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XM/Sirius merger: Bad for business?

Justice Dept. rules that new satellite monopoly will not crowd out small competitors.

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(FORTUNE Small Business) -- On Monday, the Justice Department approved the $4.6 billon merger of Sirius Radio (SIRI) and XM Satellite Radio Holdings (XMSR), the nation's only satellite radio providers.

When FSB first profiled XM back in 2004, the company had recently signed its millionth customer and was zooming past its older competitor, Sirius. But neither company has managed to turn a profit so far.

Sirius and XM believe that the synergy from the merger, which was announced in February 2007, will help their bottom lines and also benefit listeners, who will no longer have to choose between the two companies' exclusive programming.

The Federal Communication Commission must still approve the merger before it is finalized. Approval would mean overturning a 1997 FCC ruling that prohibited Sirius and XM from joining forces, a decision made to ensure "sufficient continuing competition."

The Justice Department ruled that the new company will not unfairly dominate the market because listeners have access to numerous other audio media, including MP3s, Internet radio, and high-definition radio.

Critics of the Justice Department's decision, including the National Association of Broadcasters, believe that the resulting satellite radio monopoly would unfairly compete with traditional analog radio.

However, independent radio station operator Joe Schwartz expressed little concern about the merger.

"[It] would have a small impact on us if any," said Schwartz, whose company, Cherry Creek Radio, operates stations throughout the western United States.

Schwartz dismisses the satellite radio industry as a threat because its combined subscription base - a little over 17 million - is a relatively small percentage of the U.S. radio audience.

Nor is Schwartz convinced that the merger will do much to help XM and Sirius make money.

"It's a subscription-based revenue model, and I can't see a way for them to make it work," said Schwartz, whose 65 stations are sustained by advertising.

"I think it's two money-losing companies merging to form one money-losing company." To top of page

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