The potential pairing of XM Satellite Radio (Nasdaq: XMSR ) and Sirius (Nasdaq: SIRI ) will have to wait a little longer before tumbling into the honeymoon suite.
Federal Communications Commission Chairman Kevin Martin is hopeful that the deal's fate will be decided this quarter, arguing that his commission "hasn't completely finished its analysis and had some follow-up questions."
Let me get this straight. This deal was announced 11 months ago and the regulators are still on the fence? NFL officials get all of two minutes to decide on a contested ruling, viewing replays from all available angles, and the FCC might sit on this past next month's anniversary of the merger's announcement?
To be fair, XM and Sirius are waiting on more than just the FCC. The deal also has to get the Justice Department's blessing. That may actually be the trickier part of the approval process, because many watchers believe that Martin began warming up to the deal after XM and Sirius agreed to introduce lower-priced a la carte programming to subscribers.
I have always felt that the snail-like pace of regulation works in the deal's best interest. A year ago, XM and Sirius may have seemed like a duopoly trying to become a monopoly. That's laughable today, with more automakers installing iPod jacks, HD Radio receivers, and even hard drives that store MP3s in new models.
XM may have been competing with Sirius at the beginning, but now it's a case of satellite radio against the onslaught of mobile audio entertainment. In short, this merger would have kicked the bucket if regulators had sought a speedy resolution, but given today's competitive landscape, I'd now be shocked if the deal didn't go through.
Let's just pretend we're married
Obviously, this courtship can't go on forever. However, it's naive to believe that XM and Sirius would return to their adversarial roles if the merger were somehow axed. They've dug too deep into each other's books. They've spent too much time mapping out synergies and sidestepping the closet skeletons.
So here's a novel thought: XM and Sirius should pretend they're married. I'm not suggesting collusion. I know that's a no-no. What I'm suggesting is that they begin incorporating many of the things that they have been dreaming of, even if the deal dies.
They don't have much of a choice. They really can't go back to how things were. If left unchecked, the same factors that are greasing the way to a likely approval could be catastrophic to either company if it's left standing alone.
By now, you've seen the Ford (NYSE: F ) commercials for the Focus, with its voice-recognition MP3 system. The televised ads feature a driver trying to show his edgy musical interests, triggering tracks by Smashing Pumpkins and Korn until the passenger sneaks in a request for Michael Bolton.
XM and Sirius have to compete against that. The battle was easy a few years ago, when satrad was an easy sell over the ad-saddled repetitive formats of terrestrial radio. Having dozens of commercial-free music channels was an easy $13-a-month investment for commuters. Now automakers are making it all too easy to load your car with high-quality, ad-free tunes. Whether through dashboard storage or input jacks that beg to be fed your Apple (Nasdaq: AAPL ) iPod, Microsoft (Nasdaq: MSFT ) Zune, or SanDisk (Nasdaq: SNDK ) Sansa, satellite radio will have to respond with different pricing tiers that give consumers greater flexibility to program what they want.
XM and Sirius have agreed to take a step in that direction a year within the merger's completion. I hope that's not just a ploy to get the deal approved, because it's the direction they need to pursue. Even if a botched deal finds either company reluctant to populate its offerings with a rival's programming, they'll still need to offer piecemeal plans.
Have Plan A and Plan B at the ready
In a sobering statistic, roughly half of the car buyers who take XM up on its free trial don't pay for the renewal. That renders the receivers little more than in-dash deadweight. The renewal payments may get even harder to come by, once new car buyers spend more time listening to their own tracks through new in-dash alternatives.
Deep down inside, I have to believe that Sirius CEO Mel Karmazin knows this. Although the companies have chatted up the "billions" in synergies that a combined XM and Sirius would produce, there's no point in bragging before the deal is approved. Even the Bengals' Chad Johnson knows he can't break into a clever touchdown celebration until he's actually in the end zone.
So as real as the threats may be to the nascent industry, I trust that both XM and Sirius are quietly formulating attack strategies under either scenario. The world has changed since their courtship began. One can only hope that XM and Sirius have, too.
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