U.S. Merger Talk Barbara Shecter – Financial Post Talk of a possible merger between two competing U.S. satellite radio services refuses to die, a scenario that would create a messy situation for Canada's two fledgling services that rely on XM and Sirius in the United States for programming.
Mel Karmazin, the chief executive of Sirius Satellite Radio Inc., sparked speculation a few months ago when he talked about the benefits of a merger between the two U.S. satellite radio services, which continue to bleed money from the high costs of programming and attracting new customers.
Last month, Sirius chief financial officer David Frear told an investor conference that cost savings alone justify the idea of a merger between the two companies.
It would be tough for XM Canada and Sirius Canada-- the two Canadian satellite radio services that just passed their first birthday -- to continue as separate companies with distinct programming if their U.S. partners were to merge.
"I don't see any way that that's possible," said Andrea Horan, an equity analyst at Genuity Capital Markets in Toronto. "You wouldn't merge the two [U.S.] companies together unless you planned to have one [programming] signal."
In the U.S., XM and Sirius compete head-to-head for programming. For example, Sirius has shock jock Howard Stern and XM boasts access to talk show queen Oprah Winfrey. They also compete fiercely to gain exclusive access to professional sports programming.
XM Canada and Sirius Canada rely on their U.S. namesakes for bulk of their programming, save for the 10% of some 100 channels that must be Canadian. The Canadian services pay for feeds from their U.S. partners through royalty fees or a share of revenue.
The arrangements save the Canadian companies money on programming and infrastructure costs, but would put them in a jam if the U.S. services join forces and cut costs by creating a single programming feed.
Some observers think a forced marriage -- one that maintains Canadian control for regulatory reasons -- would be the only option.
XM Canada is publicly traded through Canadian Satellite Radio Holdings Inc. The biggest individual shareholder is John Bitove, while XM in the U.S. owns about 22% of the company.
The share price has drifted downward since an initial public offering last year at $16. The shares closed at $6.55 yesterday.
Sirius Canada is owned by a private partnership that includes Standard Radio Inc., the CBC, and Sirius in the U.S., which owns a 20% stake.
Executives at Sirius Canada and XM Canada declined to comment yesterday. "The notion of a merger between Sirius Satellite Radio Inc. and XM Satellite Radio Inc., or how any such merger would play out, is speculative," said Katherine Heath-Eves, a spokeswoman for the CBC.
The satellite radio companies on both sides of the border are losing money as they face the heavy costs associated with building a subscriber base.
XM Canada ended its 2006 fiscal year with 120,000 customers, including 90,000 who pay full subscriptions of just under $15 a month. But losses reached $102.7-million, mostly due to marketing and customer acquisition costs.
Sirius Canada, which reported higher subscriber numbers than XM Canada, doesn't release financial statements.
In the U.S., Sirius has been closing the subscriber gap with its competitor, reaching about six million subscribers at the end of the year compared with 7.9 million at XM. But Sirius continues to lose money, including US$162.9-million in the third quarter alone.
XM lost US$83.8-million in its third quarter, with both U.S. companies trimming their losses from a year ago.
Ms. Horan, the equity analyst, said she doubts Canada's federal competition watchdog or broadcast regulator could block a merger between the Canadian satellite radio companies if they suddenly found their programming reduced to one feed.
"I don't think the Competition Bureau could issue an objection," she said. "It's kind of like Elvis has left the building." |