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By MICHAEL ZITZ
The good news for satellite radio fans is that they won't have to throw out their existing units if the proposed XM-Sirius mer- ger is approved.
Because of "backward compatibility," they'll continue to work. But they'll be obsolete, able to receive only XM or Sirius satellite signals. If the merger is OK'd by the FCC and Department of Justice, new radios would have two chips that would receive signals from both satellites.
An expert at the Wharton School of Business of the University of Pennsylvania says talk that the merger of pay-satellite-radio companies could seriously hurt traditional over-the-air, free radio is overblown.
"I think it's ridiculous," Peter Fader, a Wharton marketing professor, said in a podcast. "In this case, maybe it would create a monopoly on satellite radio, but given the breadth of competitors that they have--terrestrial radio and Internet radio and just so many other ways of obtaining content--they're actually a very small player."
Fader says Sirius' decision to pay Howard Stern $500 million over five years to "legitimize" satellite radio was "disastrous."
"I think that it was a terrible move," says Fader, who added that he's "a big fan of Howard Stern."
"But from a business standpoint, I think it was a big mistake."
XM paid Oprah Winfrey "only" $55 million to put together a 24/7 Oprah channel featuring her cronies, but she is rarely heard. When she does come on XM, she's usually calling it in on her cell phone to shows she's set up for cronies.
Fader said both Sirius and XM are too focused on signing subscribers up and not focused enough on keeping them.
The Winfrey deal, he says, is an example of paying "an awful lot up front and not getting a lot to show for it."
Even if the merger is approved by the FCC and Department of Justice, satellite radio's biggest problem remains. Satellite radio subscribers pay $12.95 a month and terrestrial radio is free.
That fee could keep satellite radio a niche market, because while satellite TV subscribers may spend eight hours a day on their couch, glued to the tube, relatively few listeners spend enough time tuned in to the radio to make it seem worth a monthly bill.
Some observers are suggesting that satellite radio needs to follow the example of cable companies that provide free TV set boxes and Internet modems to subscribers.
Still, there is a market. The people who may be most willing to pay that fee are commuters gridlocked five days a week and trying to keep their sanity.
XM's comprehensive Major League Baseball and NCAA sports packages and Sirius' NFL and NBA packages are major selling points.
Terrestrial radio is responding to the threat in that market with HD Digital Radio, which allows stations to piggyback several kinds of programming on one signal and offer more choice. That requires buying a digital radio, however.
Fader thinks satellite radio may need to cut subscription fees.
"I think that they have got to figure out where that sweet spot is where people will be willing to pay, kind of in a mindless fashion, month after month after month," he said. "I think there is room to bring it down as long as they don't do some of the crazy things they've been doing on the aquisition side."
Sirius CEO Mel Karmazin and XM Chairman Gary Parsons say they believe a merger would be "in the public interest."
"I don't think that it's in the public interest," Fader said. "I don't think that the public is clamoring to have these two firms brought together. But I do think that it makes good business sense."
On the other hand, Gerald Faulhaber, a former chief economist for the FCC who's now a business and public policy professor at the Wharton School, thinks the merger may be approved.
"The FCC is certainly a political organization. When these radio licenses were granted to these two companies, back during the Michael Powell days, I would have said that the chance of their being able to do this merger was nil. Now, with Kevin Martin in charge, who's certainly a political animal and I don't think he would deny that, I think that it's not nil. It's something. I don't think it's big, but it's not zero. "
Meanwhile, Inside Radio is reporting that XM has run afoul of the FCC because of violations of rules governing use of ground repeater sites that prevent signals from being blocked by buildings in cities.
The report said XM admitted that 221 of of the sites were over-power and 19 were unauthorized.
Michael Zitz: 540/374-5408
Email: mikez@freelancestar.com
