Sirius-XM Union a Hard Sell

WASHINGTON Sirius CEO Mel Karmazin’s attempt to sell policymakers on the merits of a merger between his company and its rival XM Satellite Radio was greeted with skepticism and outright contempt Tuesday as at least one lawmaker wondered if such as high-priced talent Howard Stern and Oprah Winfrey costs the firms too much.

Senators on the Commerce Committee seemed little inclined to buy Karmazin’s contention that a combination of the nation’s satellite radio companies would help consumers, despite his promises that the $4.6 billion deal would bring more choices for less money.

“I believe lower costs and more choices for consumers is a good thing,” Karmazin told the panel.

But that bromide did little to mollify lawmakers, who expressed concern that reducing the satellite radio universe from two companies to one would benefit consumers.

“I believe that the merger proponents, in this case, have a steep hill to climb,” said committee chairman Sen. Dan Inouye, D-Hawaii. “Indeed, given the public interest in promoting competition and maximizing a diversity of media outlets, we should be skeptical of claims that new technologies necessarily ‘change the equation’ and provide competition sufficient to restrain monopoly power.”

While Inouye worried about the merger’s consequences, Sen. Byron Dorgan, D-N.D., was even less charitable.

“I oppose the merger,” he said. “It will eliminate the competition that exists between the two separate companies, and it will injure consumers. This isn’t even a close call.”

Dorgan produced a poster with pictures of performers who have signed lucrative contracts with either XM or Sirius, including Winfrey and Stern. He questioned whether the companies’ free-spending ways were as much to blame for the merger as the efficiencies promised by the combination.

“Has that provided some tightening of revenues for two companies that want to be one?” he asked rhetorically.

Karmazin deflected those questions, telling the lawmakers that the merger would give consumers more choices at a lower cost. He told the panel that someone wanting the “best-of” XM and Sirius would only have to “pay a modest premium” over the current $12.95 per month the services charge.

This is different from what Karmazin told the House Commerce Committee last month when he said most customers would have to pay $25.95 if they chose to receive all of the programming available on both services.

Karmazin also told the senators that customers who didn’t want the premium channel package would get different programming deals for less money. How much less he didn’t say.

David Bank, managing director, RBC Capital Markets, told the committee that the combined company could see cost savings by combining its back-shop operations and quit competing against each other for talent.

Bank told the committee that the company could save money “from a potential education in leverage” that content providers from the sports leagues to entertainment companies as well as automotive manufacturers previously exercised when XM and Sirius were bidding separately for content and distribution contracts.

While Bank appeared to support the merger, he told the panel that the bidding war for talent had made a dent in the companies’ bottom lines.

“These costs, extracted from XM and Sirius in the form of fixed payments, variable revenue share payments and subsidies, have been significant,” he said. “In essence the industry has been bidding against itself.”