Sirius and XM

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This is Celia Hirschman with On the Beat for KCRW.

The XM and Sirius radio merger announcement took center stage this week. The news underscores satellite radio's fight to keep the fragile markets they created. Two large media companies, whose only competition was each other, may not survive alone, but also be kept from merging together. It's an interesting study of how not to build a business in the new millennium.

The story really began only five years ago, when XM and Sirius starting transmitting. They broke the free radio model, built a brand for satellite radio and created a pay subscription model that generated over 14 million listeners last year.

But launching and maintaining multiple satellites in the air is a major expense. Neither XM or Sirius is debt free from their initial investments, In fact, they've amassed a combined debt of $1.6 billion.

Satellites are expensive, and so is competition for exclusive placement. Ford and General Motors were just two of the auto manufacturers to feature Sirius and XM satellite radio hardware in new cars. In exchange, the satellite companies gave the auto manufacturers a large piece of their companies.

If the universe of potential satellite sales is less than 20 million subscribers, and both companies offer similar and complimentary programming, why mortgage a limited future with high expenses?

The satellite radio companies should have joined forces before they officially launched to lighten the economic weight, but stubborn management on both sides kept them separate. In fact, the Federal Communications Commission, or FCC, tried to get them to at least make inter-operable components, so consumers could choose the service of their choice, but neither company complied.

Now, trouble looms. The FCC and Justice Department will both need to approve the merger.

The timing of the networks' announcement may be more than a little political. Both companies may be trying to take advantage of the current Republican administration, believing that if a Democratic President were elected in 2008, the new White House wouldn't welcome the deal. The FCC and Justice Department have appointments from the White House.

The FCC should also be wondering why the consumer benefits from a merged single corporation owning the medium.

It turns out, satellite radio may indeed have competition from new technologies. Microsoft announced at the Consumer Electronics show in January, it was planning to launch software that would allow information communication in the car, including streaming Internet radio. Just this week, General Motors and Ford announced they were adding the software, called Synch, in their new line of cars.

That may solve the FCC's competition question, but it won't solve everything. Sirius and XM may have just dodged one bullet, but it's still not clear how their merger will keep them afloat, together or apart.

This is Celia Hirschman for On the Beat on KCRW.