XM-Sirius Deal Faces Hurdles

The Federal Communications Commission says the Sirius and XM merger faces a "high hurdle" on anti-trust issues. Long term, it's not clear whether the two money-losing companies will be able to put together a profitable enterprise. Put together, they lost more than $1.5 billion last year.

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The heads of the two satellite radio companies - XM and Sirius - said today they believe federal regulators will approve their planned merger. But a lot of other people aren't so sure. The companies say the merger will free up resources and allow satellite radio to attract more listeners. The deal is attempt to shore up the finances of two fast growing companies that together still lose more than $1.5 billion a year.

NPR's Jim Zarroli reports.

JIM ZARROLI: On their XM radio show this morning, shock jocks Opie and Anthony offered their predictions about what the big merger with Sirius would mean: lots and lots of job cuts.

(Soundbite of radio show, "Opie & Anthony")

Mr. Gregg Hughes (Shock Jock Opie, XM Radio's Opie & Anthony): This is scary time for XM and Sirius employees - simple as that. They think…

Mr. ANTHONY CUMIA (Shock Jock Anthony, XM Radio's Opie & Anthony): This is why…

Mr. HUGHES: If they think for a second that, yeah, everyone in XM is getting fired, and everyone in Sirius is keeping their job.

Mr. CUMIA: Are you nuts? Keep laughing fat boy.

ZARROLI: In fact, one of the big rationales that the two companies offered for the merger today was that it would help them cut costs in marketing and programming and technical support. And while no one was saying so explicitly, that is likely to mean that jobs get eliminated. But it would also combine the companies into a single entity with about 14 million listeners. Craig Moffett, analyses the satellite radio business for Sanford C. Bernstein.

Mr. CRAIG MOFFETT (Analyst, Sanford C. Bernstein): In a business like that, it's all about scale, and so they've got to get big fast. This merger helps them get big fast if they can pull it off.

ZARROLI: A merger would give XM and Sirius more clout with advertisers, for instance. Although most of satellite programming is commercial-free, Sirius chief executive Mel Karmazin said in a Web cast today that he's eager to get a bigger share of the radio ad market.

Mr. MEL KARMAZIN (Chief Executive, Sirius Satellite Radio): Advertisers look for reach. And as one company, we will have twice the reach of what either company has on its own.

ZARROLI: They'll also have more power when they negotiate with retailers and auto companies that sell the radios people need to listen to satellite programming. And they'll have much more power in dealing with performers. The companies have competed with each other by spending huge amounts of money on programming. XM has Bob Dylan and Oprah Winfrey. Sirius has the NBA, Martha Stewart, and the king of all stock options: Howard Stern.

(Soundbite of radio show, "The Howard Stern Show")

Mr. HOWARD STERN (Host, Howard Stern Show): Let me get Leona on the phone for this, because you're going to be doing a Leona Helmsley story. Leona, thanks for joining us. Leona?

Ms. LEONA HELMSLEY (Businesswoman): Hello.

ZARROLI: Sirius's decision to lure Stern from commercial radio cost it upwards to $600 million. XM responded by swallowing hard and paying $500 million for Major League Baseball. While the merger may help the new company improve its balance sheet, there are big questions about whether federal regulators will sign off on the deal. The companies noted today that they face much more competition for listeners than they used to because of iPods and HD and Internet radio. And so a big merger like this no longer threatens competition. Analyst Craig Moffett says the companies may be able to sell that argument to that Justice Department, but it will be tougher getting through the Federal Communications Commission.

Mr. MOFFETT: Their decision is simply whether or not it is in the public interest to let one licensee own the other. That's a much more subjective test, and in Washington, subjective equals political.

ZARROLI: FCC chairman Kevin Martin, has already weighed in on the deal, saying it would face high hurdles at his agency. And the broadcasting industry is already opposing the merger. That's a powerful enemy for an industry to have as its struggles to get on its feet.

Jim Zarroli, NPR News, New York.

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