XM, Sirius Merger Gets Approval

But Marketers Need Better Metrics to Increase Ad Investment in Satellite Radio

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NEW YORK (AdAge.com) -- After more than a year of being stuck in congressional limbo, the long-proposed XM-Sirius Satellite Radio merger took a major step toward approval yesterday when the U.S. Department of Justice gave its approval of the deal.
XM CEO Gary Parsons and Sirius CEO Mel Karmazin
XM CEO Gary Parsons and Sirius CEO Mel Karmazin Credit: John Harrington

With the Justice Department's conclusion that the merger would not be anti-competitive when viewed within the entire audio and radio industry, the Federal Communications Commission remains the only governmental arm left to approve the merger.

Justice's approval comes months after the end-of-2007 deadline Sirius CEO Mel Karmazin and XM CEO Gary Parsons were shooting for, but just in time for the executives' recent declarations that a favorable decision could be reached by month's end. "Clearly if there was a big problem with the merger, it wouldn't take the [regulators] this long to figure it out," Mr. Karmazin said at the Bear Stearns Media Conference in New York two weeks ago. "Either you believe we compete with a whole bunch of audio choices or you think there's a distinct market called satellite radio."

Hurtles remain
Even with the FCC's decision on the $4.2 billion merger expected to come down in the next several weeks, some major hurtles remain. On their own, Sirius' 8.3 million subscribers and XM's 9 million subscribers represent a fairly small piece of the overall audio market, which has seen more competition emerge from online radio and high-definition radio in the 14 months since the XM-Sirius merger was first announced.

XM lost its most significant web presence earlier this month when AOL canceled its partnership to power the AOL Radio Player, choosing to work CBS Radio instead. And both XM and Sirius continue to battle with HD over carriage rights with the major auto manufacturers. Satellite has forged some in-roads with dealers such as Chrysler, Mercedes-Benz and General Motors, while HD has signed BMW as its first exclusive auto partner.

Yet ad sales are on the rise at both companies. In 2007, Sirius grew ad revenue from $31 million to $34.2 million, while XM saw ad dollars increase from $35.3 million to $39.1 million. And both companies have been experimenting with different audio ad models. XM in particular has made branded integrations a larger part of its inventory, partnering with Turner Entertainment's Adult Swim in December for the first advertiser takeover of its airwaves

Audience measurement
However, the difficulty with measuring audiences for satellite radio has made it a challenging medium for some advertisers when it comes to placing buys. "We think there are limited opportunities on satellite radio," said Natalie Swed Stone, director-national radio investment for OMD. "It's a selective audience, and it's valuable. But we want to be able to buy it in a more sophisticated way."

Ms. Swed Stone pointed to online and streaming radio as an example of more attractive buys for radio advertisers with more accountable metrics. "There's ROI, you can figure out who went where. And a lot of suppliers are now building out their websites with extensions of what they have on air," she said.

Matt Feinberg, senior VP-radio and director-interactive broadcast at Zenith Media, has been a buyer of satellite radio since its launch and views the merger as fairly inconsequential when it comes to determining scale for ad buys.

"Satellite radio will continue to be a viable ad medium," he said. "It's something that because of programming or some other reason, it's something we want to be a part of."

Exclusive sponsorships across platforms have worked for Mr. Feinberg in the past with satellite, but increased online functionality could be useful going forward. "If you're looking for a direct-response mechanism, it's a little tougher on satellite."

Ms. Swed Stone is also quick to credit XM and Sirius with positively changing the programming model for radio by introducing fragmentation and niche audiences, something HD radio has adapted in its multicast model for local stations. "They might not be able to reap all the benefits from having done that, but look what they did. They changed the whole thing," she said. "They have to now reinvent themselves that way, create a new technology. If somebody comes along and does you one better, you have to keep upping the ante."
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