The XM-Sirius Merger
The US Department of Justice has approved, in principle, the merger of XM Sattelite Radio and Sirius. Full approval from the DOJ is expected to come in a few weeks’ time, at which point the matter will be taken up by the FCC.
For all intents and purposes, this means that the merger is a done deal. According to Bloomberg:
FCC Chairman Kevin Martin said last week that his agency would “go forward quickly” after the Justice Department ruled. Mary Diamond, a spokeswoman for the FCC, said yesterday the commission “is looking at” the transaction.
The FCC has not, historically, bucked the judgment of Justice, and is even less likely to do so given its more recent history of approving media mergers of all stripes.
Whether the Department, or the Commission, should approve the merger is still open to debate, not that it’s likely to be debated. Stocks of both companies at first traded up since news of the DOJ approval, only to fall soon thereafter; they’ll likely trade better still once the inevitable wave of layoffs follows the merger. The hundreds of employees likely to be put out of work completely aside (and no, that wasn’t intended to be as callous as it sounded), there are other factors which would tend to make this a lousy idea.
First off, there are the technical issues. Both companies have customers under contract, and both have deals with automakers to get their equipment into cars. Assuming that one set of equipment will supplant the other at some point, an awful lot of people are going to have to purchase new equipment, and the auto industry isn’t exactly known for retooling its manufacturing on a dime, either.
Then there’s the media consolidation issue. This has usually been taken up in relation to traditional media (terrestrial radio, television, newspapers), but given that the satellite model will soon encompass cell phones and other delivery systems, it needs to be examined. The fact that there’s one less player in a field that only had two major players to begin is likely to mean fewer voices, fewer options, and no promise that the merged company will operate in the public interest. Jon Bartholomew of Common Cause has written on that issue in more depth here.
Finally, there’s the monopoly issue. Traditionally, a monopoly is defined as a situation in which a single provider has exclusive control over the sale of a product or service. I know the “M-word” raises a lot of hackles, but name two other satellite radio companies. Having difficulty? There’s a reason for that. It’s ‘cause there are no other satellite radio distributors. Yes, there are multiple manufacturers of the receivers. No argument there. But we’re on the verge of going from only two providers of content—which isn’t nearly enough—to only one. Granted, I’m not a lawyer, but from what I can gather of the Sherman Antitrust Act, this isn’t quite legal.
Since its founding in 1934, the FCC’s stated mission has been to ensure that the airwaves are operated in the public interest. It’s done a better job of this at some times (PBS and the Corporation for Public Broadcasting both come to mind) than others (see any of the editions of Ben Bagdikian’s The New Media Monopoly
Tags: Department of Justice, FCC, mergers, monopolies, Sirius, XM
March 28th, 2008 at 12:44 am
I’m not terribly knowledgeable of this issue, but that won’t stop me from commenting
I briefly read in the business section that the merger was allowed because XM and Sirius successfully made the case that they don’t compete with each other - they compete with terrestrial radio, MP3 players, and CDs.
That rings true to me, at least anecdotally. Most of my friends don’t have satellite radio because they can hook up their MP3 player to their car stereo, or it’s a modern stereo that can play MP3 and WMA from CDs or DVDs. Personally, I don’t mind commercial radio because I get to hear new things, and I can change stations or hit the CD button if a commercial comes on.
On the flip side, my roommate just announced that he’s interested in buying one because he hates commercials and has no time to burn CDs or start a digital music collection. So for those reasons, it makes sense.
The big issue, as I see it, is that the infrastructure for these companies require networks of satellites. As an employee of a company that builds satellites and used to build/launch rockets, I can verify that launching satellites are OMFG crazy expensive. In light of that, the business model for satellite radio doesn’t seem too hot.
Which, on a related note, is the reason why my company does not build rockets any more. They spun that division off so it could merge with another company’s rocket division (also spun off). Now there’s one real rocket company because (since the tech bubble burst) the industry isn’t big enough to support multiple players. The gov’t agreed. I think the same could be said for satellite radio, but again, this is mostly conjecture on my part.
March 28th, 2008 at 2:26 pm
Good point re: expense. I’d only agree up to a point that the business model isn’t too hot… that is to say, once a business model becomes entrenched, it basically becomes received wisdom that not too many people–including the company/companies bound to that model–tend to question. We’ve already seen this with the music industry, and to an even higher degree in music retail, which was left flat-footed when the time came to respond to a new business model that didn’t fit the way things had been done for years. Their response consisted mainly of fighting tooth-and-nail against file sharing, download services, and the like, and all it’s gotten them is that they’re now threatened with extinction.
To carry the example a bit further, and also to bring it back on track with the topic of the post: iTunes has, far and away, the lion’s share of the download market. But there are other players (Napster, Amazon’s [relatively] recently launched service, et. al.), and it’s not inconceivable that there will be others. New players realize that if they’re even going to gain a foothold in an already crowded field, much less go on to be a force to be reckoned with, they’re going to have to innovate. When you take away what little competition is there, you lose some of the incentive for innovation.
And yes, it’s expensive to launch and maintain a satellite; but it’s not impossible. I could easily envision some kind of leased-access kind of thing via, say, the ESA. More likely, though, it’ll be one of the terrestrial giants (NewsCorp, anyone?) that will decide to expand their holdings into a new realm. I get the feeling that the closest analog we have right now is something like the early days of cable, though I wouldn’t bet the house on this playing out in the same way.
April 1st, 2008 at 11:59 pm
Leased access satellites might work, provided they have the same broadcast capability as the XM/Sirius satellites (strong enough to not need a dish, broadcasting in the right band) and are in geosynchronous orbits above North America. ESA satellites would be unlikely to meet those specs, but some commercial communications satellites might fit the bill. According to Wikipedia, however, Sirius seems to be using specific orbits to maximize coverage and reception.
Nevertheless, I have little confidence in the long term prospects of satellite radio. I believe it won’t be long before we have widespread Internet access in cars. Your stereo and navigation system will be able to connect through your cell phone, using it’s Bluetooth connection (or with a built-in EVDO card). Then you’ll have access to all of Internet radio, which provides the same benefits as satellite radio. I think car computing will be getting really exciting over the next few years.
And sure, not all XM or Sirius subscribers listen in their cars, but I think it’s a big enough portion of their customer base that if they lost it, it would be game over. Maybe satellite radio stations will reinvent itself, but right now I can’t see how.