XM-Sirius Merger Anti-Trust Implications
Richard Siklos and Andrew Ross Sorkin provide a solid analysis of the XM-Sirius merger and its chances of surviving regulatory scrutiny. They’re right, I think, that the issue is “whether regulators will see a combination of XM and Sirius as a monopoly of satellite radio communications or whether they will consider other audio entertainment, like iPods, Internet radio and HD radio, to be competitors.”
Considering that the FCC denied DirecTV and Dish Network’s merger request four years ago, and they face stiff competition from cable in most markets, I don’t see how they this one can be approved. As I noted last month when negotiations heated up,
If XM and Sirius merged, they would have a monopoly on providing commercial free coast-to-coast radio stations, feeds of popular networks that would stay true throughout a cross country drive, and so forth. While people could obviously refuse to subscribe to their service, the merged companies would have much less incentive to keep prices down and innovate their programming than exists with two major competitors.
Steven Taylor doesn’t much care, so long as he can still get NFL programming. Of course, that programming might be much more expensive in a non-competitive market.
Dale Franks thinks the question isn’t whether we’re better off with competition in satellite radio but “whether one big satellite company is better than no satellite radio at all.” Then again, one company might be the natural result of competition, anyway.
Question is – who will be the first to go under if the merger is denied? At the rate both are bleeding cash, I don’t know how much longer they can keep doing it. I’m still wondering about the wisdom of paying Stern $800 million ($500 million for 5 year contract and $300 million for hitting subscriber targets). That’s a whole lot of subscribers needed to alone pay for his contract. Oprah was a relative bargain for XM at $50 million for 3 years. Still, I’m using my radio pretty much just for the music. I can take it or leave it as far as the talk goes, except for the comedy channels and some MLB games and the world series.
A merger seems reasonable for both sides, since the finance dictates this decision…
but, these are the only two players around, the other “competitors” are definitely of a different nature…
Yet, all are looking at the same type of customers..
There are arguments on both sides that seem reasonable, but because of the weak position of both sides at the moment, I think the merger won’t be seen as a monopoly, but a case of survival and to the best interest of their investors..
still wondering about the wisdom of paying Stern $800 million
Sometimes that works and sometimes it doesn’t. The USFL failed spectacularly by outbidding the NFL for the likes of Herschel Walker, Steve Young, and Jim Kelly. Then again, the AFL made themselves into a legitimate rival that way and ultimately merged with the NFL. Likewise, FOX payed way more than the NFC package was worth to get into the lucrative NFL broadcasting business and used that to catapult themselves into Major Network status.
At this point, I am probably with Dale, although certainly the final price will be a major issue.
Among other things the FCC should balance the private interests of business and the public interest on communications issues.
Satellite radio is not as much a single merger issue as it is just another step in “consolidating” media in this country. An industry controlled by fewer companies as each year goes by can’t be a good thing.
A report in the WaPo on Jan 26th of this year indicated the Dems would subject the FCC to much scrutiny. Right.
I find this an interesting exercise in economics and government intervention. At the core of this business is government regulation of the air waves. This regulation brings a certain order to what could be a very chaotic situation.
Beyond the government limits on radio frequencies by which the satellite radio operates, there are huge barriers to entry in financial, time and bootstrapping terms. Satellites are not cheap and the extra cost of “shaping” the antenna is also not cheap. Added to this, terrestrial repeaters to counter urban canyons. And the time to plan, raise funds, launch the satellites and debug the system means upstart competitors can be seen coming from a long way away. Finally, even if you put up a rival system, solving the chicken and the egg problem means overriding the existing businesses positions in terms of content and deployed radios and starting with radio 1.
All of this indicates that even without government monopoly restrictions, the most likely competitor for satellite radio would be non-satellite radio of some sort.
So all of this rests on the notion that the government should regulate monopolies (given some past abuses it is pretty hard to argue against no monopolistic regulation) and that the government should regulate key aspects of the business (e.g. the radio frequencies).
I am personally disinterested in this as I don’t listen to AM, FM, HD, XM, Sirius or internet radio (or and iPod). So the impact on this to me is seriously second, third or fourth order effects.
Actually the linked article from Siklos and Sorkin isn’t very good as far as legal analysis of the antitrust implications, which is, after all, sorta kinda completely what “antitrust implications” are all about.
There’s an entire body of antitrust law, not mentioned by Sikos and Sorkin, called the “failing company” doctrine, which recognizes that when you’re talking about a market (assuming you can define one, which antitrust law does indeed assume) that’s about to be served by no competitors because they’re all going broke, then it no longer makes sense to prevent a couple of them from merging if that will keep at least one market participant alive.
It’s better for the marketplace, in other words, to have (here) some satellite radio company, even if it’s only one that’s made possible through economies from combining two that were failing, than to have no satellite radio companies at all. As indicated, that’s also Dale Franks’ point in his linked piece.
I comment simply to note that Franks’ argument is not just a logical and common-sensical one, but one that’s also already written into the antitrust caselaw interpreting the main federal antitrust statute that is used to analyze mergers, section seven of the Clayton Act. The failing company doctrine goes back at least as far as International Shoe Co. v. FTC, 280 U.S. 291 (1930). And historically, Clayton Act mergers analysis has always been more driven by so-called “rule of reason” analysis than Sherman Act “monopolization/attempt to monopolize” analysis that’s used in non-merger situations — which is to say that logical arguments like Dale Franks’ get more legal traction (as is likely to be the case here).
Whether the combination would be a good thing or not from a broader public-policy or technology point of view is still an open question. But you simply can’t talk intelligently about the antitrust law implications of this proposed merger without addressing the failing company doctrine.
Here’s a more up-to-date link on how the mid-Clintonian FTC and its policy-makers viewed the “failing company” doctrine as of 1995.
I do not mean to suggest that the doctrine provides a slam-dunk defense to potential antitrust barriers to the proposed merger — merely that it’s something that’s very likely to be argued, and something that must be discussed as part of any meaningful conservation about the likelihood of antitrust laws blocking the merger.
Bah. “Conservation” –> “conversation” in the last comment.