Sirius and XM will merge, but how big is the market?

Implications: The long term market potential for satellite radio is probably 30M-40M subs. The subscriber base will come from the car market, though it is possible content may be syndicated to other platforms (e.g. MediaFLO). Growth will be driven by OEMs, since unlike the retail channels they are less likely to move on to newer products.

Analysis: The market value of XM and Sirius has fallen significantly, despite expected approval of the merger, but the competitive outlook in the auto market is not that bleak and so the pessimism may be somewhat overdone.
Car manufacturers will stick with satellite radio, as a technology platform that will be around for the long term. Compared to in-car navigation, where technology moves so quickly that a system built into a vehicle quickly becomes obsolete, the XM and Sirius satellites will be around (and remaining compatible with the installed base of equipment) for the next decade.
On the other hand, retail channels will move onto the next hot item, and the limitations of satellite (little or no in-building coverage) mean that handheld sat radio devices will always tend to perform disappointingly when outside the repeater network. To take advantage of the personal (cellphone) market, XM and Sirius will need to syndicate their content to other platforms, or rely on Internet streaming (though this will produce little or no incremental revenue if it is used largely by existing subscribers).
Thus the key issue will be how much the competition from free in-car alternatives (iPods, HD radio, etc.) pulls the OEM take-rate down from the current 50%. It seems likely that it will eventually fall to perhaps 40%, as car manufacturers have been installing sat radio in increasingly low end vehicles, and at the same time adding iPod jacks, etc. which make it easier to use alternatives.
However, even at a 40% take-rate with stable churn rates, the long term market size is probably 35M-40M subscribers, which (assuming EBITDA margins can be increased to 35%+ as the suggested cost savings would indicate) would imply the combined business is worth somewhat more than current valuations.
On the other hand, securing additional financing in today's market will inevitably be challenging and the value of XM and Sirius on a standalone basis is fairly low. Any significant increase in churn would also be a big problem, both increasing the need for cash in the short term and limiting the long term market potential to perhaps as little as 30M subs.