Acquiring another $125 million or so of Sirius XM debt could give EchoStar chairman and CEO Charlie Ergen enough ownership in Sirius to gain control of the Sirius XM board, according to a Reuters report.
Ergen, over the past several months, has assumed $400 million of Sirius XM’s debt, according to the Wall Street Journal, for the expected purpose of gaining entry into the car TV and information market.
If the reports are true, it would create plenty of synergies for Ergen to win share in a market where Ford, Microsoft, AT&T, Qualcomm and others are readying new technologies to entertain and inform drivers who spend an average of 17 hours a week in the car, according to Consumer Electronics Association statistics.
But the problem with pay TV in the car is that free digital TV is on its way.
To date, pay TV has been a small niche. There are “well over 10,000” car pay TV users connected to standard services like Dish Network, estimated KVH, and iSuppli said it would be surprised if Sirius BackSeat TV had more than 20,000 or 30,000 subscribers.
Each of these pioneering services had drawbacks like a bulky antenna or $3,000 price or limited channels.
But even the sleeker, less-expensive pay-TV systems due later this year from MediaFLO/Audiovox and AT&T CruiseCast will eventually come up against free mobile DTV service expected in late 2010/2011.
Once mobile TV is available, “it’s really going to be tough to compete with free content,” said Egil Juliussen, principal analyst for automotive at iSuppli. South Korea and Japan are examples. Once free TV was offered in South Korea, it “ended up with 10 times as many subscribers” he said. “The same thing happened in Japan. So why would it be different in the U.S? Yes, we have larger distances and places that aren’t served,” he said, but noted that the U.S. market would become a niche with only a few million users.
DEI Holdings, which just exited the mobile video market, is also skeptical. CEO Jim Minarik said, “Personally, I do not expect this will be a big market for fixed or portable video-only systems, (cellphones more likely) but we will continue to listen to our customers, and if there is significant demand, we may re-evaluate our point of view.”
But Juliussen’s caveat about the wide-open spaces of the U.S. may be more than a minor point. Mobile DTV broadcasts are limited in range to about 60 miles from the radio tower. Some claim the service will do just fine for most of the population but others say there may be a need for on-the-ground repeaters to augment the signal.
This brings us back to Ergen’s play for Sirius XM, which owns two networks of ground repeaters. It is possible that XM’s repeaters could be repurposed for mobile DTV, though testing would need to bear that out, said Mark Aitken, chairman of the Advanced Television Standards Committee.
One more hurdle for Ergen might be the same one that contributed to Sirius’ current woes. If Ergen succeeds in taking control of Sirius, then he may require approval by federal regulators.