How the Merger of Sirius and XM Will Work

Satellite radio allows listeners to access radio stations without sitting through radio ads. Only two companies -- Sirius and XM Radio -- have attained a measure of success in this industry. Visit our HowStuffWorks article to learn more about the merger.

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Episode Transcript

Speaker 1 (00:00):
Brought to you by the reinvented two thousand twelve Camray.
It's ready. Are you get in touch with technology? With
tech stuff from how stuff works dot com. Hey there,
welcome to the podcast. My name is Chris Poette. I'm
an editor here at how Stuff Works, and today I
have with me Jonathan Strickland, a writer. Hey there, it's

(00:22):
my radio voice. All right, Speaking of radio, we're today
we're going to discuss a topic that's near and dear
to my heart, which is satellite radio. And I should
confess that it's near and dear to my heart for
a couple of reasons. One, I've been a satellite radio
subscriber since two thousand and two. I am also, I'm
honestly on the on you know, sake of clarity, I

(00:43):
am a stockholder of what is now Serious XM Radio
since the two of them merged not too long ago.
Um So, of course, feel free to throw things at
me if I get too excited. I always do, all right. So,
satellite radio, you might say that's of an odd idea. Well, yeah,
you know, this is not Marconi's idea of radio, you know,

(01:05):
which was essentially that the frequencies are traveling through the
air and you pick them up once they've been broadcasting
those signals. AM you know carries aways and FM carries aways,
and they both have their advantages and disadvantages. But satellite
radio UM has bounced off of satellites that are in
orbit around the Earth, and UH, the UM enhancement here

(01:30):
is it's gotten more bandwidth than the average FM signal,
So you're getting more information in the signal, you're probably
getting better quality sound, and UH it also allows you
to listen to channels on the go. You can basically,
if you're in the United States or Canada, you're able

(01:50):
to subscribe to satellite radio and you could drive from
one end of the country to the other without losing
the signal that you're listening to. Right, You wouldn't have
to sit there and keep fiddling with your radio and
try and find that one station that's not playing country
exactly right. UM. So it's uh, it's pretty nifty for
for music aficionados, especially UH speaking again and you know

(02:14):
from my own personal experience, because both what have been
operating as individual companies, Serious Satellite Radio and XM Satellite
Radio UH in the United States and Canada. Both of
them offer dozens of music channels. Um. They also offer
a variety of other programming news, sports radio, talk radio,

(02:35):
public radio, UH, special interest radio, traffic and weather. You know,
so the people who subscribe to satellite radio are the
kind of people who want a university of programming and
they wanted on no matter where they go. It's primarily
used by people in cars and trucks, although you know,
some of us bring ours in and listen to it
at our desk while we're working. Um So, it's that's essentially,

(02:58):
in a nutshell, what satellite radio is, right and and
before the merger, when you could talk about XM and
Sirious as two separate companies, you could really talk about
the differences between them. Now those differences still exist even
though it's one company. You have two different systems that
you're working with. And we should give you a little
quick rundown on that. And now XM Radio has a

(03:20):
four satellites that travel in a geo stationary orbit. That
means they stay in a fixed position above the Earth.
Um So, as the Earth turns, these stay exactly where
they are. And it's supposed to give you that coverage
that Chris was talking about nationwide thank you, Arthur C. Clark, Yes,
thank you very much. So those are Those are named

(03:42):
rock Roll, Rhythm and Blues, which is much cooler sounding
than x M one, x M two, x M three.
They're also named that. But anyway, moving on now serious.
They also have four satellites. One of them is GEO stationary,
the other three are not, which means they actually kind
of drift over the United States in a certain pattern,

(04:04):
and now the coverage is still there. It's just that
it's uh as as one satellite is moving away from
covering North America, another satellite is coming directly over North America,
so you're there. Theoretically you don't lose any coverage that way. UM.
So those are the Those are the differences just from

(04:26):
satellite point of view. But they also use different proprietary coding,
so if you have a serious radio, you can't pick
up and decode x M signals and vice versa. Not yet,
not yet. Um, you were theoretically supposed to at some point,
but that never happened, although it's supposed to happen now
that they are one company. Yeah, the merger was a

(04:51):
very very long process in coming. It had to overcome
a number of objections. Uh. You know, there are major
lobbying groups like the National S Station of Broadcasters who
were against it. Uh. They argued and and you might,
as the listener, argue that hey, you know, there were
two companies now there are only one. Yeah. In fact,
the FEC, as part of the condition of giving them

(05:14):
licenses to operate these services, uh, expressly said, you know,
you may not merge, but you know, market conditions, it's
not cheap to launch a satellite um and maintain it
and maintain the you know, the number of people it
takes and do all the advertising to get people to
sign up. So both of these companies have been operating
in a loss for for quite some time. I mean,

(05:34):
they're making some money, but it takes a lot of
money to to get more subscribers. So you know, that
was a lot of the reason behind why they were
trying to merge. And eventually they overcame the objections of
of the lobbyists and the well they didn't overcome those,
but the government agency agencies like the Department of Justice,
the SEC, the FCC finally came together and decided, well

(05:59):
it's it's okay. It was sort of grudging. They had
to give up a lot, uh, twenty million dollars v
they had to freeze rates for three years. You know,
a lot of things that they had to do. Was
very difficult for them to do it. But they finally
merge and it wasn't it wasn't a blowout by any means. Uh.
The FCC came to a decision. It was a three

(06:19):
two decision, so three four two against and um and
I mean you might be shocked to hear this, but
it went straight down party lines, three Republicans voting for
the merge and two Democrats saying please know so um yeah,
I mean it's it's one of those things that people

(06:39):
still feel a little unsure about. For one thing, there's
the concern that since there's only one satellite radio company
really in the United States at this point, it's a monopoly. Now.
The the counterpoint to that argument is to say that, no,
of course, not satellite radio is is competing with many
other industries now, they're they're not other satellite radio companies,

(07:03):
not in the United States and Canada, right right exactly,
I'm just on the US and North America here. So, um, so,
what you're talking about here is is competing with things
like just traditional radio, so traditional radio versus satellite radio,
or even things like personal music devices like iPods or
other m P three players um or even the iPhone.

(07:25):
One of the most popular new applications on the three
G I phone is Pandora, which is a streaming radio
h web application, and you can get music on that
and it it'll just start pulling music and playing it
through your your iPhone. So so the FCC said, all right,
you know, that does sound like that's enough basis for competition.

(07:48):
So this really isn't a monopoly. That's how they kind
of got through that. It's funny that that you would
talk about those objections because also in the interest of disclosure,
when I signed up for satellite radio, I was working
for one of the major UH, the two satellite television
providers in the United States, and at that time, in

(08:09):
two thousand and one, two thousand two, they were looking
at the possibility of merging Direct TV and Dish Network,
And an article in the Wall Street Journal just the
other day, since Serious and XM were allowed to merge,
UH said that they that Dish Network is actually considering
the possibility of another merger attempt. Now they were denied

(08:31):
the opportunity to do that because the people who are
against it, I believe, if I'm not mistaken, this is
off the top of my head, the NAB opposed that too. Um.
But but that's a little bit different situation. Unlike radio
and iPods and all the other things that you can
do with with audio signals. Um. People in rural areas,

(08:53):
say the mountains of West Virginia, you can't just lay
more television. Cable is very very difficult to that. So
the only competition satellite TV has in those areas is
regular broadcast TV, so you might be limited to a
very few stations versus you know, the depth and breadth
of satellite TV programming, which is why they were unable

(09:14):
to merge before. I was the big uh contingent you know,
who was against it, saying it was an monopoly there.
That's why they were successfully able to argue that. But
there's a lot more that satellite radio competes with than
than just those options. So that I think that's probably
what was maybe the deciding factor, at least it would
have been for me, right, But it might set a precedent.

(09:35):
We'll have to just wait and see and see if
if that lays the groundwork for satellite television mergers down
the line. UM. Just to get back to the the
discussion about the cars, something interesting I read was that
some car manufacturers might not be so thrilled about the
the merger of x M and Serious because a lot
of cars are now including satellite radio UM as one

(09:59):
of the options you can have and UH and different
car dealers our car models. Car manufacturers have made deals
with either XM or Serious, so it was one way
to differentiate the model from other cars. And now that
method of differentiation is gone because they're the same company.
That's interesting. I never really thought that that that that

(10:21):
would be a bad thing. I thought it would be
a good thing because it makes it much easier you
have a you know, you've consolidated your choices. You don't
have to make that choice, right. But it turns out
that that's not as simple as I thought. Yeah, it's Uh.
It's funny because it's also both services are offered with
satellite TV now they eat. If you're a Direct TV subscriber,

(10:45):
you get XM channels as your music. If you're a
Dish network subscriber, you get Serious music channels included with
your TV, So I wonder, you know, I haven't seen
anything about that, but I wonder if that's going to
be an issue for them there. They have lot of
agreements that they have in place that they're going to
have to to work out. And that's why, Uh, you're

(11:05):
not going to see a dramatic shifts suddenly in the
number of channels if you are a subscriber or the
kind of channels, because they're they're they've got a lot
of issues yet to work out having a chip set
that picks up signals from both kinds of of those satellites,
so you know, it's it's gonna be a while before
they really get the kinks worked out. Actually that that
leads me. I don't mean to put you on the

(11:27):
spot here, but I'm just curious what you think the
the viability of satellite radio is. I mean, seriously, they're
talking about a subscription based service, so people are paying
for this, um when they can get things like Pandora
Internet radio, Uh, when they can get things like a
traditional radio. UM. Do you think that satellite radio really

(11:50):
is does have a future after this merger? Yes and no,
I think the idea is viable. I think it's it's
sort of like DVR technology, where it's got a mass,
but it doesn't seem to have reached critical mass. UM.
I think that they have both well serious XM radio.

(12:10):
The new company has an awful lot of debt to
work off, UM, and I honestly think that if the
merger had not gone through that they would have had
a very difficult time surviving. I don't think both of them,
maybe not either of them would have survived that now, UM,
you know, with the semi monopoly conditions that also opens

(12:30):
the field. I think it would be very easy, if
you had the wherewithal to do it, uh, to launch
another satellite radio service to compete with Sirius xm UM.
You know, because then you could say, well, hey, you
know there's a monopoly out here. I want to compete
with them. You know. I think it would be much
easier for a new player to get in the market
and compete with it. And I think, you know, there's

(12:52):
only so much iPod that you can take before I go,
you know what, I just want somebody else to spend
something new that I haven't heard before, right, And I
do remember were reading something about them being locked into
UH they couldn't go over a certain subscription sheet for
a couple of years after the merger, which, as you
point out, that means that if someone else were to
come in they could they could take advantage of that.

(13:13):
I mean, if if that amount of money isn't enough
to keep the company afloat, then then they may it
may have just prolonged the inevitable. Well, I guess that
about wraps up this podcast. Do you would like to
learn more? Please read how satellite radio works on how
stuff works dot com and we'll talk to you again soon.

(13:34):
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