Rumors became reality February 19th as XM Satellite Radio Holdings and Sirius Satellite Radio Inc. announced plans to merge their separate operations into one big music box in the sky.
Of course, corporate unions of this magnitude do not occur in a vacuum and there was speculation over the last few months that the two companies were talking merger or that one would gobble up the other. In fact, the New York Post reported the merger only hours before the official announcement.
Valued at $11.4 billion, the "merger of equals" means shareholders of both companies will own about 50 percent of the combined company. However, current XM stockholders may end up on top because Sirius will give them 4.6 shares of that company’s stock for each share of XM stock, working out to XM shareholders getting a premium of 22 percent to XM’s $13.98 closing price on February 16th.
Sirius CEO Mel Karmazin will rule in the same capacity over the combined company, and Gary Parsons, XM’s current chairman, will do the same. But don’t expect XM CEO Hugh Panero to be a part of the new company’s future. He’s expected to leave the building once the deal closes.
Along with Karmazin and Parsons, the 12-member board will be made up of four execs from each company and one representative each from GM and Honda.
There is plenty for consumers to like in the merger, what with content from both companies suddenly becoming available to the other’s subscribers. For instance, XM listeners will get Howard Stern and Martha Stewart, while Sirius customers will have access to XM’s Major League Baseball package and other sports channels such as ESPN, Fox Sports and the PGA tour.
However, when it comes to programming, both sides do engage in duplication. For instance, both XM and Sirius offer channels devoted to blues, country, alternative and music selections grouped by decades. By combining similar programming, the new company will be able to devote more time and resources toward developing unique content.
The new merger would also mean an end to the "XM or Sirius" question currently facing consumers when shopping for satellite radio receivers. Neither service works on the other’s hardware, although engineers for both companies are working on a unit that will receive both signals. Meanwhile, current users may have to upgrade to receive all the content the new company will offer.
On their own, neither XM nor Sirius has turned a profit, but combined 2006 figures show about $1.5 billion in revenue with about 14 million subscribers. Both companies’ stocks dropped about 40 percent in 2006 because of worries about subscription growth.
But before Sirius and XM get too cozy, there are at least two major hurdles the two companies will have to overcome before they can consummate their corporate feelings for each other.
Like the Federal Communications Commission, which created a regulation back in 1997 specifically prohibiting the two companies from merging.
Of course, the FCC could either change the rule or just create an exception to the rule that only applies to this specific situation. Or maybe they could just toss it completely.
But that’s not the current vibe emanating from the Commission. Chairman Kevin Martin has already said the two companies have a pretty tough case to prove consumers will benefit from the deal.
Then there’s the Justice Department, which might consider the merger a violation of antitrust rules and regs.
But that’s just the government. Commercial broadcasters aren’t too happy about the proposed merger either. Just ask National Association of Broadcasters Executive Vice President Dennis Wharton.
"Given the government’s history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius," Wharton said. "It bears mentioning that regulators summarily rejected a similar monopoly merger of the nation’s only two satellite television companies – DirecTV and Dish Network – just a few years back."
But the world has changed since 1997, when the FCC declared that XM and Sirius must forever go their separate ways. Back then, terrestrial radio was considered to be satellite radio’s biggest competitor. Of course that was before iPods, music streaming on demand and Internet radio.
Plus, Sirius’ Mel Karmazin has a reputation for getting what he wants. If the government tries to block the merger, you can bet Mel will give the feds one helluva fight.
If there is one thing entertainment companies learned by watching the recording industry’s trials and tribulations with the Internet, it was that they could not afford to wait until people started trading video files before launching their own Web-based ventures. They didn’t want to wake up one morning and find their content already distributed via peer-to-peer networks. At least, not without getting a cut of the action.
Currently in beta testing, Joost (pronounced "juiced") was founded by Niklas Zennström and Janus Friis, who also are responsible for Internet phone service Skype and the original Kazaa, which they eventually sold to Sharman Networks. Until this year, the company was officially known as The Venice Project, but switched to the Joost handle in January.
Joost wants to be your TV site on the Web by including current as well as archival programming. Unlike YouTube, which removes copyrighted material upon request but otherwise does not actively search its own inventory for violations, Joost is promising potential content providers that it can provide a safe, pirate-free environment for video.
It was such a promise that evidently lured Viacom into giving Joost a try. Two weeks after the entertainment giant ordered YouTube to pull all Viacom content, the company made a deal with Joost for hundreds of hours of both current and archived programming, including Paramount movies and TV programming from the company’s well-known brands like Comedy Central and MTV.
But why would Viacom, or for that matter, any major entertainment company, want to make a deal with an outfit like Joost? Simply put, they understand the need to go where the viewers are, and the viewers want to watch TV programming when they want to see it, not when networks want them to see it.
"We’re extremely pleased to be working with Joost, and couldn’t be prouder to be a key partner in the launch of the next generation in broadband video technology," Viacom President and CEO Philippe Dauman said.
"We built this platform from the ground up, with companies like Viacom in mind," said Joost co-founder Friis. "Our platform provides scalable distribution, in a completely safe environment that protects the interest of content owners and advertisers, while delighting viewers."
Hi Ho Veoh!
Then there’s Veoh, a new video enterprise that does want its clients’ content on sites like YouTube, MySpace and FaceBook.
Distribution is the dynamic that powers Veoh, which serves as kind of a one-stop place on the Web where a content provider can hit all the major sites by uploading to one single Internet address. Once uploaded, the videos can be distributed to the aforementioned Web sites plus blogs, Really Simple Syndication feeds, even iPods.
Veoh also harnesses peer-to-peer technology to have Veoh users carry some of the load required for delivering large video files. With users’ individual computers sending small portions of files, viewers will receive the video much quicker than if the content was posted on a central server.
Another feature is Veoh’s Web-based digital recorder service, meaning you can record all your favorite programs for later viewing via the company’s Web site, the perfect answer for the couch potato who is miles away from the sofa.
But what is really catching the entertainment industry’s interest is the list of heavy hitters that are already involved with Veoh. Former Disney chairman / CEO Michael Eisner is on the Veoh team, and Time Warner is a key investor.
Along with streaming previously aired TV programming and functioning like a DVR, Veoh has closed a deal with US Weekly magazine to create a celebrity news channel, and has an agreement with United Talent Agency to create a channel to showcase the work of aspiring actors and directors.
Sites like Joost and Veoh are just the beginning as the separate worlds of Internet and TV come closer to that inevitable day when both mediums become indistinguishable. Already Internet reality clips are making their way to TV news programs while television learns how to increase its audience via the Web.
Maybe that’s why Veoh chief executive Dmitry Chapiro calls his company a "virtual cable operator." After all, it’s hardly just another Web site. Or, for that matter, another TV channel.