This week, the FCC finally approved the merger joining XM Radio and Sirius, the nation’s only two satellite radio operators. Because I’m an XM subscriber, I’ve been following the whole amusing, convoluted drama for a while.
Naturally, I’m anxious to see how Sirius stars Martha Stewart and Howard Stern will get along with XM standbys Bob Dylan and Oprah Winfrey. But I’m most concerned about the coming monopoly, and the shrinking options I’ll face now that these two titans of the stratosphere have joined forces.
Take a look at my car’s stereo system and you’ll see what I mean.
Now that the only two satellite radio operators have joined forces, 16 million Americans are stuck paying 12.99 per month, with no choice but to continue listening to an expanded roster of commercial-free radio. Yes, the future is bleak for people like me…unless there’s…some way…I can reach…one of these…other…BUTTONS.
Seriously (no pun intended), this picture of my car stereo does a pretty good job capturing the key issues.
The non-existent monopoly
First, is there really a monopoly? Under U.S. antitrust law, the answer usually depends upon how narrowly the relevant regulators define the market. In this case, two agencies had to bless the merger: the Department of Justice and—because the merger involved two broadcasters—the Federal Communications Commission. Both agencies were ultimately convinced that satellite radio operators compete in a broader market that includes traditional AM / FM radio, Internet broadcasters, and even MP3 players.
The National Association of Broadcasters (NAB) spent millions on an advertising and lobbying campaign warning of a unified Sirius/XM company that could raise prices and stifle innovation in a consolidated satellite radio market. The NAB, of course, is a consortium of terrestrial AM & FM broadcasters. They’re not worried about consumers; they simply prefer competing against two satellite radio companies that are both dealing with huge debt and slow subscriber growth.
The merger is terrible for the NAB, because it allows Sirius and XM to combine their overlapping content and hardware expenses, and concentrate on attracting subscribers who are no longer uneasy about one of the companies failing. In other words, traditional AM/FM radio is worried about facing increased competition.
Antitrust is about abuses of market power. Anytime competitors join forces, regulators are worried about whether consumers might be harmed, either by decreasing choice or increasing prices. But in this case, focusing on the market for satellite radio makes no sense. Consumers who think satellite radio costs too much don’t have to sign up. That’s the choice most of them have made, too. XM and Sirius together have 4% of the market for broadcast radio; the rest belongs to traditional AM/FM radio.
Even with consolidated radio, consumers have lots of choice. If I don’t like what’s on XM/Sirius, I’ll just switch to regular radio, or more likely, a CD. And because my car (like lots of new cars) includes an auxiliary jack, I can plug in my MP3 player without having to buy one of those dumb signal converters.
The easy availability of substitutes for satellite radio means there can’t possibly be a monopoly; not when you consider the broader market. For a similar situation in which the government reached the opposite conclusion, I encourage you to read about the Federal Trade Commission’s unsuccessful opposition to the Whole Foods / Wild Oats merger.
The incompatibility problem
So I think the DOJ and FCC were correct to approve the merger, but that doesn’t mean there weren’t any regulatory failings. Take a look at my stereo again. Notice, there’s no button for Sirius. My car stereo can only receive XM radio, and that’s not going to change because the two technologies use “different compression and conditional access systems.” After the merger, XM and Sirius will continue to operate as two separate companies, and each will offer programming from the other’s service. New radios will be released that can access both services, but these fully compatible radios won’t be available for quite some time.
The incompatibility problem is an embarrassment for the FCC. In exchange for approving the merger, XM and Sirius had to promise to FCC they would finally manufacture radios that were capable of receiving both signals. The problem is, the two companies were supposedly required to create interoperable radios as a condition of receiving their FCC license in the first place.
But the FCC’s 1997 order authorizing satellite radio only required the two companies to “design a receiver which would accommodate” all satellite providers. It didn’t require them to actually manufacture a compatible radio. It’s a distinction lawyers for XM and Sirius well understood, allowing the two companies to lock in their customers and justify the significant subsidies both services offered their subscribers.
Now that they’re merging, the lack of interoperability has come back to haunt the former competitors. Instead of fully consolidating their broadcast infrastructure, they’ll be forced to service legacy radios for the foreseeable future. They can’t turn half the satellite radios out there into bricks. Which means the merger will save them some money, but the savings will be far less than if they had been compatible to begin with.
