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Labels weigh potential fallout of satellite merger
February 26, 2007 / 12:14 AM / 11 years ago

Labels weigh potential fallout of satellite merger

<p>This combo picture shows an XM Satellite Radio unit (top) and rival Sirius Satellite Radio unit installed in separate private vehicles in Washington February 20, 2007. Would a merger between XM Satellite Radio and Sirius Satellite Radio be good or bad for the music business? That's the question industry executives have been wrestling with since the two companies announced plans to combine in a $13 billion deal that creates a single satellite radio behemoth. REUTERS/Jason Reed</p>

NEW YORK (Billboard) - Would a merger between XM Satellite Radio and Sirius Satellite Radio be good or bad for the music business?

That’s the question industry executives have been wrestling with since the two companies announced plans to combine in a $13 billion deal that creates a single satellite radio behemoth.

Officially, label executives are taking a wait-and-see approach. But privately, they are debating the ramifications of the tie-up on everything from promotion opportunities to licensing revenue to existing litigation strategies.

Some of the biggest question marks surround the impact of consolidation on satellite radio’s role as a promotion and exposure platform.

XM claimed 7.6 million subscribers at the end of 2006, while Sirius had 6 million. If the two companies are integrated, similar channels likely will be eliminated, giving the labels fewer outlets where they can promote new artists.

Label sources say that support from XM and Sirius in terms of airplay for baby bands oftentimes can be a key early component in building momentum to take budding acts to terrestrial radio and MTV.

Such strategies have worked effectively, particularly in the rock genre with bands like Panic! at the Disco and Hellogoodbye.

“Anytime you take away airplay it hurts,” said Mike Easterlin, senior vice president of promotion for Lava/Atlantic. “There’s (fewer and fewer) places to go to break new music, and this is one place where we had a couple outlets that were aggressive about it. Now we’re losing one.”

That’s not to say that a merger of the satellite radio rivals is going to be felt immediately in terms of sales.

EFFECT ON SALES UNCLEAR

Radio promo executives note that exposure via XM and Sirius is tough to gauge in terms of CD and download purchasing.

“When MTV is really spinning a video you see the sales,” Easterlin said. “I don’t know (that) you necessarily get a sense from satellite radio whether it turns into sales. It is difficult to quantify what is happening there.”

But not everyone is convinced that consolidation among satellite radio players is going to negatively affect the music industry’s ability to find early champions for developing artists.

Edison Media Research analyst Sean Ross suggests that airplay from the combined entity will have a greater impact on the artists it plays due to its increased size and potential reach of more than 13 million subscribers combined.

If a merger is allowed to go through -- far from a certainty, according to analysts like Maurice McKenzie of Signal Hill Capital, who calls the prospects of the deal clearing regulatory hurdles a “low probability” -- the merger could also hit the labels on the bottom line.

Record companies collect licensing fees of a few million dollars each from the two satellite operators. Income the labels take in from satellite is expected to increase meaningfully when the Copyright Royalty Board announces new rates for noninteractive performance rates for sound recordings. An opinion is expected to be delivered by March 5.

Labels are also trying to determine just how a merger would affect a copyright infringement lawsuit filed by the four major record companies against XM last May over the Inno, a handheld device that allows for downloading of satellite programming. A federal judge in January denied XM’s attempt to dismiss the lawsuit. Some industry sources have suggested the merger could force XM to settle the deal.

Reuters/Billboard

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