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SBJ/February 26 - March 4, 2007/This Weeks News
XM-Sirius merger could cost leagues
Published February 26, 2007
The proposed merger of the country’s two satellite radio companies could potentially cost sports leagues and media networks hundreds of millions of dollars in lost rights fees and advertising revenue over the next decade.
The problem isn’t with the contracts the leagues have signed with XM and Sirius over the past several years, which are expected to remain in place. The change would come once the leagues’ deals end and they have to negotiate new ones without a bidding war between rivals.
“In terms of negotiating leverage, the merger is certainly a negative for sports properties,” said David Bank, equity research analyst for RBC Capital Markets.
That competition between the two rivals led to a windfall for sports leagues (see chart).
The NBA would be the first to test the new market, since its deal with Sirius ends after 2007-08 season.
For sports-based programmers such as ESPN Radio, a big question centers on ad revenue. The combined company will have 13.6 million subscribers, double the number for either platform. XM has 7.6 million subscribers; Sirius has 6 million. But some ad buyers are skeptical that ad revenue would jump significantly with a merger.
“It remains to be seen if they get twice as much money for twice as many subscribers,” said Matthew Warnecke, vice president of national and local radio for Mediacom.
In fact, ad revenue could drop if government regulators impose conditions. One theory has the Federal Communications Commission placing an a la carte condition on the deal to allow subscribers to buy individual channels.
Officially, the leagues are keeping a brave face.
John Shannon, the NHL’s senior vice president of broadcast, said, “The ramifications, I don’t think we know yet. If you tell me we’re going to be getting our content to 13 million homes now, that’s a positive for us.” Similarly, MLB President Bob Dupuy said, “I expect no negative impact.” The NFL, however, is taking more of a wait-and-see approach, releasing a statement saying, “We are following the Sirius-XM merger closely, but are not in a position now to delve into the details of what it would possibly mean for our fans or our finances.”
Staff writers Eric Fisher, Daniel Kaplan and Tripp Mickle contributed to this story.