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Wednesday, August 16, 2006

Sirius Staggers On


The press was again awash with rumors that Sirius and XM should merge. Jim Cramer is encouraging the move because the two companies have obviously both been badly injured in the market.

It won't happen. There are all sorts of regulatory hurdles, but, more important, there is not much money to be saved.

The two satellite systems that carry the Sirius and XM channels are maxed out. It is not as if one satellite can go offline to save money.

The cost of talent is not going down. If the compined company has Stern, will it drop Oprah. No, because it would cause a drop in subscribers.

The debt of a combined company would be beyond the abilities of most mortals to comprehend. Sirius has just filed its 10Q. It shows over $1 billion in debt with revenue of $150 million against operating expenses of $381 million.

Over at XM, they are carrying $1.3 billion in debt with revenue of $228 million against expenses of $330 million.

The combined company might not lool to attractive with $2.3 billion in debt snd revenue of less thatn $400 million. Could the company save some costs in firing management and the expenses of being public? Yes, but not much.

One important matter that is now occuring to investors in the two companies is that they are not just competing with one another. Alltel recently announced a system for playing songs on phones. The new Sprint Nextel WiMax phones will certainly double as multimedia devices. People now play their Apple iPods in the car through adaption devices. And, who would be surprised if the new Microsoft Zune player worked with a wireless feed.

A merger? No. One company disappearing due to new competition? Maybe.

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