jump to navigation

Merger Would End Satellite Radio’s Rivalry – New York Times February 20, 2007

Posted by Jordi in media, monopoly, Technology.
trackback

Satellite radio is an interesting example of new technology. Is this a good merger for the companies? For consumers?

Merger Would End Satellite Radio’s Rivalry – New York Times
The nation’s two satellite radio services, Sirius and XM, announced plans yesterday to merge, a move that would end their costly competition for radio personalities and subscribers but that is also sure to raise antitrust issues.

In general, companies would like monopoly positions even if it is’t in society’s or even their own long-term interests (monopolies tend to get sluggish. Think of the British Naval study by Parkinson (page 122) where ships decreased by 2/3rds while dockyard officials increased 40% and central staff increased 79%). The article points out that this is likely to spark review by federal antitrust regulators. According to economic policy, the concern of regulators is pricing. Your electric company is regulated because you have no substitute for electricity (would widespread power distribution capacity, like solar on every house, change this policy formula?). So, would a combined XM-Sirius company be a legitimate natural monopoly? Or is it a non-issue due to other disruptive technologies? In other words, if they try and raise prices, would consumer simply opt out for broadcast radio, Internet radio, or other media? The contestability of the marketplace will be the main argument of the two radio media companies.

A wrinkle here is the economic struggle being fought through the proxy of community standards. The National Association of Broadcasters issued a statement immediately :

“In coming weeks, policy makers will have to weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly,” it said.

Howard Stern was signed by Sirius for a deal worth $725 million in cash and stock. Since then, Sirius’ subscriber base has been growing much faster than XM’s.

Another possibility is that federal regulators will allow the monopoly to go forward, but only if the Sirius-XM lovechild allows others to play ball. In other words, they still have a monopoly on content provision even if they do not price as monopolists. This was the solution applied to AT&T and Microsoft- that their monopoly control over platform technology required they be open to third party providers. Personally, I wouldn’t mind this outcome as it would to a broader diversity of programming.

As it turns out, the SMIF class has purchased Sirius stock. I am going to ask their analyst, John Kimball, what he thinks and see if he will post in the comments here.

UPDATE:

Here is their channel line up.XM Channel line up

Advertisements

Comments»

1. Charley S - February 20, 2007

I think that this can only help out the satellite radio companies because it would effectively double the amount of programming that each customer could recieve. I believe that this merger would not adversly affect customers because of the other options of entertainment available to people such as iPods, cell phone streaming radio, and internet radio. I got XM as a Christman gift a few years ago and never ended up using it because I couldn’t find any good radio stations on it. If the merger can help the programming that I can recieve then I’m all for it.

2. Jordi - February 20, 2007

Charley- It has 69 channels of Music. You really couldn’t find anything you liked? How would you describe your tastes? I am going to try and post an image of the channel line up.

3. Brian Mulligan - February 21, 2007

I’m current subscriber to Sirius and I think that this may run into anti-trust problems in the future. Both companies have accumulated an incredible amount of debt (2.3 billion combined according to WSJ). I think that this will allow the companies to operate in the black versus the red and help the satellite radio business take off.

4. Elaine - February 23, 2007

This is similar to the AT&T case, and I feel that the government will eventually step in and take a role in this situation. They could easily raise the price of their subscriptions if they have no real competition. If they do raise their prices, I’m sure their customers will find other alternative ways for their music. I personally like XM and do not favor change, but we’ll see what happens from this merger.

5. Professor Jordi - February 26, 2007

If people can switch to other services (non-satellite) the traditional rationale for government intervention of regulating monopolies goes away.

So, are broadcast radio and internet radio substitutes for satellite radio or not?

6. K.C. - February 26, 2007

I think this is a good idea for Satellite radio listeners because it will open up an even larger lineup of music and hopefully will be available for the same price. However, with the merger taking place barriers to entry will probably increase and could cause competition to become stagnant. Also, I wonder if this would hurt Satellite radio in general because of the introduction of HD radio which does not cost anything in terms of service subscription.

7. Professor Jordi - February 27, 2007

What is HD Radio, KC?

8. K.C. - February 27, 2007

High Definition Radio. Any receiver can pick up the signal with a inexpensive install at a car audio store. Not too many stations are available yet but more are soon to come. Service is free.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: