XM, Sirius unveil plans for postmerger price drops

Listeners would have several new options, including an "a la carte" package that costs about half the current lowest-price subscription plan.
Written by Anne Broache, Contributor
A correction was made to this story. Read below for details.

If the proposed merger of XM Satellite Radio and Sirius Satellite Radio goes through, the combined company plans to offer packages of channels at reduced rates, including a 50-channel offering that's almost half the price of today's lowest-price option.

New "a la carte" options, which will enable consumers to pick 50 or 100 channels from XM and Sirius' lineups (minus "premium" offerings like those from Playboy, that is) for $6.99 or $14.99 per month, respectively, are scheduled to kick in within one year of the merger's completion, Sirius CEO Mel Karmazin and XM Chairman Gary Parsons said in a joint statement Monday. With the 50-channel plan, subscribers would have to select channels from either XM or Sirius, not both, and could opt to add additional nonpremium channels for 25 cents each.

Those packages will, however, require the purchase of a new radio capable of processing channel-by-channel requests. The gadgets, which are still under development, will "be priced at the same price as our other radios," Sirius' Karmazin said in a speech at the National Press Club in Washington on Monday. (The cost of existing receivers currently appears to range from less than $50 to more than $200.)

The combined company also plans to offer a handful of new programming packages (PDF: postmerger satellite radio pricing), including a "family-friendly" bundle of channels, capable of blocking "adult-themed" programming, starting at $11.99 per month and "mostly music" and "news, sports and talk" packages that cost $9.99 per month. Those offerings, which would not require new radios, are slated to be available within six months of the merger's close, which the companies hope will occur by the end of this year.

"Some argue that a merged company would have incentives to raise prices, but that argument also falls flat, given that our largest and most potent competitor is terrestrial radio--and that's for free."
--Mel Karmazin, CEO, Sirius Satellite Radio

Listeners could also keep their existing Sirius or XM subscription and add a package of "select" channels from the competing service for $16.99 per month, representing the priciest option available. Subscribers will be able to access lineups from both companies through their existing radios. Accessing those offerings currently requires two separate $12.95 subscriptions and two different satellite radio receivers. A standalone XM or Sirius subscription would still cost $12.95 per month under the plan.

The pricing scheme is consistent with earlier statements by Sirius' Karmazin on Capitol Hill. Under questioning by politicians at hearings this spring, he promised that the cost of the services would never surpass $12.95 for XM or Sirius' individual lineups and that customers would be offered access to both lineups for "closer to $10" less than the $25.90 it would currently cost to subscribe to both.

"The efficiencies of the merger will allow the combined companies to save hundreds of millions of dollars a year and give us the opportunity to increase the number of programming options available to subscribers," Karmazin said in a statement Monday. The all-stock deal was valued at about $13 billion when it was announced in February.

The announcement arrived as the merger faces somewhat of an uphill battle to approval. Federal regulators continue to weigh whether it's in the public interest for them to give the merger their blessing. Specifically, they've been soliciting public comments on whether to waive a 1997 order that would otherwise prohibit a combination that would result in only one operator controlling all of the satellite radio spectrum.

Sirius and XM said they plan to offer more details about their new pricing plans in a filing with the Federal Communications Commission on Tuesday.

If the regulators ultimately block the merger, it would not be the first time that happened in the satellite space. The FCC in 2002 derailed a proposed merger of satellite television operators EchoStar Communications, which runs the Dish Network, and Hughes Electronics, which operates DirectTV, on the grounds that their union would create a "regulated monopoly," in the words of then-Chairman Michael Powell.

Besides the regulatory hurdles, the merger faces fierce opposition from the politically powerful National Association of Broadcasters and several major consumer advocacy and media access groups, which argue that the deal could lead to higher prices and fewer choices for satellite radio listeners. Some members of Congress have also questioned the deal.

In June, 72 Republicans and Democrats from the House of Representatives signed a letter (PDF) to FCC Chairman Kevin Martin and U.S. Attorney General Alberto Gonzales urging denial of the deal, arguing that it would be "devastating to consumers."

Consumer Federation of America research director Mark Cooper said he is not convinced the latest plan would assuage his group's ongoing concerns about the merger. "It's interesting how quickly they can suddenly discover what they can do, if they could get a major concession, and the major concession here that we're very concerned about is the elimination of competition," he said in a telephone interview Monday. "Some consumer choice is great, but it doesn't answer the competitive problem."

Cooper said he would withhold further judgment until seeing the companies' official FCC filing, adding that "public policy by press release is always risky because the press release always has a lot more makeup on it than the actual proposal."

The NAB, which represents terrestrial radio stations, was quick to criticize the satellite radio operators' announcement. "Policymakers should not be hoodwinked by today's announcement, since nothing is stopping either XM or Sirius from individually offering consumers a more affordable choice in limited program packages," spokesman Dennis Wharton said Monday. He also blasted the requirement that customers "buy a new radio for an undisclosed fee" to reap the benefits of the a la carte offerings.

Karmazin attacked the broadcast lobby's tactics in Monday's speech. He said NAB's arguments that an XM-Sirius merger would create a satellite radio monopoly contradict government filings by entities such as Clear Channel Communications that portray satellite and Internet radio services as formidable competitors in the radio space.

He added that XM and Sirius' combined 14 million customers account for only 3.4 percent of radio listeners. (One of the key questions in any review of the competitive effects of a merger is defining the market to which the companies in question belong.)

"Some argue that a merged company would have incentives to raise prices, but that argument also falls flat, given that our largest and most potent competitor is terrestrial radio--and that's for free," Karmazin said.

If the mergers aren't approved, expect the standard $12.95 subscription rate to remain, Karmazin said in response to a question after his speech. Because neither of the individual companies has turned a profit yet, the ability to offer special packages like a la carte is contingent on "considerable merger-specific savings" projected by analysts eyeing the deal, he said.

"It would be a very risky proposition for us (to offer such options) with no sort of way of covering the cost of this thing," the Sirius chief executive said.

Correction: This story incorrectly described two aspects of the pricing plans announced by XM and Sirius.
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