Analysts: XM not going to get Sirius

By Published on .

Most Popular
While rumors of a merger between Sirius and XM Satellite Radio-stoked by a report in last week's New York Post-set the media world abuzz, industry watchers said the radio rivals are acting more like archenemies than potential partners.

"Both companies recently signed up with major sports leagues and both recently paid a premium for those services in order to ensure exclusivity," said April Horace, emerging-technology research analyst at Janco Partners, Denver. "Why would you pay a premium for exclusivity if you're thinking about merging?"

And although both XM and Sirius, citing company policy, declined to comment on rumor or speculation, Sirius CEO Mel Karmazin outright denied merger talk to analysts last week. "I have not met with the [XM] chair or the CEO, so I have no idea where this has come from," he said, calling it the "third rumor" he's dealt with since joining the company in November.

The theory may have been more plausible a year ago when Sirius was struggling to find a foothold in the industry, ending 2003 with 261,000 subscribers to XM's 1.36 million and lagging way behind its rival in factory installation deals with automakers.

Much has changed since then. A recent Merrill Lynch report called satellite radio "one of the few secular growth stories in media," predicting by the end of the year XM will boast 5.6 million subscribers and Sirius will claim 2.4 million.

"A merger just doesn't make any sense," said Ms. Horace. "The body language of both companies doesn't indicate they want to or will merge."

Indeed, 2004 was the year Sirius and XM engaged in an arms race for exclusive content. In October, Sirius, which charges $12.95 a month for its service, signed marquee shock jock Howard Stern to a five-year, $5 million-dollar deal and a month later reunited him with his former Infinity Radio boss when it appointed radio guru Mr. Karmazin as CEO. In late 2003, it made a major sports coup with a seven-year, $220 million NFL pact. This week it launches Maxim Radio and introduces Lance Armstrong's exclusive weekly radio show, Lance Armstrong's Live Strong Radio. Sirius also inked a deal with Interscope Geffen A&M Records last week that will allow it to create original radio shows featuring the label's artists ( QwikFIND aaq27o).

`hard to imagine'

Meanwhile, XM, whose monthly fee is $9.95, signed an 11-year, $650 million deal to broadcast all Major League Baseball games, signed NPR's popular "Morning Edition" host Bob Edwards, and began airing irreverent afternoon personalities Opie and Anthony. It also recently embarked on a partnership with Starbucks, creating the Starbucks Hear Music channel, a specialty branded-music channel available on XM and also in the coffeehouse's 4,100 locations-prime display space for the satellite-radio network.

According to the Post story, the talks have revolved around how to how to overcome Federal Communications Commission antitrust concerns of a monopoly. The story went on to report XM and Sirius hoped the FCC would consider satellite radio part of the broader mobile content-delivery devices, such as cellphones.

"It's very hard to imagine the FCC would allow two companies with this brand-new technology to merge," says research analyst Alissa Goldwasser at William Blair & Co., Chicago.

Media buyers said a merger would have little effect on ad spending, given that satellite radio represents just 1% of the market. "They're really looked upon as a network buy, not a spot buy," says Dennis McGuire, VP-regional spot director, Aegis's Carat, New York.

"At this point, their numbers separately or combined are just not that big of a force," says Laurel Pabian, senior partner, regional broadcast manager, MindShare, Los Angeles.

On Jan. 26, the day of the Post report, XM closed at $33.14, up 45¢; Sirius closed at $6.18, up 6¢.

In this article: