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Satellite Radio Competition

Posted By Russ Roberts On March 7, 2007 @ 4:29 pm In Antitrust | Comments Disabled

Sirius and XM Radio want to merge. There could be lots of reasons for merging. Economies of scale. A desire to exploit consumers and make huge amounts of money. A desire to avoid bankruptcy.

I have no idea if there’s room for two satellite radio companies or whether there’s room for 50. What I do know is that there is no meaning to the idea of satellite radio market share. After this merger, the new company, SiriXM, say, will have a complete and total monopoly of the satellite radio market. But that is meaningless. Satellite radio has to compete with my regular radio, internet radio, my CD collection and my iPod. Oh, and my TV and talking on my cell phone with friends and a thousand other ways to pass the time.

Five years ago there was no satellite radio. When one company came along (I don’t know who was first, Sirius or XM), should the FCC have shut them down for daring to monopolize the market? So why is it now that there’s two going back to one we have a potential calamity that the government has to worry about?

Look at this absurd complaint [1] (HT: Drudge) by the head of the FCC:

Kevin J. Martin, the chairman of the Federal Communications Commission [2],
has privately questioned recent Congressional testimony by the
architect of a proposed merger of the nation’s two satellite radio
companies that subscribers would both pay the same monthly rate and
receive significantly more programming.

As he sought to sell the proposed merger of Sirius Satellite Radio [3] and XM Satellite Radio [4] to Congress, and by extension to regulators like  Mr. Martin, Mel Karmazin [5],
the chief executive of Sirius, vowed last Wednesday that prices would
not be raised and that listeners would benefit enormously by getting
the best programming from both companies.

But in separate conversations with two people after Mr. Karmazin’s
testimony to a House committee, Mr. Martin said that subscribers may be
surprised to learn they may actually have to pay more than the current
monthly rate of $12.95 if, for example, they want to receive all the
games of Major League Baseball (now available only on XM) as well as
all the professional football games (now only on Sirius).

Mr. Karmazin, reached on Tuesday, said his testimony was not
misleading and that he meant to say two things: subscribers wanting to
keep their existing service would not face a price increase, and
listeners who wanted the best of both services would pay less than the
combined rate of $25.90.

This is ridiculous. Right now, both services offer lots of music of lots of different flavors. But one has the NFL and one has MLB. So if you want both of those, you currently subscribe to both. Most people make a choice and choose one or the other. So the debate between Martin and Karmazin is over whether consumers who want both under the merged scenario will pay just $12.95 or something more than that. I assume they’ll pay more. So does that mean Karmazin lied? Oooohhhhh. Gotcha.

Let them merge. Get out of the business of trying to figure out how many angels can dance on the head of a pin, that is, trying to figure out whether a merger is good or bad for consumers or dictating what the price of service should be for customers of the new company and particularly, trying to figure out the "real" market share of the new company. A merged Sirius and XM can’t hurt consumers. There are too many choices. Hey, FCC. Get out of the way.

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URLs in this post:

[1] this absurd complaint: http://www.nytimes.com/2007/03/07/business/media/07radio.html?ei=5065&en=6f4b29133688863d&ex=1173934800&partner=MYWAY&pagewanted=print

[2] Federal Communications Commission: http://topics.nytimes.com/top/reference/timestopics/organizations/f/federal_communications_commission/index.html?inline=nyt-org

[3] Sirius Satellite Radio: http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=SIRI

[4] XM Satellite Radio: http://www.nytimes.com/mem/MWredirect.html?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=XMSR

[5] Mel Karmazin: http://topics.nytimes.com/top/reference/timestopics/people/k/mel_karmazin/index.html?inline=nyt-per

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