Satellite Monopolies?

If The New York Times says a Sirius-XM merger is "sure to raise antitrust issues" then I'm happy to believe them. I have a hard time seeing a serious issue here, however. As is typical in these cases, the relevant think is the definition of the market. If you think there's a discrete "satellite radio" market then, yes, a combined Sirius-XM entity would clearly have monopoly power in that market. Realistically, though, the product both Sirius and XM are selling -- audio broadcasts -- is one for which there's a great deal of competition. Cable and satellite television providers are capable of delivering similar content, though in not as convenient-to-use a manner. People can listen to CDs, buy internet music subcription services, subscribe to "podcasts," and, of course, satellite radio needs to compete with its freely available terrestrial radio counterpart.

After all, at the moment I -- like most Americans -- don't have a satellite radio subscription even though I'm pretty gadget inclined. The logic of the business is that the merged entity needs to grow, which is to say continue trying to offer a deal that people find appealing compared to our many other entertainment options, not our satellite radio options.

2/20/07 7:20AM del.icio.us this incoming links

Comments

Well I have a satellite radio subscription, to XM in fact.

I would like to get rid of it, the customer service is miserable and for a long period you'd go online to update things to be greeted with "Macintosh? What's that?"

But they had Major League Baseball and I was driving from Wisconsin to Florida a couple of times and... Well, you know, overnight it might be nice to hear Air America and...

I was weak.

But try to call customer service and cancel, ain't gonna happen.

Maybe Sirius is better... Maybe one day I can stop paying them...

Posted by: Lettuce on February 20, 2007 07:43 AM

Lettuce -

I'm seriously bummed to hear that. I've found XM to be the most underwhelming purchase I've made in some time. Bought a 1-year subscription that's expiring soon and just intended to let it expire. Not going to happen?

OT, I guess, but XM programming is thoroughly mediocre and sometimes illogical. For instance, the "Sinatra" channel which you'd expect to play standards by singers of Sinatra's type often plays instrumental jazz. Why? They have instrumental jazz channels. It makes no sense.

Their "rock" stations are similarly muddled, especially the "classic alternative" station Fred. I'm all for hearing underplayed tunes from the 80's, but do they have to suck so consistently? If I hear another Boomtown Rats song, I'm going to tear that radio right out of the dashboard. Generally the programming on just about every station is less than it could be.

I guess I'm agreeing with Matt - what's the big deal? Especially where I live (Minneapolis), there are public radio stations that offer a range of music that's better than what XM plays.

Posted by: Kurzleg on February 20, 2007 08:32 AM

The best radio programming currently available IMHO is at the BBC radio website www.bbc.co.uk where you can go to the "BBC radio player" and listen on demand to anything they have broadcast in the last week. It's all there: intelligent programming in every music genre: clasical, jazz, pop, rock, blues, hip hop, etc. plus the best drama, comedy, quiz shows, etc currently being produced for radio anywhere, not to mention BBC news and journalistic features.

Only problem is that listening to internet radio is often not very convenient, but I suppose that will be coming also.

Posted by: Virginia Dutch on February 20, 2007 08:52 AM

I have XM and really like it. My job takes me on the road for semi-long (probably 5 or 6 days a month where I am in the car for 3 or more hours a day) and I've never been a huge purchaser of CDs. Most big time music fans seem to prefer the offerings of Sirius. As for me, I can usually find something to satisfy myself among the 70+ music channels. I also enjoy talk/news radio, and so the offerings of all of the national sports talk networks, a baseball-only station, Bob Edwards and Leonard Lopate on XMPR, Air America (actually, Franken was the only one I ever liked, but it's there), BBC World Service, the audio of the various TV news channels. I'm a big baseball fan, so I can listen to the Cubs wherever I am in the continental US. It seems to me that the biggest beneficiaries of the merger are sports fans, who don't have to say, "hmm...I'm a big fan of the Cubs and Notre Dame and the Colts, but ND is on Sirius, baseball is on XM, and the NFL is on Sirius."

I think where the satellite radio services will have to improve is in the handheld devices. My device is technically an on-the-go device, but I find service is sporadic unless I am hooked up to the cradle and antenna in my car or my office.

Posted by: John M on February 20, 2007 08:59 AM

Lettuce, change your credit card. First, contact your credit card's customer service line, and explain the problem. Carefully include the fact that one solution to the problem is to change cards; that should get their attention.

Posted by: Barry on February 20, 2007 09:12 AM

Whether someone is satisfied with satellite radio has much to do with whether whatever they're seeking can be found elsewhere or not. I'm an XM subscriber, a big fan of dance-techno music and NPR. The dance-techno is unavailable on terrestrial radio in my area, and it cycles fairly rapidly so it's nice to have a DJ spinning the latest. NPR? Not available (much) on XM, so I listen (and contribute!) to my local NPR affiliate about half the time. Oh yeah, and I'm a fan of an out-of-town baseball team and being able to catch the games on XM is much easier than trying to tune in their AM flagship.

Point being, I wouldn't be surprised if there are a lot of satellite subscribers who only care to listen to a few channels. For the music I like, there really is no other alternative to XM other than researching new music and downloading it to an Ipod. What I'm looking forward to if the merger goes through is the ability to listen to the Sirius NPR programming.

Posted by: Chris Anderson on February 20, 2007 09:14 AM

I'm inclined to agree about Sirius/XM. But the overall argument seems too strong. Is the implication that there's no problem with Clear Channel either, because we can always buy CDs? It sure sounds like it.

Posted by: Ragout on February 20, 2007 09:16 AM

I think your best direct comparison would be the aborted merger between Echostar and Direct TV - which was challenged in federal court by the Justice Dept and 23 states , who argued that satellite TV was a separate and distinct market - and in that case it was 3 companies offering satellite TV services going to 2, rather than 2 going to 1 as in satellite radio

The product market was defined as multichannel video programming distribution ("MVPD")- which also includes cable - and the Complaint detailed why this was a separate product market for antitrust reasons:

Standard over-the-air broadcast television does not include the variety of programming services that are available to MVPD subscribers: it does not provide nearly the number of channels; it does not provide access to popular services such as ESPN, CNN, TNT; and it does not permit access to premium services such as HBO or Showtime. Thus, most consumers do not consider broadcast television an acceptable substitute for cable and DBS services. Accordingly, even though they can receive over-the-air stations for free, customers are willing to pay a significant sum--several hundred dollars a year--for MVPD service.

In radio you don't even have the cable alternative offering similar service. It will be argued that these 2 companies offer a unique service in competition with each other. The antitrust authorites will take a much narrower view of the product market than the uberbroad one that you are trying to describe. Sure, all those things are substitutes - but they do not provide anywhere near the product that is satellite radio. And if this deal is viewed the same way as satellite television was, it will easily be differentiated from terrestrial radio also. I'm actually kind of surprised that they are going through with it.

Posted by: Ethel-to-Tilly on February 20, 2007 09:28 AM

Matt is certainly right in saying that the “entertainment” market will not be hindered because of the satellite radio merger. However, the satellite radio market will be. If you happen to live in rural America, of which a lot of American geography is, and you are not in the reception area of multiple radio stations, then you’re SOL. Granted, the Internets are getting further and further out into rural America, but there are still large pockets of the U.S. without broadband. So, everyone in the countryside, would be made worse off by this merger.

The same is true for satellite television mergers for the folks outside of TV broadcast range.

Posted by: djLicious on February 20, 2007 09:29 AM

It seems to me that the biggest beneficiaries of the merger are sports fans, who don't have to say, "hmm...I'm a big fan of the Cubs and Notre Dame and the Colts, but ND is on Sirius, baseball is on XM, and the NFL is on Sirius."

Exactly. Baseball on one and football on the other? Yeck. Damn right I wouldn't get satellite radio. (Beside the fact that I don't drive in a car more than two or three times a month.)

Posted by: Al on February 20, 2007 09:53 AM

Granted, I'm something of an antitrust zealot, but I think you're missing the point here, Matt. The difficulty raised by a Sirius/XM merger has less to do with fears of a monopoly over the current satellite radio market, but rather with the potential that a company with monopoly control over satellite radio could leverage that power to control emerging satellite communication technologies in the future.

Whether such fears are justified in this particular case, I can't say. But antitrust law is predicated on the notion that any private monopoly has a long-term negative effect on innovation and competition, not to mention customer service.

Posted by: LaFollette Progressive on February 20, 2007 10:28 AM

So, everyone in the countryside, would be made worse off by this merger.

But this is only based on the assumption that prices will rise. If they don't, then it would simply be a benefit, as a whole new set of programming opens up to you.

As a Sirius subscriber, I can say that there is only a bit of XM programming that Sirius doesn't have in which I find will be useful. Ultimately though, I have 10 presets (and 20 more that I don't even use.) So if prices don't rise, then really I won't be affected all that much.

Posted by: Adrock on February 20, 2007 10:29 AM

I'm not smart enough to comment on antitrust law, but I almost wish that such deals could be voted on not just by the members of the boardrooms but the existing customers as well, who have it seems a collective interest and investment in said companies.

Posted by: Adrock on February 20, 2007 10:31 AM

Clear Channel should be a much bigger antitrust issue, owning as many radio stations as they do. This is the upside down world we live in: the biggest trust in the industry has enough Republican backing to use antitrust law as a weapon against its younger, newer, smaller upstart competitors. Amazing!

Posted by: Jalmari on February 20, 2007 11:34 AM

But this is only based on the assumption that prices will rise.

Well, yeah. But's the nature of the monopoly - higher prices, fewer goods produced. It is possible that this outcome might not come to pass, but that would certainly buck history. See, for instance, cable dereg, local phone service dereg (non-bell local providers are pretty much non-existent), California energy dereg a la Enron ca. 2000, Microsoft's continued ability to strong arm the PC market, etc. Name an industry controlled by a monopoly, and it's pretty much a loser for consumers.

Posted by: djlicious on February 20, 2007 12:00 PM

Word on the street is that they have irreconcilable technologies and know full well that the federal law that created satellite radio mandates that there be two providers. This is instead a ploy to try and rescue two very poor business plans.

Posted by: La Rana on February 20, 2007 12:56 PM

I think the way the FTC defines the relevant "market" is that it's the smallest market in which a monopolist could impose a small but significant non-transitory increase in price (SSNIP). So in theory, you would start with a huge market that, if monopolized, would clearly have higher prices, and then you strip away until you get to the smallest market in which a monopolist would have SSNIP pricing power.

Posted by: minderbender on February 20, 2007 01:27 PM

XM subscriber, simply love it (over-tha-air radio in Los Angeles just sucks).

The part of the announcement that worries me is this:
"The combined company is committed to consumer choice, including offering consumers the ability to pick and choose the channels and content they want on a more a la carte basis."

If you only listen to a very few channels, then maybe "a la carte" pricing might save you money. But isn't part of the attraction of satelight radio (like cable TV) having dozens of choices? "Tier pricing" on cable TV has cost me access to channels that I watched only occasionally. I'm afraid "a la carte" pricing on XM is going to do the same.

Posted by: Robert Earle on February 20, 2007 02:11 PM

I think Apple should buy XM and/or Sirius, so the new I-Phone could be combined with a satellite receiver. When you hear a song you like on the radio, you should be able to instantly capture it to the I-pod and purchase it from I-tunes, with the touch of a button.

Apple, XM and/or Sirius executives feel free to contact me to discuss royalty payments.

Posted by: Jalmari on February 20, 2007 02:29 PM

I resisted getting satellite radio when I recently leased a new VW. Subscription fatigue was really the issue -- seems like there's an ever-growing stream of outbound revenues supporting my entertainment and communications needs. Plus, it just seems so damned easy to pack hundreds of tunes via various methods (Ipod, or, my personal method, just burning a hundred odd Mp3 tracks on a disc and keeping my stereo loaded with 600-700 songs at all times) that the subscription really wasn't worth it.

I must say, though, that the free XM service given away by AOL really rocks. I've never been an AOL subscriber, and I'm not even such a huge fan of IMing in general, but I got myself an AIM accounts solely for the free XM. It's great deal given the price (zero). They don't give you everything that the pay service provides, but, overall, there must well over 100 music stations. Every decade, era, genre, specialty and sub-specialty imaginable, including a truly robust offering offering of different world music choices. All for free, and pumped into my computer at home (and then rerouted to my stereo) as well as work. Pretty sweet. I hope the merger doesn't kill it.

Posted by: Jasper on February 20, 2007 10:27 PM

My understanding of antitrust (albeit extremely limited) is that it always hinges on what the relevant market is. If the DOJ runs an HHI on a given market, and the concentration runs over 1800, then the DOJ considers transactions that raise this number further to be violations of antitrust.

Laywers from each side will immediately get to work defining the market differently, such that Anheuser-Busch will claim to be an international beverage maker (highly competitive!), while the DOJ will claim it to be a US lager maker (virtual monopoly!).

Posted by: Saam Barrager on February 21, 2007 01:56 AM

If the DOJ runs an HHI on a given market, and the concentration runs over 1800, then the DOJ considers transactions that raise this number further to be violations of antitrust.

That has become nothing more than a quick and dirty guideline that indicates the possibility of further investigation rather than a strict assumption that automatically triggers a challenge. The HHI thresholds are easily defeated by any combination of arguments that suggest efficiencies, ease of entry, sufficient number of competitors, increasing importance of imports, or the famous "failing firm" defense (the company will go out of buisness and it's assets dispersed and wasted unless it is bought by its competitor - see where McDonald Douglas was bought by it's ONLY US competitor Boeing in the late 1990s - the post-merger HHI actually made it to the fabled 10000).

I can't tell you the number of mergers that I've worked on in the past 6 years where the 1800 HHI threshold was breached and it wasn't even a consideration. This is one area where different administrations and political philosophies demonstrate real world differences in how they apply policy.

Posted by: Ethel-to-Tilly on February 21, 2007 09:24 AM

I have had a Sirius radio subscription for 3 + years. The customer service leaves a lot to be desired but I am very happy with the programming. I have no T.V. service in my home and was attracted to Sirius because of it's NFL affiliation. Also, living in the mountains of CO it is difficult to get consistent radio service, particularly when traveling. The NPR programming is great and I really enjoy the interviews of Diane Rehms and Marty Moss-Coane.
I get a lot more use out of my satellite radio than I do from my cell phone and the costs are much cheaper. Yes the customer service can be extremely frustrating, but no more so than that of my cell phone provider.

Posted by: bz on February 21, 2007 10:11 PM

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