How the Merger of Sirius and XM Will Work

to my heart, which is satellite radio. And I should confess that it's near and dear to my heart for a couple of reasons. One, I've been a satellite radio subscriber since two thousand and two. I am also, I'm honestly on the on you know, sake of clarity, I am a stockholder of what is now Serious XM Radio since the two of them merged not too long ago. Um So, of course, feel free to throw things at me if I get too excited. I always do, all right. So,

satellite radio, you might say that's of an odd idea. Well, yeah, you know, this is not Marconi's idea of radio, you know, which was essentially that the frequencies are traveling through the air and you pick them up once they've been broadcasting those signals. AM you know carries aways and FM carries aways,

and they both have their advantages and disadvantages. But satellite radio UM has bounced off of satellites that are in orbit around the Earth, and UH, the UM enhancement here is it's gotten more bandwidth than the average FM signal, So you're getting more information in the signal, you're probably getting better quality sound, and UH it also allows you

to listen to channels on the go. You can basically, if you're in the United States or Canada, you're able to subscribe to satellite radio and you could drive from one end of the country to the other without losing the signal that you're listening to. Right, You wouldn't have to sit there and keep fiddling with your radio and try and find that one station that's not playing country

exactly right. UM. So it's uh, it's pretty nifty for for music aficionados, especially UH speaking again and you know from my own personal experience, because both what have been operating as individual companies, Serious Satellite Radio and XM Satellite Radio UH in the United States and Canada. Both of them offer dozens of music channels. Um. They also offer a variety of other programming news, sports radio, talk radio,

public radio, UH, special interest radio, traffic and weather. You know, so the people who subscribe to satellite radio are the kind of people who want a university of programming and they wanted on no matter where they go. It's primarily used by people in cars and trucks, although you know, some of us bring ours in and listen to it

at our desk while we're working. Um So, it's that's essentially, in a nutshell, what satellite radio is, right and and before the merger, when you could talk about XM and Sirious as two separate companies, you could really talk about the differences between them. Now those differences still exist even though it's one company. You have two different systems that you're working with. And we should give you a little quick rundown on that. And now XM Radio has a

four satellites that travel in a geo stationary orbit. That means they stay in a fixed position above the Earth. Um So, as the Earth turns, these stay exactly where they are. And it's supposed to give you that coverage that Chris was talking about nationwide thank you, Arthur C. Clark, Yes, thank you very much. So those are Those are named rock Roll, Rhythm and Blues, which is much cooler sounding than x M one, x M two, x M three. They're also named that. But anyway, moving on now serious.

They also have four satellites. One of them is GEO stationary, the other three are not, which means they actually kind of drift over the United States in a certain pattern, and now the coverage is still there. It's just that it's uh as as one satellite is moving away from covering North America, another satellite is coming directly over North America, so you're there. Theoretically you don't lose any coverage that way. UM. So those are the Those are the differences just from

satellite point of view. But they also use different proprietary coding, so if you have a serious radio, you can't pick up and decode x M signals and vice versa. Not yet, not yet. Um, you were theoretically supposed to at some point, but that never happened, although it's supposed to happen now that they are one company. Yeah, the merger was a very very long process in coming. It had to overcome

a number of objections. Uh. You know, there are major lobbying groups like the National S Station of Broadcasters who were against it. Uh. They argued and and you might, as the listener, argue that hey, you know, there were

two companies now there are only one. Yeah. In fact, the FEC, as part of the condition of giving them licenses to operate these services, uh, expressly said, you know, you may not merge, but you know, market conditions, it's not cheap to launch a satellite um and maintain it and maintain the you know, the number of people it takes and do all the advertising to get people to sign up. So both of these companies have been operating

in a loss for for quite some time. I mean, they're making some money, but it takes a lot of money to to get more subscribers. So you know, that was a lot of the reason behind why they were trying to merge. And eventually they overcame the objections of of the lobbyists and the well they didn't overcome those, but the government agency agencies like the Department of Justice, the SEC, the FCC finally came together and decided, well

it's it's okay. It was sort of grudging. They had to give up a lot, uh, twenty million dollars v they had to freeze rates for three years. You know, a lot of things that they had to do. Was very difficult for them to do it. But they finally merge and it wasn't it wasn't a blowout by any means. Uh.

The FCC came to a decision. It was a three two decision, so three four two against and um and I mean you might be shocked to hear this, but it went straight down party lines, three Republicans voting for the merge and two Democrats saying please know so um yeah, I mean it's it's one of those things that people still feel a little unsure about. For one thing, there's the concern that since there's only one satellite radio company really in the United States at this point, it's a monopoly. Now.

The the counterpoint to that argument is to say that, no, of course, not satellite radio is is competing with many other industries now, they're they're not other satellite radio companies, not in the United States and Canada, right right exactly,

I'm just on the US and North America here. So, um, so, what you're talking about here is is competing with things like just traditional radio, so traditional radio versus satellite radio, or even things like personal music devices like iPods or other m P three players um or even the iPhone. One of the most popular new applications on the three G I phone is Pandora, which is a streaming radio h web application, and you can get music on that and it it'll just start pulling music and playing it

through your your iPhone. So so the FCC said, all right, you know, that does sound like that's enough basis for competition. So this really isn't a monopoly. That's how they kind

of got through that. It's funny that that you would talk about those objections because also in the interest of disclosure, when I signed up for satellite radio, I was working for one of the major UH, the two satellite television providers in the United States, and at that time, in two thousand and one, two thousand two, they were looking at the possibility of merging Direct TV and Dish Network, And an article in the Wall Street Journal just the

other day, since Serious and XM were allowed to merge, UH said that they that Dish Network is actually considering the possibility of another merger attempt. Now they were denied the opportunity to do that because the people who are against it, I believe, if I'm not mistaken, this is off the top of my head, the NAB opposed that too. Um. But but that's a little bit different situation. Unlike radio and iPods and all the other things that you can

do with with audio signals. Um. People in rural areas, say the mountains of West Virginia, you can't just lay more television. Cable is very very difficult to that. So the only competition satellite TV has in those areas is regular broadcast TV, so you might be limited to a very few stations versus you know, the depth and breadth of satellite TV programming, which is why they were unable to merge before. I was the big uh contingent you know, who was against it, saying it was an monopoly there.

That's why they were successfully able to argue that. But there's a lot more that satellite radio competes with than than just those options. So that I think that's probably what was maybe the deciding factor, at least it would have been for me, right, But it might set a precedent. We'll have to just wait and see and see if if that lays the groundwork for satellite television mergers down

the line. UM. Just to get back to the the discussion about the cars, something interesting I read was that some car manufacturers might not be so thrilled about the the merger of x M and Serious because a lot of cars are now including satellite radio UM as one of the options you can have and UH and different car dealers our car models. Car manufacturers have made deals with either XM or Serious, so it was one way

to differentiate the model from other cars. And now that method of differentiation is gone because they're the same company. That's interesting. I never really thought that that that that would be a bad thing. I thought it would be a good thing because it makes it much easier you have a you know, you've consolidated your choices. You don't have to make that choice, right. But it turns out that that's not as simple as I thought. Yeah, it's Uh.

It's funny because it's also both services are offered with satellite TV now they eat. If you're a Direct TV subscriber, you get XM channels as your music. If you're a Dish network subscriber, you get Serious music channels included with your TV, So I wonder, you know, I haven't seen anything about that, but I wonder if that's going to be an issue for them there. They have lot of agreements that they have in place that they're going to

have to to work out. And that's why, Uh, you're not going to see a dramatic shifts suddenly in the number of channels if you are a subscriber or the kind of channels, because they're they're they've got a lot of issues yet to work out having a chip set that picks up signals from both kinds of of those satellites, so you know, it's it's gonna be a while before they really get the kinks worked out. Actually that that

leads me. I don't mean to put you on the spot here, but I'm just curious what you think the the viability of satellite radio is. I mean, seriously, they're talking about a subscription based service, so people are paying for this, um when they can get things like Pandora Internet radio, Uh, when they can get things like a traditional radio. UM. Do you think that satellite radio really is does have a future after this merger? Yes and no,

I think the idea is viable. I think it's it's sort of like DVR technology, where it's got a mass, but it doesn't seem to have reached critical mass. UM. I think that they have both well serious XM radio. The new company has an awful lot of debt to work off, UM, and I honestly think that if the merger had not gone through that they would have had

a very difficult time surviving. I don't think both of them, maybe not either of them would have survived that now, UM, you know, with the semi monopoly conditions that also opens the field. I think it would be very easy, if you had the wherewithal to do it, uh, to launch another satellite radio service to compete with Sirius xm UM. You know, because then you could say, well, hey, you know there's a monopoly out here. I want to compete

with them. You know. I think it would be much easier for a new player to get in the market

and compete with it. And I think, you know, there's only so much iPod that you can take before I go, you know what, I just want somebody else to spend something new that I haven't heard before, right, And I do remember were reading something about them being locked into UH they couldn't go over a certain subscription sheet for a couple of years after the merger, which, as you point out, that means that if someone else were to come in they could they could take advantage of that.

I mean, if if that amount of money isn't enough to keep the company afloat, then then they may it may have just prolonged the inevitable. Well, I guess that about wraps up this podcast. Do you would like to learn more? Please read how satellite radio works on how stuff works dot com and we'll talk to you again soon. For more on this and thousands of other topics, how stuff works dot com. Let us know what you think. Send an email to podcast at how stuff works dot com.

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