Deal delay may hurt Sirius, XM holiday sales

By Franklin Paul - Analysis

NEW YORK (Reuters) - It's barely spring, but Sirius Satellite Radio Inc's (SIRI.O) unfinished merger with XM Satellite Radio Holdings Inc XMSR.O may already be hurting their holiday-season subscriber push, possibly delaying some benefits of the deal deep into 2009.

Should Sirius's $3.5 billion all-stock acquisition be cleared by the Federal Communications Commission -- its last regulatory hurdle following the Department of Justice's approval last month -- the merged company would have to aggressively cut costs and integrate operations.

The speed and timing of a turnaround is key, since both companies typically score their biggest subscriber gains in the winter holiday season, when consumers buy the services as gifts.

But with no clear date for the FCC decision, integration plans that have been on hold for more than a year, since the deal was announced, could miss key milestones in 2008.

"No matter how quickly they get it done, if they miss this fourth quarter, they will miss one year of opportunity," said Rob Enderle, principal analyst for the Enderle Group. "So getting this cooked fast -- at least from the standpoint of the perception to the buyer -- would be critical."

For example, company staffers would need time to map out a plan for mass-producing a radio, at a manageable cost, that receives live content from both services. Sirius Chief Executive Mel Karmazin has said such a radio exists, but there have been few details on its consumer availability.

In the meantime, a combined company would need to prevent confusion among subscribers as it keeps two different services alive. Financially, Sirius would have to address refinancing some $1 billion in XM debt amid a U.S. credit crunch.

"Unless they do something superhuman, their biggest shot ... is late third quarter 2009 -- the back to school season. That's a long time to wait for ramp," Enderle said.

Subscribers will have to wait many months to see one of the most exciting benefits of the merger, a single service on a single radio combining XM talent like Oprah Winfrey with Sirius celebrities like shock jock Howard Stern.

The combined company, to be led by Karmazin, would -- six months after the deals closing -- offer subscribers greater choice with tiered programming, such as a "mostly music" package, for less than the current monthly rate of $12.95, which covers music, talk and sports offerings. Full "a la carte" service won't be ready until a year after the close.

And as the U.S. economy weakens, a joint XM and Sirius could find it harder to convince subscribers why anyone should pay for radio in the first place.

RETAIL INTEREST HAS SLOWED

Interest in pay-radio has cooled in the 14 months since their deal was announced, as both XM and Sirius have muted their marketing push while lobbying regulators to approve the deal.

In the interim, the market for portable entertainment gadgets has become more crowded, with Apple Inc's (AAPL.O) new iPods and iPhone, and millions of music-playing cell phones.

As rivals, XM and Sirius routinely used the Consumer Electronics Show in Las Vegas every January to upstage one another, announcing ever-smaller portable players and chips aimed at making satellite radio ubiquitous.