Issue: Proposed Sirius/XM Satellite Merger
Commentary by: David Vinjamuri
FCC Chairman Kevin Martin’s comment last week that the proposed $13 billion dollar “merger of equals” between Sirius Satellite Radio and XM Satellite Radio faces “high hurdles” is a disturbing sign that the U.S. government is out of touch with consumers, technology and brand competition.

The primary question the government must answer in any proposed mergers is – will this merger ultimately benefit or harm consumers? Will this create a monopoly or enable more competition? A decade ago, when satellite radio was first licensed, it seemed that satellite radio would be the dominant audio broadcast technology in the near future. Consumers would eventually migrate to satellite radio, shunning traditional radio. Particularly in cars, satellite radio would become the primary entertainment option.

Under these circumstances, it made sense that there should be at least two satellite competitors and that these competitors would not be allowed to merge. Circumstances have changed.

Today’s consumer has a myriad of choices for in-car entertainment and in-home entertainment. In fact, the biggest alternative to traditional radio has come from an unexpected source – Apple Computer. The iPod’s popularity has even forced automobile makers to scamble to accomodate iPod connection to the car radio, after decades when car makers refused to put even a simple external input jack on car stereos.

There is also renewed competition from terrestrial radio in the form of digital radio, which promises similar quality to satellite radio.

Finally, the FCC could not have foreseen that the fierce competition between Sirius and XM in the face of many other consumer entertainment options would leave both companies weak and unprofitable. The bidding war for talent that culminated in the Sirius acquisition of Howard Stern (for a reported $500 million) and NFL rebroadcast rights and XM lockup of Major League Baseball.

The resulting situation is not good for consumers. Sports fans must choose between baseball and football, or the near-impossibility of having two incompatible satellite radio systems in a single vehicle or household. Entertainment fans must side with Oprah (XM) or Howard Stern – not that we suspect they have many fans in common.

If all this seems obvious to the average reader of this advertising blog, it is disturbingly not obvious to FCC Chairman Kevin Martin. Like airline CEOs who never travel in coach or food company chiefs who never eat their own products, we wonder if Martin has spent much time driving himself through rush-hour traffic in the past few years. Does he not see the legions of people fumbling with their iPods in the car (let alone the man we recently spotted eating a bowl of cereal with milk in his Lexus)?

The best thing for consumers, and for brands, would be to allow two weak companies to form one stronger one. Instead of fighting each other they can prepare themselves for the larger challenge of competing against digital radio and MP3 players. They can also spend more time developing their content.

If not, we’ll just sit back and watch the FCC force another VHS/Betamax battle on innocent consumers.