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Sirius, XM isn't a merger of equals

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Sirius Satellite Radio Inc. (Nasdaq:SIRI) and XM Satellite Radio Inc. (Nasdaq:XMSR) are billing their deal as a $13 billion merger of equals. That's not quite the case.

Sirius is buying XM for about $4.57 billion, according to Bloomberg News. XM investors will receive 4.6 shares of Sirius stock for each share they own. The deal values XM shares at $17.02 a share, a 22 percent premium over its latest closing price.

Mel Karmazin, the CEO of Sirius, will run the company. His counterpart at XM Hugh Panero will leave. Karmazin, who attracted high-profile talent like Howard Stern and Martha Stewart, clearly won the battle for satelite radio supremacy. But if he doesn't attract significantly more advertising revenue, he will lose the war.

Until now, advertisers haven't really warmed to satellite radio. In fact, they aren't too keen on the medium period. TNS Media Intelligence estimates that radio advertising spending will rise 1.7 percent this year, which is only slightly better than the 0.9 percent decline for newspapers. Meanwhile Internet display advertising is forecasted to jump 13 percent.

The commercials on Sirius (where I am a subscriber) are awful. They seem like the types of spots that you would hear on an AM station in the middle of the night. I can't speak to XM. In their latest quarters, XM and Sirius got a miniscule $17 million from advertising.

I am not suggesting that satellite radio become a like the annoying commercial-laded stations on terrestrial radio, but the companies will need to do better. They can't rely on subscribers for everything, particularly as Apple Inc. (NASDAQ:AAPL) continues to improve the iPod and wireless companies keep making their devices better and better. The novelty of satellite radio is wearing off.

One positive thing from a merger would be the combining of the programming staffs. It seems like much of the music programming on Sirius is pre-taped. I realize that staffing such a huge number of channels is expensive. The bigger staff will hopefully create more programming which will attract more of an audience. The audience will follow.

But perhaps the biggest challenge facing Karmazin will be keeping Howard Stern and Opie and Anthony from killing one another. I can' t wait to tune into Howard's show tomorrow.

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Last updated: November 25, 2009: 08:37 AM

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