‘A la carte’ satellite radio has a catch

By Christopher S. Rugaber

updated 4:12 p.m. ET March 26, 2008

WASHINGTON - Sirius Satellite Radio and XM Satellite Radio Holdings Inc. are pegging regulatory approval of their merger to giving consumers more control over the specific channels they buy.

There's one catch: Customers would need new radios at up to $200 a pop.

The companies' combined 17 million subscribers have radios that aren't interoperable. Radios that can receive signals from both companies likely wouldn't be available for at least a year after the merger — and a year or two after that for customers who get satellite radios via new car purchases.

The Justice Department on Monday green-lighted Sirius' acquisition of XM and the companies are pitching the benefits of "a la carte" programming to the Federal Communications Commission, which must also sign off on the deal.

The companies would offer "the first-ever a la carte options in subscription media," they said in a statement late Monday.

XM and Sirius obtain most customers through auto makers, who offer the radios and the service in new cars. But carmakers require lead times of several years to update dashboards with new products so cars with interoperable radios likely wouldn't be on dealer lots for up to three years, predicts Jim Goss, a media analyst at Barrington Research.

Thomas Barnett, assistant attorney general heading the Justice Department's antitrust division, said Wednesday that agency officials concluded interoperable radios would take two to three years to be available from automakers.

FCC Chairman Kevin Martin has expressed support for requiring cable companies to provide "a la carte" options and may want to set a media precedent by conditioning approval of the XM-Sirius deal on offering customers the right to choose which channels they receive, analysts said.

Still, the FCC is likely to approve the transaction because the agency has "never to our knowledge" gone against Justice, says Kit Spring, an analyst at Stifel Nicolaus.

After Justice cleared the deal this week, both companies said "no existing radio will be made obsolete by the merger." Subscribers would be able to receive select programming from the provider they don't currently subscribe to on existing radios, the companies said.

They haven't specified whether popular programming, such as Sirius' Howard Stern or XM's major league baseball, would be part of the "select programming" available.

XM and Sirius say they plan to offer eight options that combine the companies' offerings, such as a "mostly music" package with 65 channels, for $9.99 a month — less than the current flat rate of $12.95. Six of those eight options will be available on current radios.

The two "a la carte" packages that promise the most flexibility, however, will require new radios.

The cheapest "a la carte" option would offer 50 channels for $6.99 a month with additional channels costing 25 cents each, though premium choices, such as the NFL channel, would cost $3 or $6 each per month. Another "a la carte" plan would offer 100 channels for $14.99 a month.

Analysts expect few current subscribers to pay for the new receivers. Current satellite radios cost between $40 and $200.

Perhaps 5 percent to 10 percent of current subscribers "might go through the trouble" of buying new radios for the "a la carte" option, Stifel Nicolaus' Spring wrote in a recent note to clients.

Spokesmen for Sirius and XM declined to comment beyond their statement because merger approval is still pending before the FCC.

When the two companies debuted a decade ago, the FCC approved their launch with a requirement that they design interoperable radios, which the companies say they have done. But until now there was little incentive to invest in making the design commercially available.

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