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Will the Sirius-XM Merger Boost Mobile Video Services?

June 16th, 2008

The press is reporting that Kevin Martin, Chairman of the FCC, is recommending approval of the $5-billion merger between XM and Sirius. Martin has already said the Commission could reach a decision on the merger by the end of June, and Washington insiders believe that there is enough support among the commissioners to approve the merger. Martin also said that there will be conditions imposed on the approval: that 24 channels be turned over to commercial and minority programming, and that a three-year price freeze for consumers is instated. One question we have is whether the move will accelerate the deployment of mobile TV services; the satellite industry has already predicted that there will be 3 million mobile satellite-TV units by 2011.


Aldo Cugnini
Analyst

The National Association of Broadcasters (NAB), several Congressmen, and consumer groups have long opposed the merger, calling it a monopoly. NAB President and CEO David Rehr has said consumers would suffer if the merger is approved - reducing innovation for services and equipment for consumers - as there would be "no competition in the combined market."

The companies, on the other hand, have argued that they compete with iPods and other portable media, and have advanced the notion that lowered licensing and operating costs would benefit consumers, as would the lowered cost of a unified radio. Sirius has spoken vaguely about "interoperable radios," where new models could receive the signals originally broadcast to only one or the other receiver. Some readings of earlier FCC statements suggest that such an interoperable radio was already mandatory. Ironically, the merger could now force such a radio to be used during some transition period.

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The history of merged companies is that differing technologies will not separately co-exist for a long time, however, so we should expect the technology to migrate towards the one with the more economical value chain, or at most towards a melded solution. Looking at the structure of the new company, XM and SIRIUS will combine their businesses through the merger of XM with a newly formed, wholly-owned subsidiary of SIRIUS, with XM thereupon becoming a wholly-owned subsidiary of SIRIUS, with existing CEO Mel Karmazin firmly at the helm. This suggests that the new company could be heavily influenced by the inertia of Sirius, which has already deployed a mobile TV service.

SIRIUS Backseat TV currently delivers live TV from three family networks - Nickelodeon, Disney Channel and Cartoon Network - to the video screens of vehicles equipped with an appropriate receiver. The service uses MPEG-4/AVC video encoding, at bit rates believed to range from 50 kbps to 500 kbps. XM, on the other hand, currently has no video service in their offering. This is despite numerous previews, at CES and other venues, of a portable video device using On2 VP7 video technology. With its current satellites, however, XM is not believed to have sufficient bandwidth to deploy a real-time TV service.

Meanwhile, terrestrial broadcasters are forging ahead with their own mobile-TV plans. Field trials by the Open Mobile Video Coalition (OMVC) show that full-motion mobile DTV is achievable at pedestrian and highway speeds, and works as far as 40 mi. from the transmitter. The group is recommending that the ATSC move forward in setting a mobile DTV standard in time for the federally-mandated digital broadcast transition in February 2009. Almost to the day of the OMVC announcement, two proponents of ATSC-compatible mobile TV systems - LG and Samsung - announced that they are teaming up to propose "their jointly developed technology as the North American technology standard for mobile DTV." The third proponent, Thomson, has since announced that they will work "to incorporate the best elements of Thomson technology within the LG/Samsung solution." We should expect an ATSC standard to be ratified by early next year.–AC