THE $4 BILLION merger of satellite radio companies Sirius and XM continues to languish in the hands of government regulators, despite hopes that the 10-month antitrust investigation wouldn’t drag into 2008.
An otherwise clear-cut approval process has been hijacked by competitors seeking to prevent consumers from receiving better service, more choices and lower prices. As a result, the government could become an accomplice in bankrupting satellite radio and removing a popular product from the market.
Before granting approval, antitrust officials at the Department of Justice must determine whether the merger creates a monopoly, an easy question. Even when combined, Sirius and XM capture less than 4 percent of radio listeners. This doesn’t even account for growing competition from new technologies like MP3 players, “high-definition” digital radio, cellular music services and Internet radio. By any objective standard, satellite radio provides only a niche service, and doesn’t even approach cornering the vast market in audio entertainment.
What has prevented Justice from reaching this conclusion? The trade association representing traditional radio and TV stations has spent more than $4 million lobbying to block the merger.
According to the National Association of Broadcasters, combining Sirius and XM would create a “government-sanctioned monopoly” in a distinct satellite market. Ironically, in order to handicap its competitors, the NAB must deny that competition exists between traditional and satellite radio.
While contending that its members are unaffected by the merger, the NAB simultaneously spearheads a movement to block it. The NAB has also spent millions on direct lobbying, filed dozens of briefs, even hired former Attorney General John Ashcroft to leverage his influence at Justice.
The NAB emblazoned its headquarters in June with a sign reading “XM + Sirius = Monopoly.” Unable to deny credibly that these actions serve its self-interest, the NAB concocted an absurd notion of competition: “Sirius and XM compete directly with us, but we don’t compete directly with them.”
Broadcasters have made these extraordinary efforts because preventing the merger could put XM and Sirius out of business, ending any threat from satellite radio. Unlike most real monopolies, XM and Sirius have never made a profit. In 2006, their combined losses were nearly $2 billion.
This prompted a Goldman Sachs analyst to declare in November that “the retail satellite radio market is on life support.” Even NAB president David Rehr acknowledges that his competitors’ “business model is bankrupt.”
The longer that broadcasters can delay the review, the closer they come to triggering satellite radio’s demise.
IN THIS EPIC battle, Sirius has hired 80 lawyers and submitted more than 6 million pages of documents. XM and Sirius must absorb these expenses because the viability of satellite radio hinges on the merger. Only a combined entity can remain competitive by diversifying offerings and lowering prices.
Even if the merger gains approval from antitrust authorities, it still must endure a second round of scrutiny at the Federal Communications Commission.
An 80-year-old law lets the FCC impose nearly any condition on the merger if it serves the “public interest.” This is an open door for interest groups seeking favorable programming restrictions, hardware requirements or price controls. Even though Sirius/XM may walk through this door as a single company, the FCC could give away so many “public interest” concessions that nothing remains for the consumer.
The Sirius/XM merger signals a total failure of the antitrust review system. Instead of protecting consumers by enhancing competition, the endless deliberation creates fewer choices and less competition. True monopolies arise when incumbents manipulate government to suppress new competitors. For the survival of innovative new technologies such as satellite radio, regulators should tune in and butt out. *
Satellite radio held hostage
Daniel R. Ballon
THE $4 BILLION merger of satellite radio companies Sirius and XM continues to languish in the hands of government regulators, despite hopes that the 10-month antitrust investigation wouldn’t drag into 2008.
An otherwise clear-cut approval process has been hijacked by competitors seeking to prevent consumers from receiving better service, more choices and lower prices. As a result, the government could become an accomplice in bankrupting satellite radio and removing a popular product from the market.
Before granting approval, antitrust officials at the Department of Justice must determine whether the merger creates a monopoly, an easy question. Even when combined, Sirius and XM capture less than 4 percent of radio listeners. This doesn’t even account for growing competition from new technologies like MP3 players, “high-definition” digital radio, cellular music services and Internet radio. By any objective standard, satellite radio provides only a niche service, and doesn’t even approach cornering the vast market in audio entertainment.
What has prevented Justice from reaching this conclusion? The trade association representing traditional radio and TV stations has spent more than $4 million lobbying to block the merger.
According to the National Association of Broadcasters, combining Sirius and XM would create a “government-sanctioned monopoly” in a distinct satellite market. Ironically, in order to handicap its competitors, the NAB must deny that competition exists between traditional and satellite radio.
While contending that its members are unaffected by the merger, the NAB simultaneously spearheads a movement to block it. The NAB has also spent millions on direct lobbying, filed dozens of briefs, even hired former Attorney General John Ashcroft to leverage his influence at Justice.
The NAB emblazoned its headquarters in June with a sign reading “XM + Sirius = Monopoly.” Unable to deny credibly that these actions serve its self-interest, the NAB concocted an absurd notion of competition: “Sirius and XM compete directly with us, but we don’t compete directly with them.”
Broadcasters have made these extraordinary efforts because preventing the merger could put XM and Sirius out of business, ending any threat from satellite radio. Unlike most real monopolies, XM and Sirius have never made a profit. In 2006, their combined losses were nearly $2 billion.
This prompted a Goldman Sachs analyst to declare in November that “the retail satellite radio market is on life support.” Even NAB president David Rehr acknowledges that his competitors’ “business model is bankrupt.”
The longer that broadcasters can delay the review, the closer they come to triggering satellite radio’s demise.
IN THIS EPIC battle, Sirius has hired 80 lawyers and submitted more than 6 million pages of documents. XM and Sirius must absorb these expenses because the viability of satellite radio hinges on the merger. Only a combined entity can remain competitive by diversifying offerings and lowering prices.
Even if the merger gains approval from antitrust authorities, it still must endure a second round of scrutiny at the Federal Communications Commission.
An 80-year-old law lets the FCC impose nearly any condition on the merger if it serves the “public interest.” This is an open door for interest groups seeking favorable programming restrictions, hardware requirements or price controls. Even though Sirius/XM may walk through this door as a single company, the FCC could give away so many “public interest” concessions that nothing remains for the consumer.
The Sirius/XM merger signals a total failure of the antitrust review system. Instead of protecting consumers by enhancing competition, the endless deliberation creates fewer choices and less competition. True monopolies arise when incumbents manipulate government to suppress new competitors. For the survival of innovative new technologies such as satellite radio, regulators should tune in and butt out. *
Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.