XM, Sirius Agree to More ‘Voluntary Commitments’

Tate finally voted to approve the merger after FCC Chairman Kevin Martin had voted for the enforcement actions, sources said. Earlier Friday, Martin had circulated the enforcement actions, which include $19.7 million in fines, but had not signed off on them (CD July 28 p12), agency sources said.

The merged company will be called “Sirius-XM,” reflecting the value of XM’s deal with General Motors, we're told. The fate of the Sirius technical operations team in New York and its Washington, D.C., counterpart remain undecided, we're told, though conflicting accounts said one would absorb the other.

The satellite radio companies have agreed to freeze their prices for three years. After one year, the FCC will allow the combined company to “pass through cost increases incurred since the filing of the combined company’s FCC merger application as a result of statutorily or contractually required payments to the music, recording and publishing industries for the performance of musical works and sound recordings or for device recording fees,” the commission said.

FCC Commissioner Michael Copps, who long ago expressed concerns about the merger and voted against the combination, believes the three-year price freeze will mean “that by 2011 satellite radio subscribers will face monopoly price hikes by a company with the incentive and ability to impose them.”

The Sirius-XM letter contains commitments regarding the wireless communications service and copyright royalty payments and a quicker timetable for the release of interoperable radios. The letter clarifies the companies’ proposed rate freeze, the availability of its intellectual property and issues surrounding the set aside channels.

Sirius and XM agreed to make an interoperable radio available for sale on the retail aftermarket within nine months of the merger consummation. Nine months is three months earlier than what the companies agreed to in June. If the merger closes by the end of the week, interoperable radios would be available in May -- in time for the “Dads and Grads” device marketing push.

Sirius and XM won’t originate local programming or advertising on their repeater network. Broadcasters have long been worried that satellite radio would siphon off advertising revenue.

The Recording Industry of America was concerned that the combined company would be able to reduce the amount of copyright royalties it pays. “As a champion of the music industry, in Nashville and beyond, I have received assurances from the parties that they will not game the system through new tiered offerings,” Tate said.

The FCC will begin a notice of inquiry into “important questions [that] have been raised about hybrid digital radio” by the end of August, the commission said. Broadcasters and public radio had urged the agency to require that all satellite radio receivers also contain an HD Radio chip. HD Radio developer iBiquity Digital will “defer any comments on the proceeding until the FCC ruling is public and the NOI has been issued,” CEO Bob Struble told us Monday.

Public radio really pushed for the HD Radio chip mandate that Tate declined to require. “While NPR, other public radio producers and public radio stations have had long and mutually-beneficial relationships with both companies, this new monopoly -- wielding unprecedented control over spectrum and without the mitigating conditions we sought -- will limit the public service mission of public radio and dilute the significant investment our community, our audience and Congress have made in HD radio technology,” said Dennis Haarsager, interim CEO of National Public Radio.

The Parents Television Council was pleased the merger was finally approved. PTC is a strong supporter of Sirius- XM’s a-la-carte commitments. “We hope the XM/Sirius merger will prove to be a model for the cable and satellite television industries, which should also give real choices to their own customers who are deeply offended by many of the channels they are forced to buy just to get access to family programming,” said PTC President Tim Winter.

The FCC judged the proposed merger of XM and Sirius on the “'worst-case’ assumption” that the relevant market was made up only of their satellite radio services, the commission said. “The Commission concluded that the merger, absent the Applicant’s voluntary commitments, and other conditions, would result in potential harms.”

The FCC repealed its prohibition on the two SDARS licensees merging, it said. The commission found the prohibition was a “binding substantive rule, not a mere statement of policy” but the commission can repeal a rule, the agency said. “For the same reasons that it approved the merger, the Commission concluded that repeal of the rule prohibiting the merger will, on balance, serve the public interest,” the agency said. The prohibition is not subject to the 30-day Administrative Procedure Act “because it relieves a restriction” and won’t require a congressional review, the FCC said.

The FCC is requiring Sirius to begin offering service to Puerto Rico using a terrestrial repeater network, the commission said. Within three months Sirius must file applications for the repeaters and “must promptly introduce such service upon grant” of the applications to operate those repeaters, the agency said.

XM Canada is reviewing its options for “innovative partnerships” and “long-term automotive contracts,” said XM Canada President Michael Moskowitz, in the wake of FCC approval of the merger of Sirius and XM. XM Canada has an exclusive Canadian license from U.S.-based XM. “XM Canada is in a strong strategic position to maximize any opportunities,” Moskowitz said in a statement.

Separately, Sirius-XM listed the names of it board of directors. By previous design, the board of the combined company will have 12 members, including XM Chairman Gary Parsons and Sirius CEO Mel Karmazin, who will keep those titles. Of the 10 remaining members, Sirius and XM each will choose four and XM will designate one member each from GM and Honda. A SEC filing was a prospective supplement for converting XM shares into Sirius shares as part of the merger. The filing said existing Sirius board members Leon Black, Lawrence Gilberti, James Holden and James Mooney are expected to sit on the board of the combined company, as will XM directors Joan Amble, Eddy Hartenstein, Jack Shaw and Jeffrey Zients. OnStar President Chester Huber will be the GM designee on the board and American Honda Executive Vice President John Mendel will be the Honda designee, the filing said. Sirius and XM “anticipate that there will also be changes to the senior management of the combined company following consummation of the merger,” the filing said.

Three existing XM directors and three from Sirius won’t have seats on the combined company’s board, the filing said. On the XM side, they're CEO Nate Davis, private investor Jari Mohn and Thomas Donahue, president of the U.S. Chamber of Commerce. On the Sirius side, they're Chairman Joe Clayton, Warren Lieberfarb, the former Warner Home Video president who now runs his own Los Angeles consulting company, and Michael McGuinness, portfolio manager at the W.R. Huff Asset Management Co.