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Will Terrestrial Radio Get Sirius?

By Rick Munarriz - Updated Apr 5, 2017 at 7:52PM

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This buyout idea is ambition gone goofy.

Are local radio stations gearing up to make a play for Sirius XM Radio (NASDAQ:SIRI)?

Let's hope not.

"We should buy Sirius XM Radio," writes Dave Wilson in a Radio World commentary. By "we," he means a consortium of local AM and FM operators; Wilson owns a pair of radio stations in North Carolina. He also serves as a director in the Consumer Electronics Association.

"While at first the idea of buying out Sirius XM may sound crazy to many, so did the concept of merging both satellite companies two years ago," he argues.

Yes, this would cost less than $4 billion, factoring in the current value of the company's stock and outstanding debt. Wilson's plan is for terrestrial radio operators to collectively buy Sirius XM, with stakes commensurate to their percentage of FCC regulatory fees.

"Too bad it'll never happen," suggests All Things Digital's John Paczkowski, and rightfully so.

It's hard enough to get one company to come to terms on a buyout. Imagine trying to persuade all the local radio operators -- many in dire financial straits, no doubt -- to cough up six to seven figures apiece for a chunk of satellite radio.

It's just never going to happen. And what would terrestrial operators do with satellite radio?

You really don't want to know. Wilson's plan is to transform satellite radio into a free platform, presumably selling ads on what are now "commercial-free" channels while leasing out a chunk of the available channels in an auction. He compares his proposed model to what cable companies are doing, but I should point out that cable operators charge far more for their subscriptions than the $13 a month that Sirius and XM demand of their subscribers.

Naturally, giving away satellite radio would mean that Wilson's crew would have to spend even more than $4 billion to reimburse the existing subscribers who have forked over for lifetime subscriptions, or have prepaid for years of service at a discounted rate.

Don't get me wrong. I can definitely see terrestrial and satellite radio in bed together … eventually. Two months ago, I suggested that the larger conventional broadcasters like CBS (NYSE:CBS), Clear Channel, and Cox Radio (NYSE:CXR) may be serious bidders for Sirius XM's assets, if the company is forced into bankruptcy next year. I took a softer stance last week, suggesting that Sirius XM should just consider raising needed capital by syndicating more content through terrestrial radio.

Either way, while a single terrestrial operator may one day own a chunk -- if not all -- of Sirius XM, all of the AM and FM stations will never collectively own their satellite counterparts.

Sirius XM isn't closing in on 20 million subscribers -- and Apple (NASDAQ:AAPL) hasn't moved even more iPods -- because terrestrial radio is doing a banner job in providing the music and talk that consumers want to hear. Sorry, Wilson. I can appreciate anyone willing to think outside of the box, but some ideas are better left all boxed up.

Apple is a Motley Fool Stock Advisor recommendation. Try any of our Foolish newsletters today, free for 30 days. This is a great time to be in the market; we'll show you why and we'll show you how.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any company mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.

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