Sirius Satellite Radio Inc. (NASDAQ: SIRI) is one of two main providers of satellite radio in the U.S., competing with XM Satellite Radio Holdings Inc. (NASDAQ: XMSR). With a merger pending, they could become the only satellite radio provider in the U.S. and Canada. Should Sirius be the newest holding in your portfolio?

1. Sirius has content that other radio companies only dream about. Besides having uninterrupted music in every genre imaginable, they have exclusive content from the likes of Martha Stewart and major sports partners like the NFL.
2. The company achieved its first quarter of positive cash flow in the fourth quarter of 2006, based on preliminary year-end data.
3. Sirius uses geosynchronous satellites, while XM uses geostationary; both have signal strengths and weaknesses. If they merge, content would reach a greater number of customers. Even if they don't merge, Sirius should edge out in front of XM with its first geostationary satellite expected in 2008.
4. By the end of 2006, Sirius' subscriber base had increased approximately 82 percent over 2005.
5. A merger between Sirius and XM would likely mean decreased operating costs, as well as increased program variety and technology development.

1. The day after announcing the desired merger, Sirius' shares jumped 7 percent. Unfortunately, both companies have since experienced a significant decline.
2. This merger had the longest waiting period for official review to begin in FCC history. The actual review is expected to be prolonged as well. The longer it takes, the longer the company's stock will continue to flounder.
3. New subscriber estimates for satellite radio in 2006 fell significantly short: 1.4 million less than originally estimated.
4. Analysts estimate that the merger has only a 30 percent chance of succeeding. Both companies are struggling, and some analysts think they may not survive if kept separate.
5. Conversion rates (from free trials to paid subscriptions) decreased to 53 percent in 2006.

Sirius Satellite Radio is a fantastic product compared to traditional radio. The company is currently in the process of merging with its long-time and sole competitor XM, but pending decisions by the Department of Justice and the FCC could block it, banishing them to a perpetual battle for your money.

1. Satellite radio start-up costs are so massive that it's unlikely that new competitors will spring out of the woodwork.
2. Sirius CEO and Radio Hall of Fame inductee Mel Karmazin comes from a long history of advocating mergers to increase shareholder value.
3. At the end of 2007's first quarter, Sirius reported 6.6 million subscribers; XM reported 7.9 million in the same period, giving the potentially merged company nearly 15 million subscribers.
4. A former FCC Commissioner released a study in June 2007 that concluded a merger between Sirius and XM would benefit consumers. Granted, he was compensated for the paper, but it still looks good.
5. Traditional radio doesn't have a chance against commercial-free satellite radio that has more available stations without the static.

1. Sirius is bleeding cash – net losses totaled $144.7 million in the first quarter of 2007.
2. If Sirius and XM cannot merge, they will remain competitors, making it awfully difficult to cut spending and encourage profitable synergies.
3. Satellite radio is still competing directly with traditional radio and with the advent of technologies like WiMax and high-definition (HD) radio, it may be an uphill battle.
4. One analyst recently trimmed the anticipated savings Sirius and XM would see by merging by $1.4 billion. The reason? The combined company will likely pay higher fees for sports programming.
5. Average Americans who work to support themselves cannot always afford another $12.95 a month for premium radio.
 

Editor's Note:

brass is a quarterly publication, and as such, there could be significant information, news, or price changes that may differ from resources available at the time this article was written. All analysis is meant for educational purposes. You should not make decisions based on information contained in brass without the advice of a qualified professional advisor.

Sources:

sirius.com; xmradio.com; biz.yahoo.com; compassroseintl.com; thestreet.com; money.cnn.com; smartmoney.com; moneycentral.msn.com; bridgeratings.com; fcc.gov; siriusmerger.com; businessweek.com