Tuesday, March 25, 2008

U.S. Department of Justice decides Sirius-XM merger is not likely to harm consumers

"Evidence Does Not Establish That Combination of
Satellite Radio Providers Would Substantially Reduce Competition"


I wrote about the proposal of this merger last year on February 19. Now, 13 months later the Justice Department closes its investigation and reaches what I believe should have been a fairly straightforward conclusion. I suppose the length of time this has taken is because the DOJ "reviewed millions of pages of documents, analyzed large amounts of data related to sales of satellite radios and subscriptions for satellite radio service, and interviewed scores of industry participants." That may be true, but I think the delay is also evidence of the last desperate attempts of the regular terrestrial radio industry to hold on to its monopoly of the airwaves.

The main factor in the analysis of this merger's effect on competition was the definition of the relevant market satellite radio competes in. The DOJ found that "evidence developed in the investigation did not support defining a market limited to the two satellite radio firms, and similarly did not establish that the combined firm could profitably sustain an increased price to satellite radio consumers."

Presumably the DOJ saw the truth in Sirius and XM's assertion that they "compete with a variety of other sources of audio entertainment, including traditional AM/FM radio, HD Radio, MP3 players ..., and audio offerings delivered through wireless telephones."

The first sentence of today's New York Times article on the merger demonstrates how easy it is to misunderstand and misrepresent what a relevant "competitive market" is:
"The Justice Department gave approval on Monday to the merger of two rival radio networks, XM and Sirius, a marriage that would create a de facto monopoly in satellite services now used by more than 17 million subscribers."
Of course when there are only two companies providing a particular service (here, satellite radio) and they are combined into a single company providing that same service, it becomes a "monopoly" as to that particular service (that's the "de facto" part). They key misunderstanding here is that the DOJ evaluated a competitive market that exists beyond just these two companies. Current and potential subscribers have many other choices for things to listen to outside of satellite radio.

The National Association of Broadcasters (NAB) is a trade association that advocates (read: sends lobbyists and makes campaign contributions) for the interests of terrestrial broadcasters before Congress, federal regulatory agencies (i.e., the Federal Communications Commission) and various courts across the country. This association has opposed the Sirius-XM merger from the beginning and predictably was not pleased with the DOJ's conclusion.

However, the NAB issued a curiously short and curiously nebulous response to the announcement:
"We are astonished that the Justice Department would propose granting a monopoly to two companies that systematically broke FCC rules for more than a decade. To hinge approval of this monopoly on XM and Sirius's refusal to deliver on a promise of interoperable radios is nothing short of breathtaking."
That's it. One paragraph. I'm not sure what FCC rules these two companies "systematically broke" for more than a decade, perhaps some rule that required interoperable radios? Or was that more of a promise that Sirius and XM just haven't delivered on yet?

As Artie might say, "waaaaaaaaaaaaaaaahhhhh, they promised they'd make interoperable radios and they haven't done it yet, waaaaaaahhhh."

The FCC still gets to have its say on the merger, so Sirius and XM are not in the clear yet. However, according to an article today on Bloomberg.com, analysts think that the FCC will probably follow the lead of the DOJ and approve the merger, though there may be some conditions. What these conditions might be is unclear, but they could include giving time for public access programs or channels for minority or other underrepresented groups.

According to the same Bloomberg article, "FCC Chairman Kevin Martin said last week that his agency would 'go forward quickly' after the Justice Department ruled." Let's hope so, and also hope that the agency will see the common sense of the DOJ's assessment of the market in which satellite radio competes.

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