It's been a rough year for shareholders in satellite radio. Shares of both XM
XM has more subscribers. Sirius has the bigger market cap. XM has Major League Baseball, Oprah, and Dylan. Sirius has the NFL, Martha, and Howard. And with the divide-and-conquer approach producing mixed results, merger speculation is heating up. Sirius CEO Mel Karmazin fueled the speculation with his recent comments extolling the virtues of consolidation.
I recently talked about the future of satellite radio with business guru Seth Godin, technology commentator Bob Cringely, and Fast Company co-founder Bill Taylor.
Seth Godin: A merger's a must
Seth Godin is the author of seven best-sellers, including All Marketers Are Liars and Small Is the New Big.
Mac Greer: Seth, both XM and Sirius continue to lose money. What do you make of the marketing efforts of satellite radio these days?
Seth Godin: Well, I don't own any stock, and I don't think every day about stocks, but it is inconceivable to me that those two guys aren't going to merge. If there was ever a synergy in a merger, there it is, because then they don't have to keep fighting with each other for content and for subscribers. They both invested heavily at training a generation of people to expect that radio needs to be the way that they are delivering it.
I think the challenge they have -- and if I am an investor for the long term, what I would really want to know is -- how long before I have Wi-Fi radio in my car for free? Because once there is Wi-Fi radio, I don't get 100 channels, I get a million channels, and it is free. As cities start to blanket themselves with Wi-Fi, and the cost of a Web browser on a chip gets down to a dollar, I think that is pretty inevitable, and the question is, is it two years away or 10 years away? Because if it is two years away, then that is the end of satellite radio.
Bob Cringely: Consolidation is coming
Bob Cringely was employee No. 12 at Apple. He's currently the host of the PBS online television show Nerd TV.
Mac Greer: Bob -- buy, sell, or hold the likelihood of a merger between XM and Sirius in 2007?
Bob Cringley: Buy, buy, buy. Maybe not in 2007, but I think a consolidation is inevitable.
Mac Greer: And is satellite radio -- or is XM and Sirius, or some kind of merged combination -- is that a foregone conclusion, or is there a possibility that both of these companies could go under?
Bob Cringely: No, I don't think there is a possibility that both could go under. They have proved that there is a market there, and it is a growing market, but double the cost structure, double the overhead, and perhaps if there was only one of them, they could realize prices a little bit. But they have to compete against the Internet, and Internet radio is going to keep satellite radio cheaper. And so I am not bothered by a single large satellite provider.
Bill Taylor: Merging makes sense
Bill Taylor is the co-founder and founding editor of Fast Company, and he is the author of the recently published book Mavericks at Work: Why the Most Original Minds in Business Win.
Mac Greer: XM and Sirius have both seen their stocks struggle, but there is a lot of excitement about the satellite-radio consumer experience. With that in mind, Bill, buy, sell or hold the future of satellite radio?
Bill Taylor: I buy the future of satellite radio; I hold the future of those two companies. I think we have seen time and again [that] there is a big difference between a service that everybody wants to have and needs to have --- and I think satellite radio is that --- and being the early companies, in knowing what your financial fate would be. So satellite radio, total buy; XM and Sirius as stocks, hold at best.
Mac Greer: And do you think that ultimately they are going to need to merge?
Bill Taylor: That would seem to make a lot of sense to me.
Foolish bottom line
Well, there you have it, folks. Three of the great business minds, all of whom think a merger between these two behemoths is in the works. If you're interested in disruptive technologies like satellite radio, consider a free 30-day trial to the Motley Fool Rule Breakers newsletter. Although XM is a former recommendation that recently got sold, the newsletter's pick list still contains plenty of innovative companies that are alive and thriving. Try out the service for free today.
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Mac Greer does not hold any of the stocks discussed.