XM Satellite Radio Holdings announced double-digit growth in revenues and its subscriber base despite Congressional foot-dragging in regard to its potential merger with rival Sirius Satellite Radio.
The company’s revenues increased 22 percent in 2007 to US$1.1 billion, driven in large measure by its 18 percent growth in its subscriber base, to more than 9 million subscribers. The company also expanded its hardware growth, with 3.5 million XM-equipped automobiles now available, an increase of 64 percent in 2007. With 1 million of that figure coming in the fourth quarter, the company expects to see the hardware installation base grow.
Still, XM executives are pushing for regulators to clear the path for its merger with competitor Sirius Satellite Radio.
“XM has doubled its revenues in the last two years and our investment and robust performance in the new car market establishes a clear path for sustained future growth,” said CEO Nate Davis. “Our pending merger will benefit shareholders and offer consumers more programming choices and lower prices.”
At first glance, it’s hard to see financially why Sirius and XM continue to push the merger. Each quarter, the two companies’ financials appear to get better, with increasing subscriber rates, growing revenues and declining costs.
Sirius, XM’s only direct competitor in the satellite radio space, announced its own earnings on Wednesday. Sirius also showed strong growth, increasing its revenues by 45 percent while also increasing its subscriber base from 6 million to 8.2 million.
However, those numbers can be deceiving. Even as it was pulling a record for new subscribers, Sirius lost nearly 50 percent of its current subscribers.
Overall, there is still a very small subscriber base for satellite radio — fewer than 20 million people — and the increased competition for content continues to drive up costs, Josh Martin, senior analyst with The Yankee Group, told the E-Commerce Times.
The net effect is that potential customers are less likely to make the leap because they don’t want to pay for a service that doesn’t a full suite of content offerings. Sirius, for example, has exclusive rights to broadcast the National Football League, while XM has exclusive rights Big Ten, Pac-10 and Major League Baseball.
The constant renegotiating of content rights — each hoping to grab the content that will attract subscribers — would inevitably drive their costs beyond the revenues generated by their subscribers.
“The challenge is that this is a small market,” said Martin. “You are constantly renegotiating the rights for sports and other content. At the end of the day, you don’t know if a third party is going to come in and take those rights. A merger just gives each company one less competitor to negotiate against.”
It is absolutely ridiculous to claim that this merger would not create a monopoly. Any claim to the contrary relies on proclaiming the existence of an absurdly broad hypothetical market segment, such as "audio entertainment", in which such a merger would not be a monopoly. The fact is that it would create a monopoly in the nationwide mobile broadcast audio segment, where there simply are no similar competing services.
Even if streaming audio via terrestrial wireless broadband internet were considered, not only will the coverage be spotty for many years to come (try rural Wyoming, for instance), but you’d be hard-pressed to find a self-contained receiver that acts anything like a radio. When I get into my car, I just want to turn on the radio and tune it to a station. If I want to change a station while driving I want to turn a knob or press a button, not have to click on a Favorites menu in a browser. Not only that, but it’s hard to claim an $80 per month cellular data plan is competitive with $13 per month XM. It just isn’t quite comparable. Maybe a few years from now, but not yet.