consolidation. I suggest readers of this that don’t understand, do a Google News search of “FCC” and “MEDIA CONSOLIDATION”… you’ll get a feel for what’s going on in their world right now.

And in 2008, as you point out, IF a Democrat were to take the Presidency… the FCC commissioner makeup would change to a Democrat-led agency, 3 to 2.

3. The NAB
This one baffles me. While I believe that the NAB would be very much against a merger of these two – and will be very vocal about it… the end result is confusing. The NAB claims that DARS is very much like broadcasting and they want DARS to have the same indecency regulations, public service commitments and EAS obligations as terrestrial. But to do that, DARS would likely have to be re-classified as “Broadcasting” instead of their current “Subscription” licensing.

But then if DARS is re-classified as “Subscription”, or in the very least, if the FCC were to state that DARS is similar to terrestrial and therefore Indecency regulations – and other regulations apply – then obviously DARS would be looked at as competition to terrestrial. Which would make the monopoly argument more difficult. At the same time, if the FCC were to classify DARS in the same market as terrestrial – in allowing a merger – then IMHO, the FCC would have to also look at forcing these regulations on DARS too.

As I said, this is a tough one that will be watched for awhile. The NAB has been a tough spot. They’re damned if they do, damned if they don’t.

4. The Technology
There’s no simple way around this. As I’ve been hearing, there are 13 million subscribers at the end of this year – plus at least another 5 million other legacy receivers that have been churned or not activated. That’s a lot of receivers out there. To continue the two systems in their current setup, you must maintain the operations as well as continued development of them. This will take huge bites out of any potential savings by merging. If they decided to combine and take the best of both systems – the satellites are capable of broadcasting the full DARS spectrum – they’d have great coverage with 5 active and 2 spare satellites… plus over a thousand repeaters. But what do you do with the legacy receivers? Whose do you shut off? If you choose to combine elements of the two systems, then that’s a lot of receivers to replace. If you choose to pick one over the other – you still have millions to replace… at a cost that will be near a HALF A BILLION DOLARS in total. Not to mention the retooling at manufacturing and OEM production.

5. Who buys Who
This is much deeper than you think. Mel has always wanted to be at the top of a media empire… I saw that when he head my company. He came close with Viacom, but Redstone wanted to keep it “in the family”, so Mel jumped (as well as personality/direction conflicts). But by merging XM and Sirius, he could create a nice media empire. Mel will only do it if he’s at the top… and there are a number of people at XM who will have none of that.

6. Programming
In combining programming, the cost savings here are not as much as you think. The majority of these costs associated with these two companies are made up of the content contracts, not the music programmers. Even if you fired EVERY ONE of the DJ’s and programmers of one of the two systems – think about how many people you’re talking about? About 100 maybe (that’s likely too high)? How much do people think they make? Maybe an average of $40k a year (that’s likely too high). These guys don’t make much – I know several of them. It’s a lot of hard work, with little pay. You’re talking about a savings of $4 million a year in salaries by firing ALL OF THEM! Think about that.

The fact is, if you consolidated music programming by simulcasting it on to both of the systems… at best you might save maybe $5-6 million per year… and that’s it. That is because they MUST still pay royalties on the licensing of the music for both companies – that cannot and will not change.

The synergies of combing programming and content into one, is not a big money saver. They will not start to save here until they need to re-up on the big money contracts. Most of those have SEVERAL years left on them.

To sum, I do not believe that a merger is necessary at this point in time, because I believe the market is plenty big enough for it. Could it be more cost effective by combining the two and saving with marketing/advertising/customer care and such? Absolutely, I couldn’t argue that… but to get to that point, they have some HUGE hurdles to jump – that will not be easy or cheap.

The reason these two are even in this position is because of the content war. And now the answer is not necessarily merging – but rather being cost effective. Take their foot off the accelerator and be smart. XM is already doing this and Sirius needs to as well. Mel has many reasons to want a merger, and XM has many reasons to not want a merger. But for those thinking that XM is not “thinking this through” – they need to really put pencil to paper and think about this more thoroughly themselves. What are the practicalities of it actually being approved – and what real savings will there be? The synergies are not extensive as people think – mostly because of the different paths these companies went down 7-8 years ago.

IMHO, you don’t want be re-classified as “broadcast” or to be considered in the same market as terrestrial in order to get a merger – the consequences of doing this changes EVERYTHING that we’ve come to know about satellite radio.

As always homer, so glad to read your insight into these matters. Well done.

Ryan: Well done also.

Would anyone agree with me into thinking that Mel is hyping the merger idea now because of the fact that his market cap is still bigger. The risk for waiting much longer is the fact that Sirius is about to see the same troubles as XM did a year ago, which risks the stock declining significantly, thus losing the leverage for a merger/buyout.

Comments appreciated.

Im glad to see someone that understands the complex situation between XM and Sirius on the merger front.

Hats off to Homer!

I have said many times everyone will have to wait for the "interoperable radios" before any merger should be even thought about. Doesnt help the current subs though. Im more for a buyout, take the good and dump the trash.(only a content future thing) That still doesnt help with the NAB and FCC and operating costs. Both companies and investors spent how much on getting the satellites in space to begin with and now it'll be that easy to just dismiss a number of them?
Wait, we will continue both companies under 1 name and save on management, office rent and future content costs. Relax kids, both of these companies can survive alone. Drop the content wars, drop the Stern effect and lets concentrate on cost cutting in house for both!

Now that Homer has given his opinion as to why a merger shouldn't and can't happen. Let Pockpie crap on the proverbial parade by saying that he damn well better be wrong, or listeners and investors can kiss their own asses goodbye eventually.

Quality in programming costs money. Money will not be made unless you subscribe to Homer's theory that the " market is plenty big enough for it " referring to two competitors.

The facts and decline in subscribers suggest that Homer is not correct, that this is limited to maybe 20-22 million subs max, and I assure you that no one will turn one thin dime at those levels WITHOUT a substantial price increase.

Consider a recent article in the Post said this about cost savings ....

" Rumors of a Sirius-XM pairing have been in existence almost as long as the companies themselves but have taken on a new complexion given the retail sales struggles and slowing pace of subscriber additions at both companies. Some analysts project a combination of the two could generate $7 billion in cost savings on infrastructure, marketing and content. "

So Homer you say maybe 4 million could be saved while analysts suggest 7 billion in long term. I would suggest that it's somewhere in the middle, but greatly more substantial than you suggest!

So here's Pockpie's point.... This industry will either lose features and services or increase prices without a merger AND neither company will never make a fricking dime.

Lastly, I like Homer but I also and honestly believe that Homer is professional spinmeister employed by either XM or NAB so unless Homer is willing to post his title and employer, I am respectfully suspect.

Here's some more and clarification.. 7 billion of value created. With these expert opinions it's hard for me to swallow Homer's hypothesis that a merger is of little value or necessity.

Still, others say a merger may happen in 2007. Companies led by Karmazin have made more than 20 major acquisitions worth a combined $80 billion, wrote Kit Spring, analyst with Stifel Nicolaus in Denver, in a research report issued Nov. 27. A successful merger would create as much as $7 billion in shareholder value and carries a risk of destroying only $1 billion, he notes. "Unlike most media mergers, we calculate revenue and dramatic expense synergies in a merger—around 50% of the combined market enterprise values," he wrote.

The potential for cost savings is clear. Customer-acquisition costs at Sirius amounted to $183 a head in its most recent quarter, vs. $60 a head at XM. Combining the marketing and sales operations would likely cut costs at both. And the companies' combined heft would help them negotiate better terms on manufacturing, purchases, and partnerships with auto companies eager to install satellite radio devices in cars.

"Financially, it absolutely makes sense," says Banc of America Securities analyst Jonathan Jacoby.

Please forgive my multiple posts, but every time extensive opinion about why and how a merger isn't necessary or possible, my anus tightens in disbelief. Have any of you guys run larger companies...? I have.

This for your consideration from Satellite Standard....

The Merger Issue
December 7, 2006

The merger topic is once again a centerpiece for discussion surrounding Sirius and XM.

What ivestors need to do is strip away their emotions regarding the companies, forget for a moment about the issues surrounding management of a merged company, and ask one very important question:

"WOULD A MERGER MAKE ME MONEY?"

I don't care what company you are a fan of. I don't care whether you love one company and hate the other. I don't even care if you are a consumer of the product or not. All I care about is whether or not a merge would benefit my portfolio.

If a merge were to happen, it would likely result in a recapitalization of the stock. Outstanding shares would be at a reasonable figure, and the newly formed company could go about it's business with new found synergies.

Think about it:

Double the bandwidth.
A better negotiating position for content negotiations.
A better negotiating position with OEM partners.
A faster adoption rate for OEM installs.
Satellites that can deliver the best of audio content, video content and data services.
Streamlined overhead costs.
Streamlined manufacturing.
Real Estate that could be sold or renegotiated.
No more in sector fighting.
An alligned front against other media delivery devices and systems.
Streamlined marketing.
Higher ad revenue.
Instant value for expansion and growth.
Every major sport covered with one service.
Every major personality covered.
The ability to add additional content.
and more and more and more.

From an investors perspective there is simply no downside. XM shareholders and sirius shareholders would both see immediate value in the merged company. A merger at this point in time has huge synergies NOW, and even bigger benefits going forward. Imagine being able to trim costs while at the same time adding $1.00 or $2.00 to the subscription price. imagine what that would do to the expense line nad the revenue line.

Take your emotion out of the picyure and ask yourself the one important question.....

WILL THE MERER MAKE ME MONEY?

If you ask yourself this honestly, you can only come to but one answer.

personally, I think that it should be considered by sirius and XM. In fact, I think it should be strongly considered. Lets face it, there are many companies out there with dollars to spend. One way or the other, one or both of these companies will be bought or merged within the next few years......unless they were to combine forces now. If for no other reason, this alone should give people pause for thought.

To "Pockpie"...

I do not and will not have to defend myself as to who I am and what I do. There are a number of posters on various boards who know me personally -- and know that I have nothing to do with XM, Sirius or the NAB (that's a laugher). But to each his own, I could care less who you think I am... it's irrelevant in the end.

Further, there is no reason for me to go point by point through you post -- namely because I believe the market is much larger than the 20-25 million that you suggest. You say that that is the top, I believe it is much larger -- nothing in the rest of your post matters because they are not issues with the much larger subcription base that I believe in.

"Some analysts project a combination of the two could generate $7 billion in cost savings on infrastructure, marketing and content."

I have questions for this comment above. What analysts? Where are these 7 billion dollar savings long term coming from? Even if you add all the big content together and advertising costs, you don't reach anywhere near 7 billion. When including infrastructure, one set of codecs and equipment has to be replaced as well as millions of radios. You're losing money here, not gaining.

You also mention long-term. How long? 10, 20, 30 years from now? It's such a broad statement.

These companies could still survive with 10-15M subs a piece, it's just that any of us investors won't see a big boon in the stock because the P/E ratio won't make it beyond the single digits. This doesn't mean they're done for without a merger.

BTW, $7 billion in cost savings? I knew Kit Spring was nuts, but with that comment he's out of his mind.

I suggest you -- and the other "Anonymous Coward" who posted comments taken from a Blog that is run by message board posters -- to sit down and comb through the financials of these two companies. The "Anonymous Coward" states that he ran a large company. So if this is true, then you should understand how to read through the financials. How about a comparison of the financials of these two companies and point out exactly what expenses can be cut, how and why. Come up with a total and share it with everyone. Just because Kit Spring says it could create $7 billion in shareholder value, doesn't mean its true.

FWIW, I know a couple guys connected to the SSG blog -- nice guys and I admire their tenacity at what they're trying to do there. However with this one, I do not think they have thoroughly thought this one through.

As I said in my original post, a merger would have some value -- I would never argue that. But it is my opinion that the market is much larger than some believe and that the cost savings by merging is not as large as most think it is.

first of all Homer should be listend to, respected for his knoladge and not made to reveal who he works for. Many know, and he does not need to reveal to the message board clowns who he is. As for SSG, its a biased rag. Any Blog can contain any information and a blog that does not allow comments is sickening. I have seen way too many times a biased opinion posted there and to not allow a discussion following the post is simply wrong. Ryan got it right allowing comments and he does his best to keep it unbiased. Kudo's to you Ryan.

i agree with what your pointing out homer. the majority of stock analysts suggest these business models were a failure from the start. we have to examine just how much money these 2 are burning. they see it as taking 10 steps forward and 9 and a half back. will it take 30 years to actually achieve that 10 steps? fix your business model. how? hell if i no. you are right in saying the market is big enough, but investors i've talked to keep chanting "niche markets, no one i know has one, show me black, its not an ipod" try the product out. a good way too is the oem market. it comes with that new bmw 7 series you got when you realized your wife is huge and your bald.

Homer,

Good to see you posting again. You're as insightful as ever. I've been an XM investor for nearly 4 years (sadly), and I have never read anyone's posts that are as informative as Homer's.

In any case, it is refreshing to see informed posters as opposed to the endless drivel of pockpie & FaFa (who apparently cannot tell the difference between your and you're)

Maybe after Sirius collapses under the weight of a deteriorating balance sheet, Parsons might consider purchasing Sirius or somehow working out a deal to get their subscriber base (like Netflix did when Walmart bailed out of the DVD rental business).

Regards,

Westfall

You XM fans can take solace in Homer's words, however his opinions don't reflect what is being said by the Execs of Sirius and XM or reflected in the mass media.

So much for the hug fest with Westfall blowing himself like a tiny flute. Mother may I have another ?

Why not tease yourself and read at least the first paragraph.

Pockpie's .02. The deal is already done and waiting initial approval.

By PETER LAURIA
December 8, 2006 -- Talk about a possible link up between Sirius and XM sent shares in both satellite radio companies jumping for a time yesterday, fueled not by Wall Street gossip but by comments made by executives at both companies.

Speaking at an investor conference in New York yesterday, XM Chairman Gary Parsons made the bold statement that the regulatory hurdles that have been a key barrier to a deal thus far are significantly lower now. "We are operating in a much larger marketplace than satellite radio," he said.

Parsons' comments came a day after Sirius CEO Mel Karmazin said that he wouldn't rule out a deal with XM. The same day, Sirius CFO David Frear said that a deal between the two companies would provide ample cost savings as well as benefits to consumers and investors.

The executives' comments sent shares in both companies up as much as 3 percent yesterday, before backing off by day's end. Sirius closed trading yesterday up 5 cents, or 1.3 percent, to $3.88, while XM rose 11 cents, or less than 1 percent, to $14.81.

A major factor that could decide whether the companies merge is whether a merger of Sirius and XM would be viewed solely through the lens of the satellite radio industry or take into consideration terrestrial radio, iPods and online radio as part of the competitive marketplace.

Rumors of a Sirius-XM pairing have been in existence almost as long as the companies themselves but have taken on a new complexion given the retail sales struggles and slowing pace of subscriber additions at both companies. Some analysts project a combination of the two could generate $7 billion in cost savings on infrastructure, marketing and content.

yes it is refreshing to have someone post besides lord dipshit. keep your little boy insults to yourself.

"yes it is refreshing to have someone post besides lord dipshit.

LOL. I don't know why I find that funny, but I do...

I think half the reason that impotent loser annoys everyone is because some of you actually believe his lies and/or bullshit, rather than seeing Lord Dipshit for what he really is: Sticker Boy Ramone...

Cheers!

" I don't know why I find that funny,"

In my observations, people of lower intelligence and lower class tend to have a more crude sense of humor & laugh at things like replacing a screenname with a name that somehow relates to feces. These 'lessers' as I call them are quite numerous.

This is why Stern was so successful before he retired.

Westfall

Slate to Homer...Slate to Homer.... come in Homer.

The business models of expensive talent, discounted subscriptions, and heavy marketing clearly aren't sustainable for too much longer. And so it's not surprising that analysts have begun to speculate about a potential merger. A merger of equals is certainly possible, though not likely given the egos involved. More likely is a situation in which one falters significantly and the other pounces for an acquisition. A third possibility, which analysts seem unable to contemplate, is that both could fail, and somebody else could end up with both of their carcasses.

For XM and Sirius, the main challenge is probably cultural as much as it is financial. The half-life of a great idea is exceedingly short in the 21st century. In a world where radio mediocrities—the generic KISS-FMs and HOT 97s—dominated Americans' ears, the concept of paying for an advertising-free set of music channels made lots of sense. But in a world where the Internet and the iPod allow people to assemble, carry, and play vast multimedia libraries with them wherever they like, not so much.

you are a true class act lord dipshit. do i have to dig up your insults from past posts? your incoherent, immature little rants and insults on people are insane at best. you live as this narcissistic red-head who puts people down to make him/herself feel better. us 'lessers' enjoy life more i guess. we feel good about picking on little nerds who think their the shit.

FaFa, Pockpie and MikeHunt you all do nothing but insult people on this board and spread lies and false information. FaFa, your post right now is insulting and a put down. Take you self-righteousness and go fuck your mother. She'll be slick cause I just used her.

thank you very much for all the kind words mr spielberg. i love you too. maybe next time you fuck my mom, you can fuck me too. i'd love to take you in my ass.

p.s. write back! xoxoxox

What say you Homer and (Gomer) Pfreak ?

On the regulatory side, we believe market definition would be the key issue in approving orrejecting a merger. We think the prospect of a merger increases if event of a merger, the operational cost savings would likely be substantial(we estimate $1.3BN/year by 2013), while capex savings would likely belimited until current satellite fleets reach end of life late next decade. We estimate total value created through the transaction would beapproximately $9BN, on an NPV basis.

-Key regulatory question in assessing merger is likely to be marketdefinition. If DOJ/FTC views market as "satellite radio services," thenapproval is highly unlikely, but if DOJ/FTC views market as "subscription audio services" or "car audio," then even a combined satellite radio companywould be a relatively small portion of the market. We believe a merger would likely be a net positive for customers (wider array of content, pricinglikely stable), but a negative for content suppliers and OEM partners due toshifted negotiation leverage.

-Technical migration would be challenging, as satellite networks and radios are not interoperable would need to maintain both services for multiple years in order to service installed base of aftermarket and OEM customers. Assuming that SIRI's platform were to be adopted and XM OEM sales ceased at YE 2008, we would still expect more than7MM XM-equipped vehicles on the road by YE 2015E.

-We would not expect material changes in the revenue pictures. Combined revenue of two independent companies. We could see a modest increase in subscribers (such as customers who will sign up for a service with both MLB and NFL, but not just one of the two, for example), although we are not modeling any increase in our pro forma. We would not expect prices to rise more than expected under the stand alone scenario, given negative perception implications and fundamental consumer price elasticity.

-Combining the two companies could generate material operational cost savings, in the range of $1.3BN/year, a potential 23%reduction. Potential savings include lower marketing expense (50% ofsavings, with 2013E industry SAC down to $58 from $77), lower OEM revenue share payments (25% of savings), and lower content (for branded content) and fixed operating costs (25% of savings).

-Potential long-term satellite capex savings material($80MM/year), but limited in near-term, as both current satellite fleets would both need to be maintained in order to support existing customer base. Replacement costs could be saved in next satellite replacement cycle late next decade.

-Estimate transaction would potentially create $9BN insynergy value on an NPV basis. If all the synergies are allocated to XM, then XM would be worth $45/share; if all the synergies were allocated toSIRI, then SIRI would be worth $9.50/share (using current market prices as astandalone baseline). Obviously, the allocation of synergies would need to be fair to both parties for a transaction to receive shareholder support.

The report is very detailed and goes deeper into the issues revolving around a merger. One thing that can not be denied is that there would be substantial savings in merging.

It appears the only merger FaFa wants is a cock in his ass.

oohhh, i love it when you type cock and ass in the same sentence. i just put on women's underwear and stick frozen hotdogs in my warm ass. talk dirty some more please! if your gay and want me, you'll respond to this post.

p.s. i'll be thinking about you big boy!
xoxoxoxo FaFa

Have you checked the news today?