Cheaper satellite radio: promise from XM and Sirius could be a game changer

July 23, 2007, 1:51 PM UTC

Would you pay $6.99 a month for 50 of your favorite satellite radio channels? If the idea sounds appealing, that’s exactly what struggling satellite providers XM Satellite Radio Holdings (XMSR) and Sirius Satellite Radio (SIRI) were hoping for.

During a speech in Washington, Sirius CEO Mel Karmazin promised there will be new, a-la-carte pricing options if XM and Sirius are allowed to merge. Right now, customers pay $13 per month for a choice of more than 100 channels on either service.

It’s not difficult to see why XM and Sirius are dangling this low-price carrot. The two are the only two U.S. satellite radio providers, so if the two are allowed to merge, Economics 101 suggests that the new company would raise prices and limit choices. The two are trying to counter that assumption by suggesting that expanding the satellite radio audience is far more important to them than milking the subscribers they already have. (I still wonder, though: Would they offer a choice of any 50 channels for that price? Or would they keep some popular channels on a premium list that costs more, the way cable does?)

Satellite radio is as different from regular radio as blogs are from magazines. Sirius, for example, doesn’t just have pop stations, or oldies stations – it has a station called “Big ’80s” that plays throwbacks from folks like Prince, Huey Lewis & the News, and Phil Collins, non-stop. It also has an all-Elvis station. (No kidding.)

Where this could really get interesting, though, is in consumer devices. A $7 per month subscription is just $84 per year; many consumers might be willing to pay a slight premium for a device that comes with a built-in satellite receiver and a year’s worth of free listening. XM already sells devices like the Samsung Nexus 25 ($129, or $79 for new subscribers).

I, for one, would be eager to pay an extra $84 for my next Apple (AAPL) iPod, were it to come with an activation code for a year’s worth of free satellite radio. (I’d be less excited about the current structure that forces new mobile users to deal with rebates and start a billion relationship with the radio provider – and I suspect Apple would similarly be less excited about sharing their iPod customers with subscription-hungry third parties.)