Wednesday, January 16, 2008

Satellite Radio; Sirius (SIRI) and XM (XMSR)


I couldn’t use up the space necessary, or the time necessary to discuss the ins and outs of the SIRI stock vs the XM stock. Right now, with a possible merger between the two companies supposedly very soon, I think both stocks are good buys. Both have dropped around 30% since Nov 30th as investors are waiting on news of the merger, which was supposed to happen by the end of 2007. Both the Department of Justice and the Federal Communications Commission need to give the green light, and as is standard for government decisions, things happen pretty slow. It takes government employees an hour and a half to watch 60 minutes last I heard.

The big issue behind the merger is whether the two companies are forming a monopoly by merging. Since there are only two satellite radio licenses, the two companies merging would form a monopoly. However, I think it’s pretty obvious that satellite radio competes with various other entertainment sources and music technology. Start with the iPod, iPhone, MP3 players, cellphones, and the list goes on. Sirius’ CEO Mel Karmazin has promised the FCC to allow a la carte programming for a cheaper price if the merger goes through. This way customers can pick and choose what they want to listen to. Chairman Martin of the FCC has tried to get the cable companies to allow a la carte programming, but to no avail, so he may see the Satrad merger as a precedent for a la carte options.

After years in Spain living a lifestyle where you can walk just about anywhere you needed to go in town, no one ever really spent enough time in their vehicles to worry too much about radio service. Coming back to the states, however, I see us Americans spend half our lives sitting in traffic jams, or driving somewhere because it’s too difficult for us to build a supermarket, restaurant, a bar or ANYTHING social within walking distance of a house, so we need sources of entertainment in the vehicles. The terrestrial radio did not cut it for me. Too many commercials. I had already bought stock in Sirius while I was overseas so I figured I’d give the product a try and now I couldn’t live without it. No commercials on music channels, EVERY football game with home team AND away team broadcasting, the Playboy channel (not that I would listen to that stuff, aside from Afternoon Advice with Tiffany Granath, the Playmate hour, etc.) and the Disney channel for the kids. XM has very similar programming, minus Howard Stern and Playboy, and I’m hoping this merger goes through before Baseball season so I can get all the Mets games XM carries as well. I also bought a SIRIUS Stiletto for the wife. The Stiletto is the hand held, iPod-like Sirius receiver and I was impressed. Much better reception than I thought and I like the recording feature.

All in all, I like buying stock in companies that make quality products or offer quality service. I believe SIRIUS does both. I’ve got some long shares, but I’m also playing it as a quick trade on the spike in case the merger does go through, so I stocked up on some call options. Whether the merger goes through or not, I believe Sirius has a better shot at sustainment than XM.

Sirius will give you 4.6 shares of SIRI for every share of XM after the merger.

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