Content Matters

The NY Post broke the news today that the long-rumored merger between satellite radio providers XM and Sirius Satellite Radio was a done deal.
The combined entity will have 14 million subscribers, approximately $1.5 billion in revenues and a market cap of $13 billion. 

The deal is being billed as a merger of equals, with XM shareholders receiving 4.6 shares of Sirius stock for each share held.  Sirius CEO Mel Karmazin will hold that same title at the combined company, while XM Chairman Gary Parsons will serve as Chairman.

The deal is a good one for both parties.  At this stage, both companies need to grow their market share, and competing against one another for expensive on-air talent (Howard Stern and NASCAR for Sirius; Oprah and Major League Baseball for XM) is a very costly way to get there.  In addition, each has been aggressively courting auto manufacturers, which contributes to their cost base.  Analysts estimate that the combined entity will be able to save $7 billion annually.

There had been previous concern that regulators might not approve a merger, but Bear Stearns reported last week that the merger would be likely to pass regulatory hurdles.  Clearly, the competition for XM and Sirius are traditional radio, HD Radio and the emerging forms of Internet radio such as Pandora, Lastfm and the many music blogs.  The combined entity will not have a lot of pricing power in this competitive landscape.

In late 2005, when naming both companies to the "50 Content Companies that Matter", I was unsure which of the two would emerge as the leader.  With this merger, the combined company is in a much stronger position than either could have been alone.

UPDATE: Staci Kramer at Paid Content shares an exchange she had with FCC Chairman Kevin Martin a month ago about a potential XM-Sirius merger.  There's no question that the regulatory hurdle remains high for this merger, though I believe the biggest competitive threat for these two will come from the emerging technologies, not from one another.