KANSAS CITY, Mo. -- When Johnny Jackson first heard about satellite radio, he was beyond skeptical.
"I thought, 'Yeah right, like that's going to fly. Look at its auto entertainment competition: CD players, MP3 players, free radio and cassettes. Like I would add another expense to my long list of expenses.' "
Flash forward a few years. Jackson is one of 18.5 million American consumers who do something they probably didn't envision a decade ago -- they pay as much as $13 a month to listen to the radio.
Satellite subscribers say they write those monthly checks for any number of reasons: to listen to favorite celebrities such as Howard Stern, Oprah Winfrey or NASCAR driver Tony Stewart; to get away from commercials that often cram "terrestrial radio" channels; to have the music they want, when they want it.
On the eve of its seventh birthday, satellite radio is about to undergo a massive face-lift. Sirius and XM, fierce competitors that in the past paid outrageous sums to draw the likes of Stern and home decorating guru Martha Stewart to their networks, merged last month.
By November, Sirius XM Radio will roll out new pricing plans and technology aimed at luring those who stayed on the satellite radio sidelines to sign on. Industry analysts are expecting the merged company to come out swinging during the holiday season.
The company already has unveiled eight programming packages that will allow subscribers to sign up at rates starting at $6.99 a month.
Completed just last month, the Sirius-XM merger was one of the most protracted in U.S. history.
After the merger's announcement in February 2007, questions and opposition from consumer groups and traditional radio networks kept consideration bottled up within the Federal Communications Commission for more than a year.
Groups such as Consumers Union argued that the merger would lead to higher prices. The National Association of Broadcasters argued that it would result in unfair competition for traditional radio by creating a "government-sanctioned monopoly."
For their part, competitors XM and Sirius said the merger was necessary for the survival of the satellite radio industry. Neither company ever had turned a profit, the networks argued, and neither was likely to do so while competing for subscribers.
Deadlocked for months, the FCC approved the merger in late July by a 3-2 vote along party lines, with Republican Commissioner Deborah Taylor Tate breaking the tie.
FCC Chairman Kevin Martin said the merger met the FCC's "high hurdle," noting that the new network had agreed "to offer consumers more choice and flexibility in how they purchase channels." It was a contentious decision, strongly rebuked by FCC Commissioner Michael Copps.
"The inescapable logic ... is that by 2011, satellite radio subscribers will face monopoly price hikes by a company with the incentive and ability to impose them," Copps said in a statement.
Sirius XM is under FCC mandate to freeze prices for three years; to offer consumers a la carte programming, giving them the opportunity to pay for only the channels they want; to offer family-friendly programming packages at lower rates; and to offer a music-only package for less than $10 a month.
Industry analysts such as Thilo Koslowski of Gartner see only positives coming from the merger.
"I don't think there will be any downside for consumers," Koslowski said.
Another analyst for the industry, Susan Kevorkian of IDC, said a la carte pricing for satellite channels will offer a new alternative to "consumers who may have been interested in the prospect of satellite radio, but were put off with the lack of alternative pricing plans." Not everyone is as positive.
"The (satellite radio) industry has a history of promising things and then letting it go by the wayside," said Bob Williams of Consumers Union.
For their part, subscribers were, and remain, split on the merger.
Many, including some who subscribe to both services, believe it eventually will lead to more programming from a single radio. Others are concerned that they may lose access to current favorites as the newly merged company shifts programming from one satellite network to the other.
Sirius XM isn't fielding any specific questions about programming, said Patrick Reilly, senior vice president for communications. Under the FCC ruling, the company has 90 days to develop its plans.
Behind those plans is Mel Karmazin, a high-profile radio-TV executive credited with the buildup of Infinity Broadcasting and CBS Radio and now chief executive of the merged company.
Karmazin recently bragged to the New York Post that Sirius XM is "going to be the most successful company in radio."
Generating cash will be Sirius XM's biggest challenge in the next 18 months.
While the company is projecting that the merger will lead to $400 million in savings, Sirius XM is $3.4 billion in debt. Of that total, more than $1 billion comes due in 2009.
That's a significant challenge that has Wall Street uneasy.
Shares of Sirius have dropped from a tech-bubble high of $59 in early 2000 to $1.40. Shares lost more than 60 percent of their value in the past year while the FCC mulled over merger plans.
Research firm iSuppli contends that the completed merger will allow vehicle manufacturers to move forward with plans to install digital radios in new cars.
It is projecting that the sale of satellite radios in new cars will increase 13.3 percent this year to 5.2 million units.
The merger "is good news for strategic planners in the automotive business ... that have spent the last 18 months 'on hold' pending this merger," said Richard Robinson, an analyst with iSuppli.