Saturday, February 24, 2007

On 19 February 2007, XM Satellite Radio and Sirius Satellite Radio announced a move that will change the face of satellite radio in the United States and Canada: XM and Sirius will be merging, creating a single satellite radio provider.

Multi-million dollar losses, combined with increasing competition from internet radio, downloadable music, and HD radio were factors in this merger.

Mel Karmazin, CEO of Sirius Satellite Radio, described the problem: “We don’t want to take subscribers from XM. We won’t make money that way. We need new subscribers.” Likewise, XM executives say they can’t succeed by stealing Sirius subscribers. This leaves both companies with the problem of attracting new customers and distinguishing their brand, while at the same time trying to convince potential customers to pay $12.95 a month for radio, something that people are used to getting for free. Even if one company were to force the other out of the marketplace, the remaining company would have won a Pyrrhic victory, without enough capital remaining to take advantage of the situation.

The solution: make a deal now, while both companies are both strong and in a position to expand their technologies and services. That’s exactly what they plan to do: In press releases and news postings on both of their web sites, both companies have pledged to make the combined company better than either service by itself. “You’ve heard of 1+1=3,” Karmazin said during an invester conference call, “that’s what this is.”

Pending approval of the deal, each share of XM stock will be replaced with 4.6 shares of Sirius. Each company’s stockholders will retain approximately 50% of the joined company. Sirius CEO Mel Karmazin will retain his CEO title in the new company, and XM chairman Gary Parsons will retain his. XM CEO Hugh Panero will retain his position until the merger is complete, which should happen near the end of 2007.