XM and Sirus to merge: Analysis

The only two US satellite radio providers, each with essentially half of the market and each facing slowing subscriber growth and increasing programming costs announced plans to merge today.

With stagnant growth and declining stock prices, the idea to merge is a no brainer. Anti-trust hurdles are going to remain of course – 50 % of consumer choice in satellite radio will disappear with the stroke of a pen, and so the chance to raise the price, at least for a short time, may be the real stockholder value here.

It will be interesting to hear the two companies plead that there are not really any anti-trust issues – surely they will say they compete not in a “satellite radio” market place against each other, but in a broader marketplace including terrestrial radio and TV, wired radio and TV such as cable increasingly provides, and even against potential entrants such as broadcasting via wi-fi/wimax to iPod-type devices, and via cellular carriers to phones.

All this raises an even more intriguing issue for me. Is today’s announcement by the only two players to throw in the towel and declare a stalemate in their mutual competition a portent of the end of on-to-many broadcasting as we have known it?

Hard to say for sure right now, but there are conflicting pieces in place already: Content creation finance models are splitting as we speak.

One the one hand, we have this plan: invest a ton of money and time in a highly produced piece of content that will engage a viewer or listen for a brief amount of time (such as a film, a TV series, or a radio show). High risk,potentially high return, with returns to be realized from being able to capture interest via a number of different distribution channels over a repeated number of viewer engagements. This is the traditional one-to-many model.

In a sense, the satellite radio operators have been seeking to emulate the model of cable companies many decades ago – provide a distribution channel with a consistent level of quality, often for customers who couldn’t get the actual content at all.

On the other hand both XM and Sirius have been heavily involved in spending to produce custom content – something cable companies never did, at least not to that extent.

And in that regard, they remind me more of the pre-Paramount movie studios, where the producers of the content also had strict control over the distribution channels. That stopped working in film 60 years and there is little reason to think that it would work now in a new medium.

Increasingly new forms of entertainment are arising, and it is rooted in user-generated content delivers over packet networks (to coin a term “IP over IP”). Who pays to produce this? hard to say right now – maybe now one pays to produce more then the arena or bazaar where a cacophony takes place and then hopes for the best. In many way’s Eric Raymond’s “Church vs the Bazaar” discussion regarding software development models is starting to play out in the end-user entertainment space and it is going to be quite a ride.

Distribution of this kind of one-to-one or many-to-many content shapes the nature of the content itself and hence its entertainment value. More about this in the next entry.

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