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Sirius XM: Tune in next year

New radios for combined programming are nine months out, and there's a three-year wait for new car radios.

By Scott Moritz, writer
Last Updated: August 8, 2008: 1:55 PM EDT

Sirius XM CEO Mel Karmazin said that because automakers "control the dashboard," new car radios that can play both Sirius and XM programming are years off.

NEW YORK (Fortune) -- Sirius XM CEO Mel Karmazin finally got what he wished for with the merger of Sirius and XM last month. But for listeners hoping for a kaleidoscope of combined programming choices, the wait is on.

To be sure, today's radios will still get either XM broadcasts or Sirius broadcasts, depending on which service you pay for. But when the new Sirius XM (SIRI) channel lineup is determined, you will need a new radio to hear the full lineup.

And here's the kicker: Those new radios won't be available until sometime next year.

This is a bit of a shocker even to analysts who follow the industry. The companies did promise that the merger wouldn't mean subscribers needed new radios. But some analysts expected broader programming changes and dual-mode radios to be available soon after the merger closed.

Karmazin dashed those expectations on an earnings call with analysts Thursday.

"You'd probably think it would have been nice to have them before the Christmas season," says Cowen analyst Tom Watts, said of the dual-mode radio.

A Sirius spokesman notes that the company never made a promise of a quick turn to a dual-mode radio, and that it actually reduced anticipated launch time to nine months from a year as part of its effort to win over regulators.

Your wait will be longer if you were thinking of getting a new car with a dual-mode radio.

"Car companies control the dashboard," Karmazin said on the call. And to make changes it "takes three years."

In the interim, Sirius XM will introduce in three months a special new a la carte radio that, while not dual mode, will offer packages that let XM users pick some "select" Sirius programming and vice versa. A Sirius representative says the company will also offer a "best of" option in three months to users with existing radios at an additional cost of $4 a month..

Sirius declined to identify what programs it might throw in the "best of" package. Its most popular programming includes Howard Stern and the National Football League. XM featues Major League Baseball broadcasts and popular music channels like Beyond Jazz.

The a la carte radio falls short of the full buffet, but as having a dual mode radio in the wings might have been a bit difficult.

Developing a new radio would have required manufacturers to make a big gamble on the merger's approval. Still, a nine month delay before a full fledged interoperable radio goes on sale could seem like a long time - an especially long time if you are a heavily unprofitable company that could use additional revenue to help contend with enormous costs and massive debt payments.

This is a bit more troublesome when you consider that most of Sirius XM's subscriber growth comes from new car sales. So the new radios that hit store shelves in May will not have a tremendous impact since the retail business has dropped to a small portion of the company's overall revenue. New retail customers made up 12% of the company's total new subscriber gains in the second quarter.

And in three years, a lot can happen in terms of innovations in car entertainment. And that process could be hard to get ahead of when you are starting from a dead stop. In other words, it's not like the merger took the two companies by surprise. There was that 18-month regulatory review that could have allowed some preliminary tinkering in the lab just in case the deal got the thumbs up.

Oddly, long before the merger, the Federal Communications Commission mandated that the two companies develop an interoperable radio. And in 2000, the companies said they put together a team to develop a dual mode radio. Progress on that front has been somewhat limited as the companies and the FCC spent years squabbling over the interpretation of the rule. To top of page

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