XM, Sirius unveil plans for postmerger price drops

A correction was made to this story. Read below for details.

If the proposed merger of XM Satellite Radio and Sirius Satellite Radio goes through, the combined company plans to offer packages of channels at reduced rates, including a 50-channel offering that's almost half the price of today's lowest-price option.

New "a la carte" options, which will enable consumers to pick 50 or 100 channels from XM and Sirius' lineups (minus "premium" offerings like those from Playboy, that is) for $6.99 or $14.99 per month, respectively, are scheduled to kick in within one year of the merger's completion, Sirius CEO Mel Karmazin and XM Chairman Gary Parsons said in a joint statement Monday. With the 50-channel plan, subscribers would have to select channels from either XM or Sirius, not both, and could opt to add additional nonpremium channels for 25 cents each.

Those packages will, however, require the purchase of a new radio capable of processing channel-by-channel requests. The gadgets, which are still under development, will "be priced at the same price as our other radios," Sirius' Karmazin said in a speech at the National Press Club in Washington on Monday. (The cost of existing receivers currently appears to range from less than $50 to more than $200.)

The combined company also plans to offer a handful of new programming packages (PDF: postmerger satellite radio pricing), including a "family-friendly" bundle of channels, capable of blocking "adult-themed" programming, starting at $11.99 per month and "mostly music" and "news, sports and talk" packages that cost $9.99 per month. Those offerings, which would not require new radios, are slated to be available within six months of the merger's close, which the companies hope will occur by the end of this year.

"Some argue that a merged company would have incentives to raise prices, but that argument also falls flat, given that our largest and most potent competitor is terrestrial radio--and that's for free."

--Mel Karmazin, CEO, Sirius Satellite Radio

Listeners could also keep their existing Sirius or XM subscription and add a package of "select" channels from the competing service for $16.99 per month, representing the priciest option available. Subscribers will be able to access lineups from both companies through their existing radios. Accessing those offerings currently requires two separate $12.95 subscriptions and two different satellite radio receivers. A standalone XM or Sirius subscription would still cost $12.95 per month under the plan.

The pricing scheme is consistent with earlier statements by Sirius' Karmazin on Capitol Hill. Under questioning by politicians at hearings this spring, he promised that the cost of the services would never surpass $12.95 for XM or Sirius' individual lineups and that customers would be offered access to both lineups for "closer to $10" less than the $25.90 it would currently cost to subscribe to both.

"The efficiencies of the merger will allow the combined companies to save hundreds of millions of dollars a year and give us the opportunity to increase the number of programming options available to subscribers," Karmazin said in a statement Monday. The all-stock deal was valued at about $13 billion when it was announced in February.

The announcement arrived as the merger faces somewhat of an uphill battle to approval. Federal regulators continue to weigh whether it's in the public interest for them to give the merger their blessing. Specifically, they've been soliciting public comments on whether to waive a 1997 order that would otherwise prohibit a combination that would result in only one operator controlling all of the satellite radio spectrum.

Sirius and XM said they plan to offer more details about their new pricing plans in a filing with the Federal Communications Commission on Tuesday.

If the regulators ultimately block the merger, it would not be the first time that happened in the satellite space. The FCC in 2002 derailed a proposed merger of satellite television operators EchoStar Communications, which runs the Dish Network, and Hughes Electronics, which operates DirectTV, on the grounds that their union would create a "regulated monopoly," in the words of then-Chairman Michael Powell.

Besides the regulatory hurdles, the merger faces fierce opposition from the politically powerful National Association of Broadcasters and several major consumer advocacy and media access groups, which argue that the deal could lead to higher prices and fewer choices for satellite radio listeners. Some members of Congress have also questioned the deal.

In June, 72 Republicans and Democrats from the House of Representatives signed a letter (PDF) to FCC Chairman Kevin Martin and U.S. Attorney General Alberto Gonzales urging denial of the deal, arguing that it would be "devastating to consumers."

Consumer Federation of America research director Mark Cooper said he is not convinced the latest plan would assuage his group's ongoing concerns about the merger. "It's interesting how quickly they can suddenly discover what they can do, if they could get a major concession, and the major concession here that we're very concerned about is the elimination of competition," he said in a telephone interview Monday. "Some consumer choice is great, but it doesn't answer the competitive problem."

Cooper said he would withhold further judgment until seeing the companies' official FCC filing, adding that "public policy by press release is always risky because the press release always has a lot more makeup on it than the actual proposal."

The NAB, which represents terrestrial radio stations, was quick to criticize the satellite radio operators' announcement. "Policymakers should not be hoodwinked by today's announcement, since nothing is stopping either XM or Sirius from individually offering consumers a more affordable choice in limited program packages," spokesman Dennis Wharton said Monday. He also blasted the requirement that customers "buy a new radio for an undisclosed fee" to reap the benefits of the a la carte offerings.

Karmazin attacked the broadcast lobby's tactics in Monday's speech. He said NAB's arguments that an XM-Sirius merger would create a satellite radio monopoly contradict government filings by entities such as Clear Channel Communications that portray satellite and Internet radio services as formidable competitors in the radio space.

He added that XM and Sirius' combined 14 million customers account for only 3.4 percent of radio listeners. (One of the key questions in any review of the competitive effects of a merger is defining the market to which the companies in question belong.)

"Some argue that a merged company would have incentives to raise prices, but that argument also falls flat, given that our largest and most potent competitor is terrestrial radio--and that's for free," Karmazin said.

If the mergers aren't approved, expect the standard $12.95 subscription rate to remain, Karmazin said in response to a question after his speech. Because neither of the individual companies has turned a profit yet, the ability to offer special packages like a la carte is contingent on "considerable merger-specific savings" projected by analysts eyeing the deal, he said.

"It would be a very risky proposition for us (to offer such options) with no sort of way of covering the cost of this thing," the Sirius chief executive said.

 

Correction: This story incorrectly described two aspects of the pricing plans announced by XM and Sirius.

[emmased]

Selfish SOBs

"we'll offer a low cost option if you give us what we want." How noble of them. Oh, and on top of that we'd have to wait a year! Why? So they can continue to overcharge in the meantime. This is why both companies deserve to go under. If they charged half as much as they do they'd have more than twice the number of customers. Can't see past their own greed.

[Jahntassa]

Do you even know?

Do you HAVE XM or Sirius? I'm betting not. I currently pay $13 a month for my XM service, and $13 for my wife's Sirius service. To me, that is WELL worth it. Granted I only listen to two channels on a constant basis (Lucy, alternative rock, and The System, Techno/Trance), but for me it's WELL worth it. Mostly due to, I don't have to go out and find the CDs. I don't have to listen to commercials (on those channels).

I get bored of my MP3 collection. While Lucy doesn't play much *new* music, I enjoy the alternative it does play. The System, however, gets me more techno and trance than I could get on my own, for less than 1 CD.

Please stop naysaying things you obviously aren't personally involved with.

[paulsecic]

120 channels

I've got 120 music channels on Dishnetwork. So why should I buy
a radio & pay for the same music?

[sharky3377]

SOB'S

You probably shop regularly at WalMart. Obviously the theory of half the price twice the customers is something you learned in business school, I doubt it since even the cheapest business school would have to be 1/2 price for you. I guess you haven't priced the price of a satellite launch lately either, I guess you think they must have paid half price for that as well. You call that greed? I call you clueless.

[TomMariner]

Yeah, I believe that (Not)

Lets see -- I was promised that if I paid $169 per year and bought an expensive radio I could get continuous, commercial free sound. What I got was commercials on most channels and dropping of some of my favorites.

The new deal sounds a lot like Cable Television -- In return for a monthly fee, I would get commercial free broadcasts that are of better quality. What we got is 700 channels with nothing on and families who accidentally started a cable transport firm at the right time becoming the richest in the nation.

The only force that will keep reasonable levels of service and reasonable prices is competition. That $6.99 deal is going to end up like "basic cable" -- Broadcast stations you got for free anyway and home shopping network.

The one good thing from XM is their Internet Access where a subscriber can hear the stations that were taken off the sattelite. If charges start for that, I'm back to free FM (or whatever replaces the sattelite radio guys.)

[bobby_brady]

Agree this is cable TV all over again

I do have a subscription and have to agree that this smells of the cable TV scam back in the 80's. Promise commercial free content, then slowly start rising prices and push in commercials, purchase competitors and become a close to a monopoly.

Regulators would do a service by not allowing this to go through, however intuition tells me the two companies have lined the politicians pockets enough where this will go through.

[Tom Budlong]

What I Want - Commercial Free

I think XM never promised commercial free on all channels, only on music channels.

Now if they want my attention, offer a la carte, and commercial free on all channels. I would pay extra for all-channel commercial free. (We must respect the necessity of either commercial or subscription revenues to keep the system functioning and pay the hired help). XM reception when driving out of range of terrestrial radio is a fantastic feature, but the non-stop blizzard of inane commercials on the non-music channels makes me want to toss the receiver off the next bridge.

And XM or Sirius can do that without merging.

[p.shearer]

Let them merge

I would argue that it is vital to let them merge. Satellite radio is a technology with a limited lifespan. Soon content and delivery will be devoiced. We will soon use IP devices at home and in our vehicles to listen to what content we want when we want.

A merger would allow the combined company to stay violable longer. BTW? how does it serve the public good to have the NFL on one system and the MLB on a different one?

[notgonnatellya]

I wouldn't be so sure

We are nowhere close to having wireless broadband from coast to coast that is available to you regardless of who you buy broadband from. In fact, most places don't have wireless broadband at all. As it stands, wireless broadband isn't where DSL/Cable was was 7 years ago.

Unless you think Satellite is going to die, then this merger is bad. Yes you'll have ala carte options, but as others have said, the benefits and savings will disapear as time passes.

[eurobloke]

Sounds like Sky and BSB again

Back in the early '90s, Britain had two satellite broadcasting systems, Rupert Murdoch's Sky Television and an independent owned British Satellite Broadcasting (BSB). By the early 1990's BSB was faulting because of lack of output and difficulty with transmission using an advance system, it asked the current Thatcherite Tory government permission to merge with it rival, to form BSkyB.

They were given permission and BSkyB came in being, now we have a virtual monopoly in satellite broadcasting, even with Virgin Media cable company (only around 30% of Britain is cabled), sports rights have gone though the roof and even a decent basic package costs around £20 (~US$40, ~?30) per month.