• by Erik Sass , February 26, 2007

The heads of America's two satellite radio broadcasters are pushing their proposed merger, touting big savings in marketing and maintenance costs as well as greater programming flexibility and variety for subscribers. But they have to contend with a number of earthly obstacles--aside from potential Federal Communications Commission opposition on anti-trust grounds. A big one is branding.

According to Russ Meyer, chief strategy officer for Landor Associates, a branding consultancy, the companies face a branding problem that could do irreparable damage to their business if it is not handled correctly. It's ironic, he adds, because they have fought "tooth and nail to differentiate their brands for years. Now that we're talking about a merger, their previous success is really working against them."

Of course, the companies had no choice but to cultivate unique images, since "brands are all about differentiation." But the brand identities they created, Meyer notes, will make it particularly hard to combine. "Do they create some kind of amalgamation, or do they just go with one or the other?"

"XM has always been the leadership brand, the bigger player that goes with the long-term view," Meyer recalled, while "Sirius has had to build its brand as more of an upstart, a challenger--sort of the Apple to XM's Microsoft." These roles--leader and challenger--exist in a binary opposition that seems to defy all but the most-sophisticated re-branding effort. In particular, Sirius' brand identity as a scrappy underdog could ring false once it combines with the industry leader. Meyer warns: "If you end up just putting them together, you risk coming up with something that's diminished for both."

But the alternative--one brand absorbing the other entirely--isn't much better.

For one thing, the broadcasters are different in their content, with Howard Stern on Sirius facing off against Oprah on XM. "You've got the brands not aligning," Meyer says, "and then beneath that, you've got the content not aligning either."

Then there are the specific terms of the deal.

According to Meyer, it's even more challenging if it truly is a 50-50 merger. But executives from both companies have taken pains to emphasize a "merger of equals," in part to placate the FCC, which explicitly stated in granting the satellite licenses that "one licensee will not be permitted to acquire control of the other remaining satellite ... license." Meyer adds: "In situations where it's a takeover, at least everyone's clear on who's making decisions and where things are going. But that option clearly isn't on the table."

Still, the companies must move swiftly to agree on a new brand configuration and communicate it to their subscribers--or they risk losing their audience to other digital music services. "In any merger situation, customers are always going to say, what's in it for me?" If XM and Sirius wait too long, he says, customers are going to wonder if they want to continue the relationship.

For example, Meyer points out that the companies have yet to explain what will happen with subscription fees, and whether subscribers will have access to programming from both broadcasters. "The majority of the coverage has mostly been business press talking about the business aspects of the merger, not the merged entities talking about what the future will look like, and how consumers will benefit."

To ignore its public is especially dangerous for satellite radio because "that purchase decision gets made on a monthly basis." Consumers can discontinue it at any time. Repeating one of the main arguments from the companies in favor of a merger, Meyer warned that they face competition from digital music downloads and HD terrestrial digital radio. "Satellite radio sets might not be able to pick up signals from the former rival's transmitters, but they can be easily modified to pick up free HD radio with a cheap converter."