COMMENTARY: Why the Sirius - XM Satellite Merger Should Be Allowed
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.
March 13th, 2007 at 1:52 pm
Hi David,
Great commentary. Do you think the FCC is punishing the vying companies for already creating a monopoly by signing exclusive rights to sports? Why couldn’t we allow both companies to compete in the arena of content? The video game industry is a great example. Multiple game companies attain the rights to use professional players, arenas, etc. and the consumers decide where their money goes.
So what happens to the newcomer who wants to broadcast sports to draw customers after this merger is complete? Baseball and football are out.
Personally, I’d like the FCC to say, fix this mess you’ve created, learn to play nicely, and come back when detention is over.
March 16th, 2007 at 3:16 pm
Pete,
My †ake on this (and its really from an outsider perspective as I was reminded yesterday when I sat on a panel with the head of investor relations for Sirius) is that the FCC has not quite comprehended what the real competitive set is for satellite radio. The fact that the radio broadcasting association is fighting the merger tooth-and-nail should be a dead giveaway that satellite is part of the larger market for mobile entertainment, not a category of its own.
I doubt that another competitor will emerge in the satellite space. It is too expensive to build and maintain a network and it is not at all clear that this is the most efficient way to deliver radio content. The exclusive sports licenses that Sirius and Xm have negotiated with sports franchises apply only to satellite and won’t affect terrestrial competition.
It may be impossible for the FCC to regulate companies licensing exclusive content - that’s a natural competitive dynamic. I agree that it is not good for the consumer or either Sirius or XM at the end, but the market as it stands looks like a prisoner’s dilemma to me.
David
May 16th, 2007 at 1:03 am
Why is that each time we attempt to foster competition in a media market the result is a gluttonous spectacle of spendthrift acquisitions and skyhigh debtloads, followed by the remaining competitors lingering as a dolorous amalgam that spends the rest of its useful lifetime paying off the credit binge? CATV, cellular, DSB, telco, now satellite radio. . . .
I say back up and divest the whole mess. The satellites each become a business unto itself, the programming uplinkers pay leases and in turn get a share of subscriber fees from a fulfilment office somewhere in Iowa, the subscribers get a free receiver that picks up both satellites, and the FCC watches the whole mess they way they used to watch terrestrial radio when it was regulated.
The creditors? They get the satellite holding companies. The birds are where the big bucks are anyway. Besides, they can always reprogram them into energy-beam weapons and hold America hostage for an off-the-top slice of Gross Domestic Product. They’re good at that, aren’t they?