Analysis: Why the XM-Sirius Merger Will Proceed

Authored by Scott Goldberg on February 20, 2007 - 10:08am.

There are two obstacles impeding the XM-Sirius merger: The Department of Justice (DoJ) and the FCC. The former must agree that the combined entity does not violate antitrust laws, and the latter must overlook the rule that one company cannot own both satellite licenses. The FCC has indicated that it could overturn the rule, but has not offered reasons that would compel it do so. The DoJ has offered no insights, either. But there should be little doubt: the merger will cross both hurdles unobstructed.

In terms of the DoJ’s analysis, the merger will not be viewed as a monopoly. The reason: Each company has many more competitors than its satellite counterpart. Each competes for the attention of audiences on hundreds of entertainment platforms every day. From free radio to digital music stores, from YouTube and MySpace to mobile phones and internet radio, XM and Sirius have more on their plates than merely attracting subscribers away from the other. The DoJ, in the spirit of competition and consumer interests, will permit the satellite radio market to exist as a viable and legal alternative to the many choices consumers already face every day.

In the DoJ’s merger guidelines document, it says, “At the center of the Agencies' application of the Guidelines…is competitive effects analysis. That inquiry directly addresses the key question that the Agencies must answer: Is the merger under review likely substantially to lessen competition? To this end, the Agencies examine whether the merger of two particular rivals matters, that is, whether the merger is likely to affect adversely the competitive process, resulting in higher prices, lower quality, or reduced innovation.”

From the FCC’s standpoint, overturning the rule that bans a one-company, dual-license holder makes sense. The reasons are similar to those mentioned for the Department of Justice, but the bottom line is that the rule was created to enforce competitive prices between the two licensed companies. Simple economics will show that prices will need to remain stable because of the bevy of choices consumers have. Consumers are not, in other words, choosing between XM and Sirius; they are choosing between satellite radio and every other form of entertainment available.

The availability of current music and entertainment programming will look ancient in five years. When internet connectivity in cars and on mobile devices develops further, the ability to reach digital content from anywhere will keep XM-Sirius on its toes. Conversely, XM-Sirius is good for the digital entertainment market. Aside from adding an alternative platform for content promotion and original entertainment, a strong satellite radio company will push all other entertainment companies to offer an even more competitive product.

The merger will occur because killing it will effectively represent the end of the satellite radio business, which would be unnecessary and counterproductive. It is a proven commodity, as the combined entity already has over 14 million subscribers. Broadening the definition of satellite radio by including it in the larger digital entertainment market is the only logical solution.

Scott Goldberg

Related Links:
Online Poll: Will the merger between XM Radio and Sirius be approved?
Does a Sirius and XM Merger Make Way For An Apple Deal, iPod Integration?
New York Post says XM and Sirius to Announce Merger

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Comments

good or bad?

Submitted by jsutevan (not verified) on February 20, 2007 - 8:58am.

i personally like the merger. see what the world thinks of the merger

XM Email to Customers

Submitted by Robert Spears on February 20, 2007 - 11:06am.

Here is the text of the email that went out to XM customers this morning:

Dear XM Radio Subscriber:

We want to share with you some exciting news: Yesterday, in Washington DC, we announced XM Radio will be merging with Sirius Satellite Radio to form the premier digital audio service.

The merger will create a satellite radio company that will provide consumers across the country with more and better premium radio programming. The combined company will be able to compete better in what has become a very complex and dynamic entertainment market.

Where today our exclusive contracts mean you had to choose between baseball and football or Oprah and Martha Stewart, the new company will seek to ensure that in the future, you will be able to access both companies' programming. And, once we are fully integrated, those of you who have factory-installed satellite radio will no longer be limited to the programming provided by the exclusive satellite radio service chosen by their car manufacturer.

This merger should be completed in late 2007 or early in 2008. Throughout the year, we will provide updates on how the merger is progressing and information will be available at our website, www.xmradio.com.

Between today and the merger date, as well as during the period immediately after the merger date, all of your services will remain the same. The channel lineup, the customer service number, the great music technology, and the XM Radio web site will all remain unchanged and there will be no disruption to service. But, if you have questions, information will be available and maintained on our website, and you can contact our Listener Care team at 800-XMRADIO, with questions and concerns.

XM Radio continues to be committed to providing you the highest quality audio entertainment and customer service available today. After the merger, our new company will be able to offer you the most exciting listening experience in radio.

Sincerely,
Hugh Panero
CEO, XM Satellite Radio