A New Song For Sirius

Sirius (SIRI) CEO Mel Karmazin is testifying before Congress to give the reasons that the federal government should allows his company to merge with rival XM (XMSR). His pitch is familiar by now. Satellite radio is just a tiny part of the overall audio entertainment industry. A merger of the two companies would not create an entity that would dominate the marketplace. There is too much competition from plain old radio and devices like the iPod.

Of course, Congress and the FCC are concerned that the combined company would use its "monopoly power" to raise it rates and screw its subscribers. Satellite radio is the only way to get a signal that does not fade as drivers more further away from a radio station.  Sort of seems like a monopoly, but maybe not.

The argument contradicts the one used by both companies to convince Wall St. to buy their stocks. That pitch said that satellite radio was the only game in town for listeners who wanted a coast-to-coast signal and clear digital sound. No one else could offer that. Period. That sort of sounds like a monopoly.

Based on the argument that satellite radio would dominate the music entertainment delivery business, especially in the car, Sirius stock hit near $70 at one point. It now trades at $3.33. XM’s stock hit $45. It now trades at $13.50.

Karmazin could save Congress a lot of time. He could simply come out and say that the companies failed at their goal of dominating music entertainment and ask for the merger as a way to save both companies. It would be true, and it might work.

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in any of the companies that he writes about.