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Sirius woos FCC with price cuts

Karmazin proposes multiple pricing structures

In his bid to win approval of the merger of radio satcasters Sirius and XM, Sirius topper Mel Karmazin has proposed several possible pricing structures for the combined company in his informal talks with the Federal Communications Commission.

Karmazin is on a mission to persuade regulators that the merger would not create a monopoly but provide listeners with more choice at lower cost.

Among the proposed packages is a low-cost option, well below the $12.95 both charge, and a “best of” version that would be more expensive but include all of Sirius, including Howard Stern and the National Football League, and parts of XM’s big-ticket programming, including “Oprah and Friends” and Major League Baseball.

“We’ve had a number of meetings since we announced the deal,” Karmazin told Daily Variety. “We hope we can draft an offering that will be something the commissioners will see is in the public interest.”

(Sirius carries Daily Variety‘s “Variety Radio News” on the Los Angeles traffic channel.)

Despite the delicate political process that lies ahead, Karmazin described himself as a “big supporter” of Don Imus and said he wouldn’t shy away from the host if he wanted to return to radio.

“I’ve had no conversation with Imus or his people since he left, but I would assume that one of the first phone calls he would make if he came back would be to satellite radio,” he said.

Five months after the merger agreement was announced, the fight over the proposed union between Sirius and XM is entering a crucial phase as the FCC opens the public comment period, in which supporters and opponents may submit arguments to the agency, asking it to approve, block or impose conditions on the proposal.

Over the next few weeks, the Justice Dept. will pore over market data and define whether the market in question includes just two satellite radio operators, as opponents maintain, or the broader world of iPods, Internet radio, cell phones, the broadcasters’ new HD channels and a new generation of wireless devices on the way.

Both sides will attempt to influence the FCC and Justice Dept. as well as to win hearts and minds in the court of public opinion, and both are already lining up supporters.

It’s a key moment for Karmazin, who met some skeptical legislators on Capitol Hill during his congressional testimony on the proposed merger and has endured months of pounding by one of Washington’s most powerful lobbies: the National Assn. of Broadcasters.

“The NAB has pulled out all their guns in terms of lobbying; they have paid a lot of people to write letters to the Justice Dept. and the FCC against the merger and are a formidable body to compete with,” Karmazin said.

In a letter last week, NAB prexy David Rehr urged Karmazin to drop the deal. “We believe that the proposed merger is simply a request for a government bailout for operational and financial missteps that have depressed stock prices and in turn investors,” he wrote.

But Sirius has retained former FCC chairman Richard Wiley, one of the most influential telecommunications attorneys in Washington, to take up its cause. “We’ve been taking a few slings and arrows here and there and waiting for our turn at bat,” Wiley said.

When Karmazin and XM Satellite Radio chairman Gary Parsons first announced the proposed tie-up in February, Karmazin put its chances of success at 50-50, but that confidence isn’t shared by Wall Street, which has punished the stocks of both companies under the belief that the odds are a lot longer — perhaps one in four.

“The politics are generally against the deal; the broadcasters have employees in all 435 congressional districts,” said Stifel Nicolaus analyst and former FCC staffer Blair Levin, who nevertheless predicted the merger’s chances at better than 50%.

Karmazin and many media analysts believe the deal has the force of logic on its side. That the broadcasters are spending so heavily to stop the merger proves that competition is robust between the two, and that radio fears a merger would create an even stronger competitor.

About 3.4% of the radio market subscribes to satellite.

“This isn’t about life or death; if the merger is approved, as it should be, then we will be a formidable competitor with terrestrial radio and the consumer will win in that scenario,” Karmazin said.

He maintains that a merged company would save between $3 billion and $7 billion and achieve profitability more quickly, and he’s said that he would pass that savings on to consumers.

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