They announced the plan a day before they’re are expected to formally respond to a request for information from the Federal Communications Commission (FCC), which is the first regulatory board that needs to sign off on the proposed US$13 billion all-stock merger.
Prices for the a la carte offerings would be as low as $6.99 per month, about half of the basic service plan for each of the two providers today.
The Merger’s Beneficiaries
The move toward scaled-down subscription plans is seen as a major concession to regulators at the FCC and in Congress, where opposition to the merger remains robust.
Sirius CEO Mel Karmazin unveiled the proposal during a speech before the National Press Club in Washington on Monday.
The additional offerings “demonstrate that consumers will be the beneficiaries of this merger,” Karmazin said. “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,” he added.
The satellite radio companies said they would increase the number of consumer choices from two to eight different services, including a combined a la carte option and a family friendly plan that would filter out adult content.
Consumer choice and pricing have been among the major concerns raised by the FCC as it reviews the deal. The FCC has not scheduled a vote on the merger, but XM and Sirius are hoping the deal will be approved by the FCC and the Department of Justice — which will weigh the antitrust implications — by the end of the year.
Choice and Price
After Sirius and XM combine operations, customers with one firm’s service could use it to get certain programming from the other provider, the companies said.
Their FCC filing would include detailed descriptions of the new pricing options, which will include two a la carte choices. In one, subscribers can choose 50 channels for $6.99 per month, along with the ability to add more channels for additional cost starting at 25 cents each.
The second a la carte option will allow subscribers to choose 100 channels, including some programming from the other provider’s menu of stations. That option would cost $14.99. Consumers will also be able to get access to the “best of both” carriers’ programming for $16.99 a month. Currently, getting content from both providers could cost around $25 per month, Karmazin noted.
Also planned is a family friendly lineup through which customers would get a price credit for channels they choose to block because of concerns about content; the two options would cost $14.99 or $11.95. Mostly music or just news and sports options offering only that type of content will cost $9.99 per month. The companies said it would take a year after the merger before all the a la carte options are available.
“From the day this transaction was announced, we promised that the merger would enable us to deliver more choices and lower prices for consumers,” said XM Chairman Gary Parsons. “These plans will further demonstrate why this merger is overwhelmingly good for consumers and in the public interest.”
Though it’s only the first hurdle, the FCC is seen as a key one because the agency will help determine how large the competitive backdrop is for considering the merger. XM and Sirius have long argued that their services compete with not only traditional free radio but also Internet options and portable music devices such as the iPod.
The chances of the merger being given the green light have improved recently thanks to an aggressive lobbying campaign by Karmazin and others, said Bank of America analyst Jonathan Jacoby. Still, he believes the odds are against approval in the next couple of months, putting the chance of approval at 35 percent, up from 30 percent earlier this year.
“It appears that there are simply still too many opportunities for the approval process to be delayed or left for dead,” Jacoby said.
Concessions such as the a la carte pricing could erode some of the merger synergies and cost savings that drove the companies together in the first place, he noted.
The deal will win approval, Bear Stearns analyst Robert Peck predicted in a research note last week, with concessions on pricing and choice making it difficult for regulators to say the merger would be bad for consumers.
As they await the fate of their merger plans, XM and Sirius continue to add subscribers, but not without some bumps in the road. In May, many XM subscribers dealt with periodic service outages stemming from a software update to an XM satellite.
Those types of stumbles underscore the need for the merger questions to be answered, said JupiterResearch analyst Barry Parr, who said some consumers may be holding off on choosing a service until they know if they’ll combine.
“The services are adding subscribers but there is an air of uncertainty about the future,” Parr told the E-Commerce Times. “No one wants to back the wrong horse if this becomes a race again.”