Bank of America analyst Jonathan Jacoby has told investment clients that his DC contacts believe that XM and Sirius have "lost momentum" in their efforts to win regulatory approval to merge. The analyst now believes that the chance of getting the merger approved has fallen to 30% or less. "This conclusion is based upon discussions with our DC contacts regarding the recent reply comments filed concerning the NPRM on the ‘rule’ change. Our contacts believe that a) XMSR/SIRI’s arguments were somewhat weak regarding the NPRM and b) the NAB and consolidated broadcasters’ filings did a nice job of highlighting the administrative law issue for the merger hopefuls, and added a new argument that a broader audio market definition should allow for the elimination of local radio ownership caps. (In other words, allowing the merger would open Pandora’s box and set a precedent that would encourage a wave of media consolidation.)," Jacoby said in an update to clients.
The FCC filing by a group of broadcasters got kudos for its arguments that if the market to be considered is "audio entertainment," as the satellite companies claim, then the FCC should abolish all AM and FM ownership limits. "Our contacts believe that this argument could give the FCC the most trouble. The broadcasters state that if the FCC were to allow the merger, ‘then it would be impossible to justify any continued regulatory limitation on AM/FM broadcast radio ownership.’ The problem for the FCC is that they are in for a huge court battle on radio ownership if they simply waive the rule – the risk is that the FCC will lose AGAIN at the courts on ownership issues," Jacoby wrote.
RBR/TVBR observation: Jacoby’s analysis focuses on the merger arguments before the FCC. We continue to believe that the antitrust review at the Department of Justice is an even bigger hurdle for the two satellite radio companies.