XM-Sirius Merger Made Simple: One Is Always Less Than Two

Unquestionably, a merger would lower the satellite providers' fixed costs, let them quit their marketing war against one another and allow them to reduce spending on programming. Financial analysts say XM and Sirius could save between $3 billion and $7 billion by combining. Why else would the two companies pour so much money into this lobbying battle?

Karmazin, who would be chief executive of the combined satellite provider and is leading the charge for a merger, counters that listeners would benefit by getting the best of both services without having to pay for two subscriptions. To bolster that claim, the companies propose a menu of pricing options: Subscribers could keep their current service at the same price they pay now; add the "best of" the other service for an extra $4 a month; or choose to get fewer channels at a lower price. But while the companies tout these choices as the a la carte offering that cable TV has never consented to, the fact remains that if you want more channels under a combined XM-Sirius operation, you will have to pay more.

The danger in offering packages with fewer channels is the same risk cable TV companies have warned against for years: If consumers can pick and choose channels, that undermines the whole business, because inevitably, the bulk of the audience will spend most of their time listening to a relative handful of channels. Less popular channels, now subsidized by a flat subscription fee, would wither away.

With TV, according to an FCC report, the average cable household only watches 17 of the 100-plus channels they receive. On satellite radio, according to the first-ever satellite ratings report released by Arbitron this fall, a dozen of Sirius's 130 channels were clustered at the top of the heap, including the channels most similar to broadcast radio's offerings -- pop hits, oldies, new and classic country, Howard Stern and a couple of rock formats. On XM, similarly, 20 of the 170 channels drew by far the biggest audiences -- again, classic country; oldies from the '50s, '60s, '70s and '80s; current pop hits; light rock; classic rock; smooth jazz; and urban hits.

How long would more obscure, low-rated satellite programming such as Sirius's Underground Garage rock or NPR Talk channels or XM's Cinemagic movie music or choral classical outlets survive in a monopoly, a la carte system? And if the range of programming narrows, what is satellite offering that AM and FM do not?

Virtually anyone can start an Internet radio station these days and play an intriguing mix of music. But only XM and Sirius -- and National Public Radio, perhaps -- have the resources to produce a great range of creative, professionally produced programming: Bob Dylan's explorations in music and storytelling on XM; original radio dramas; XM's Artist Confidential series of sessions with big-name performers; and specialized programs for truckers, gays, Latinos, NASCAR fans, Broadway lovers, opera buffs, movie-music mavens, presidential campaign addicts and on and on.

That programming diversity is what justifies giving XM and Sirius a chunk of the government-licensed radio spectrum. Reducing the two services to a satellite monopoly will inevitably bring about a diminution of choices, along with higher prices. At XM's Washington headquarters, the number of producers and DJs would decline, meaning more formulaic programming -- if XM even remained here. How long would Karmazin keep production facilities in both the District and New York, where Sirius is based?

Both XM and Sirius say they can survive without the merger, even in fierce competition with all the other content providers scrapping for an audience today. Let them compete.