The two satellite radio providers, XM and Sirius, announced a proposed merger yesterday. The FCC, which must approve such a combination, quite reasonably went on record as having reservations. Chairman Kevin Martin added that “the hurdle here, however, would be high as the commission originally prohibited one company from holding the only two satellite radio licenses."
What’s reasonable here? On the one hand, aside from the statutory license restrictions (no small matter), the merger would on the face eliminate competition that had been very fierce in this alternative to traditional terrestrial radio. On the other hand, despite signing up millions of subscribers each, both are losing prodigious sums of money. But that is in part due to the profligate spending on programming, such as Sirius’$500 million commitment to Howard Stern or $107 million for NASCAR, while XM with more subscribers, committed $55 million for Oprah Winfrey. If they had spent less on expensive programming perhaps they would be profitable.
On the other hand (whoops, is that the third hand?) if they hadn’t spent big on high visibility programming, then they might not have aggregated 14 million subscribers paying $12.95/month.
By one important measure, such a merger reduces competition less than it first seems: Subscribers to one service cannot listen to the other. Although the two services compete for subscribers, the radio sets sold for each service works only for that service. Thus, once a consumer chooses which service they want (or buy a car outfitted with one radio), the barrier for switching services is high, as the costs of the receivers is relatively steep compared to AM/FM receivers. To the extent that a merged service would provide the best of both, many subscribers would benefit. (Losers may be the higher profile talent that has sometimes been able to bid one service against the other).
Another reason why perhaps it should go through is that it is already being bad mouthed by the National Association of Broadcasters (NAB). Predictably the NAB must oppose it, as satellite radio is competition for its traditional radio membership. It quickly issued a statement that included: "In coming weeks, policymakers will have to weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly platform for offensive programming. We’re hopeful that this anti-consumer proposal will be rejected."
This, of course, is the same Howard Stern that until a year ago was the pride and joy of an NAB member. (or if not exactly “pride”, at least a profitable “joy.”). And the same NAB that has lobbied for freedom of mergers in local television and radio.
But there is a point here: Satellite radio is not a medium to itself. Its competition is free terrestrial radio, including the expanded—but still under utilized—HD radio. The NAB must see a merged XM/Sirius as a more formidable competitor than two money losing entities.
Bottom line: This should be a tough sell for approval, but it's not a one way argument. One approach: Let the two merge, but sell one of their licenses. The surviving firm can carry what they have room for on their one license frequencies and let a new compeitor in the sky. Perhaps the model for a new competitor would be for less expensive programming at a less costly subscription fee.
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