The reports in The Wall Street Journal and elsewhere of EchoStar’s acquisition of Sirius XM Radio debt has provocative implications for cable, telco and others. The key points from EchoStar chairman and CEO Charlie Ergen’s move can by crystallized into two words: bundle and spectrum. If Ergen gets Sirius XM, he gets both, and more.
The big problem for cable and telco today is that Charlie Ergen may be close to fixing a big problem of his own. For years, Ergen’s Dish Network grappled with the reality of the cable’s two-way “triple-play” combination of voice/video/Internet, and telco’s “quad play,” which adds wireless services. EchoStar has tried numerous times to offer Internet (e.g., via Clearwire, SkyWay, WildBlue, and Gilat), yet nothing has yet presented a clear rival on a mass scale. Plus, Ergen has none of his rivals’ content assets, so standing out there is impossible.
Further, recently, even with the Sling opportunity, Ergen has been like Elvis without a hit song. Sirius XM could be that hit, adding wireless and mobile, at least for a while.
A strategy EchoStar has deployed since the late 1990s is to differentiate by offering “bundles” of products and services (e.g., DVRs, Sling, and now, possibly, satellite radio), that — at least initially — trump cable and telco. Moreover, last year EchoStar purchased a solid swath of 700-Megahertz spectrum from the U.S. government, which has video-delivery capacity and which could one-day combine with EchoStar’s other spectrum. With satellite radio, EchoStar adds new spectrum, in a gamble to land what one day might be oceanfront property.
Additionally, if EchoStar owned a monopoly satellite radio service, he also gets into an exclusive new space, one of three, where people spend an awful lot of time: the vehicle. Hording the pipelines is another way to truly differentiate; indeed, in the game of Telecom Monopoly, spectrum (and exclusivity) are the new Park Place.
What the Sirius XM acquisition also does is push cable and telco again toward consideration of competing with EchoStar in the realm of in-vehicle branded entertainment. It also means cable and telco may instead finally acquiesce to the value of a superior EchoStar product and service (such as the new EchoStar 922 HD-DVR set-top box with Sling inside), and buy EchoStar’s exclusive satellite radio device and service — God forbid! — for their own customers.
Who else might yet battle Ergen for Sirius XM? A first thought goes to Ergen’s longtime nemesis, Rupert Murdoch’s News Corp. Yet, ultimately, Murdoch has opted for content, and Sirius XM is more a hardware play. John Malone’s DirecTV, Sumner Redstone’s Viacom, and Sony, Google or Microsoft are other rivals that may buy into the ailing Sirius XM, if for no other reason than to practice Ergen’s M.O: roughen the seas for Ergen.
Indeed, it’s a tribute to Ergen that he has made such a strategic move, sitting still somewhat in the shadow of Malone (both figuratively, and, indeed, almost literally), a few miles north on the Denver plains.
Further, all too much of multichannel TV and radio has been about subscriber wars, and an Sirius XM acquisition gives EchoStar an in-vehicle advantage to entice those sat-radio subs toward Dish Network, and other products and services. This move again, trumps cable and telco (and others?).
Does Sirius XM’s Mel Karmazin do the EchoStar deal: What choice does he have? He and his peers have already killed the goose that laid the golden egg. Now, at least, shoot for that silver egg.
