The Sirius and XM merger is inevitable. While some call it a failure on the part of XM or both companies, the overriding factor is structural and no different from other industries that featured huge upfront capital and new technology for both the service provider and the mass market customer.

The S growth curve of is elongated due to the inherent complexity. Technology must be spec'd, proven, and matured along the entire ecosystem. The market must be educated and incented. Business partners must be engaged and activated. Early revenues are underwhelming. Incubation takes 5-10 years. But once it's baked, the market takes off until saturated.

Bob Lefsetz gives a personal tour of satellite radio adventure to date. I don't agree with all his conclusions but it's a fun trip.

Lefsetz:

What kind of crazy fucked-up world do we live in where two competitors spend each other to death, dragging their stocks down, to the point where the FCC has no recourse but to allow them to merge.

At least Sirius knew it was about content. The XM'ers had some fancy idea that the word "satellite" was enough to get ten plus million people to sign up for $9.95 a month. Is that like "satellite phone", as in the initially failed Iridium?

The reason I fell in love with XM was the programming. There was a passion to the programming not only absent from terrestrial radio, but Internet radio too. But did Hugh Panero TRUMPET this fact? OF COURSE NOT!

Talk radio lives on terrestrial. Satellite's niche is music. Did Panero sell this? Five plus years on, we STILL don't know what XM stands for.

Sirius was in the same hole. A replica of XM with worse technology and fewer subscribers. So, they threw the long ball. They got the one certified radio star, the one who could bring his audience with him, Howard Stern.

Forget the fact that most of his listeners didn't follow him, Stern saved Sirius. He was worth every penny they paid him. All the other ridiculous deals? With Eminem, and the theme channels like Martha Stewart? IRRELEVANT!

So XM decided to fight back. With Bob Dylan. Great talent, great show, but you're building from ground zero, he brings no radio history, no experience, no audience.

And then XM went hog-wild trying to replicate Sirius' strategy. Signing faux star after faux star. Do we really want an Oprah channel? Is that what people are clamoring for?

Well we can debate that, but we do know IT COST A FORTUNE!

So here's the skinny. XM could have made a deal with Stern and killed Sirius. Just that easily. But the execs, those in control at XM, were TOO STUPID TO SEE THIS! Too stupid to make a preemptive strike! Maybe XM didn't need Howard, but Sirius did! It's like the Yankees signing a pitcher so the Red Sox don't get him. This is not a secret strategy, this is BUSINESS!

But Hugh Panero kept believing that satellite radio was cable. Making deals with car manufacturers, employing no sizzle. Well, now the TELEPHONE companies are breathing down the cable systems' backs. And satellite TV is also a competitor. Proving that you must constantly survey the landscape, SOMETHING THAT PANERO DIDN'T DO!

If it's about return on investment, raising the value of the stock for the holders, then Panero failed MISERABLY! To the point where his only escape was merging with Sirius.

As for Sirius... They hired Mel Karmazin. An ad salesman with a big mouth.

Yes, XM had the programming professionals. People like Lee Abrams. Whereas Sirius now had a consultant, Walter Sabo, who made the channels sound as bogus and untrustworthy as those on TERRESTRIAL radio, just sans commercials. But this difference no longer mattered. Because it was all about Howard. And Mel. Mel was, and still is, Wall Street's darling. He worked the press and investor community like a symphony musician. Whereas Panero smiled and said everything was under control. Shit, I don't play the politics because I'm bad at it, but I'm smart enough to HIRE A LAWYER to do my deals. Panero needed a mouthpiece. Hell, even the new Chairman of XM, Gary Parsons, is a shitty mouthpiece.

Sirius has the momentum. But shitty reception. And on the whole, tight playlists and lame patter and production.

XM has far better reception, and stations that are an oasis in the desert, programmed by people who inspire trust and confidence.

But Sirius buys XM.

Make me puke.

So, you've got the Wall Street pundits saying this is good for the listener.

Hogwash.

Sure, now you can get Howard Stern and baseball for the same price, but there's no competition for talent, no drive towards innovation. And probably, tight playlists with lame tracks, just like we presently have on Sirius. Hell, they're buying XM, AREN'T THEY?

The dream is over. Fumbled by two inept companies.

Yes, Sirius is inept too. It didn't realize that satellite radio was eclipsed by the iPod and Internet radio in the consumer's mind. Sirius was fighting XM, and ignorant as to its bad value proposition.

Why is everybody so full of shit, why is everybody incompetent. Is this what capitalism brings? Mediocrity leading to reward? Yup, Sirius and XM were on the road to bankrupting themselves, so they're rewarded with a pass by the FCC. A merger that the rules say can't happen, will. Just so stockholders can breathe a sigh of relief.

Oh, you probably have no idea what I'm talking about. You don't have EITHER service. You think it's just like terrestrial, but you pay.

Soon, you'll be right.

"Bob Lefsetz is the author of "The Lefsetz Letter." Famous for being beholden to no one and speaking the truth, Lefsetz addresses the issues that are at the core of the music business: downloading, copy protection, pricing and the music itself. His intense brilliance captivates readers from Steven Tyler to Rick Nielsen to Bryan Adams to Quincy Jones to EVERYBODY who's in the music business. Never boring, always entertaining, Bob's insights are fueled by his stint as an entertainment business attorney, majordomo of Sanctuary Music's American division and consultancies to major labels."

That's what Bob says about himself. I find him genuine, accurate, and fun to read. I adore his viewpoint and writing style, and occasionally run his ramblings. You may directly subscribe to his newsletter here.

Leftsetz occasionally publishes letters from his readers. Their deep experience provides authenticity and detail on the record biz. We occasionally publish them as well.