XM-Sirius merger is threat to local HD radio: Local broadcasters hustle to launch digital channels

March 12, 2007

The news of a potential merger between New York-based Sirius Satellite Radio Inc. and Washington, D.C.-based XM Satellite Radio Holdings Inc. comes at a critical time for local radio station operators.

If the merger draws more listeners, that clearly would be bad news for terrestrial radio stations already dealing with the Internet and Ipod, and could imperil their fledgling high-definition initiative.

Already, the proposed $11.4 billion merger is getting lots of media attention, and that's bound to raise satellite radio's profile, industry experts said.

"If these two satellite radio stations come together and build a stronger brand around enhanced content, they should be in great shape," said Robert Unmacht, principal of IN3 Partners Inc., a Nashville, Tenn.-based media and investment banking consultancy.

"If XM and Sirius come together, subscribers can get Howard Stern and Oprah, Major League Baseball and NFL games along with NASCAR and other programming in one place. That's a pretty strong selling point for $12 a month."

Of course, there are obstacles ahead of the merger, namely, Federal Communications Commission and U.S. Justice Department approval.

Industry experts said there are signs the deal could come to fruition by year's end. Under the Bush administration, antitrust regulators have challenged few deals.

While federal regulators specifically forbid the two from merging when the licenses were granted to Sirius and XM, company officials are expected to argue that much has changed in the five years since the two began broadcasting.

XM and Sirius officials say they compete with traditional radio stations, Internet broadcasters and others, not just each other.

Publicly traded radio operators like Indianapolis-based Emmis Communications Corp. and San Antonio-based Clear Channel Communications have already acknowledged satellite radio as competition in 10(k) and other federal filings.

"There's little doubt satellite radio has had an effect on our industry," said Scott Uecker, general manager of WICR-FM 88.7, which recently began broadcasting in high definition.

Broadcasters said 2007 is a critical year in the rollout of HD radio, which has digital sound as good as satellite and allows station operators to broadcast two or three digital stations in the same spectrum where only one analog signal would fit. Many see HD, which is free and includes local content, as an answer to pay-to-play, nationally focused satellite radio.

A Sirius-XM merger, said Uecker, also an instructor of communications at the University of Indianapolis, could hasten more local stations to go HD sooner and launch the additional stations the technology allows.

Indiana, with the strong presence of Emmis, Clear Channel and others, has been a national leader in rolling out highdefinition radio. That means local stations have already invested heavily in HD transmission equipment.

WKLU-FM 101.9, a classic rock station, airs two side stations-101.9-2 and 101.9-3-broadcasting oldies and dance music. Russ Oasis, a broadcasting entrepreneur who bought WKLU two years ago, invested $400,000 in HD technology in 2006.

Oasis isn't the only one banking on HD technology. The number of local stations broadcasting in HD in the last six months has more than doubled, with the number of side channels tripling. There are now 19 stations broadcasting 33 high-definition channels in Indianapolis.

"We're putting a lot of emphasis on high-definition right now, and we add more songs to our [side channel] every day," said Marty Bender, local operations manager for Clear Channel, which operates WFBQ-FM 94.7, WRZX-FM 103.3 and WNDE-AM 1260.

Oasis thinks local stations will stand tall against satellite offerings.

But Unmacht said the ability to pool XM's and Sirius' content with one provider could cause satellite subscribers to spend more time listening to satellite radio, and that would likely mean less time listening to traditional broadcast radio. According to recent studies by New York-based Arbitron Inc., satellite radio listeners-up to now, at least-have also been heavy listeners of local terrestrial radio.

"Siphoning listening time away from traditional radio is akin to siphoning off listeners," Unmacht said.

XM and Sirius have 13 million subscribers combined. Arbitron estimates there are 280 million terrestrial radio listeners nationwide.

Traditional radio broadcasters have their own plan to attract and retain listeners. This year, an alliance formed by the nation's largest broadcasters will launch a major marketing campaign to accelerate the growth of HD.

After listeners buy a special HD radio, they can tune into the side channels by clicking over one space from the normal frequency. HD radios are currently available at Radio Shack, but are expected to hit mass retailers this year, including Wal-Mart. HD radio prices are also expected to come down from their current $200 to $300 as sales escalate.

Wal-Mart is launching a major advertising campaign around its rollout of HD sets, the first major marketing push for the new technology.
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