Karmazin: ‘we’d buy XM’ Our Take: 100% pure unadulterated BS
Reuters is reporting, along with other sources such as CNBC, that Mel Karmazin has stated that Sirius would buy XM ‘if the price is right’. While that seems to be the big news of the day, it is nothing but an off-hand comment that would never work on paper, let alone real life.
While there are certainly pros to the deal, such as only one set of replacement satellites would be needed, much more bandwidth, etc., the cons far outweigh the pros:
-First off, assuming a minimum price of $20/share for a buyout, it would mean a takeover cost of well over $5 billion. Sirius cannot add that level of debt to its balance sheet at this point in time. To do so in the future would likely require a much higher share price since it seems XM’s stock price has bottomed out and is starting to rebound. If XM reaches profitability before Sirius, which is likely, their share price will rise up.
-The radios also use two different codecs; Sirius uses an evolved version of PAC, while XM uses aacPlus, meaning that they would have to roll out new radios in order for people to receive all channels, or keep one codec and lose the other, which bring us to the next point:
-Which company’s radios will be the working ones? They could go with XM’s, due to the lower cost of producing them and the larger number of subscribers out there, but then that will add confusion to Sirius subscribers, who suddenly have to buy a new radio, making it confusing when it is Sirius buying XM.
-Will they officially become one service, or stay as two? By staying as two, it would solve the radio question, but then they are competing with themselves. They will either double most of their costs, such as programming, or they will duplicate channels and waste bandwidth. If they eventually replace one service’s radios, they could offer more features such as video on the spectrum, but with only 4.5 Mbps(likely even less) in bandwidth for the video, will they make enough off of the incremental revenue for it to be worthwhile?
-How will they get this past the FCC? It is a tough sell, and in 2002 the FCC blocked a merger between Dish Network and DirecTV due to the lack of competition outweighing any benefits. That medium has the cable companies solidly entrenched offering a similar product. What will the FCC say about the only two companies who currently provide a national radio service merging?
At the end of the day, this merger talk by Mel is either nothing but talk, or Sirius will make one of the stupidest decisions in the history of the company. I hope it is the former.