In a marriage that will eliminate any kind of competition, money-losing XM and money-losing Sirius will tie the knot in an effort to avoid becoming this decade’s Iridium, which went into bankruptcy protection less than a year after it launched in 1998. Analyst believes a XM-Sirius combination could save the combined entity about $7-billion a year and create a business with 12 million customers.
Before anyone gets too carried way with the possibilities, I would strongly argue the satellite-radio business is dead in the water. Fundamentally, the idea of paying $15 or $20 a month for commercial-free radio service will not generate enough customers to cover the cost of operating the business. If you dig deep into the number of subscribers, how many of them are trial customers who got satellite-radio free for a year when they bought a new car. How many of these people are really going to re-new their contracts? Not many, I suspect.
Don’t get me wrong, the idea of commercial-free radio is, in theory, great – particularly compared with the crap on most commercial stations as players such as Clear Channel work to homogenize what was once a lively, free-wheeling medium. But just because you build something, doesn’t mean people will come. Both XM and Sirius have coughed up billions of dollars launching satellites and attracting talent – Sirius sold its soul to attract Howard Stern, who made $302-million last year – but it strikes me they both lack solid, long-term fundamentals. This explains why they’re willing to do a deal in a last-ditch effort to make the business work.
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