XM & Sirius: Merger Most Foul

by Rick Rockwell

The greatest invention since sliced bread apparently is a few crumbs short. Maybe most of a loaf short.

Surprise. Satellite radio is not what all the hype masters in the media told us it was going to be. You remember, they told us it was going to be the rebirth of radio.

Those now singing the mea culpa chorus forgot a few points in their analysis. First, satellite radio comes via subscription and over-the-air radio is free. (Well, it isn’t really free but it appears so because you don’t write a check to a company every month to keep it. However, you pay a corporate tax every few minutes when you have to listen to commercials.) Americans prefer anything that is free, even if it is has little quality. The internet provides some examples. Paid sites often have a difficult time unless they deliver truly unique content with quality. Many people prefer to surf the free sites, regardless of quality. The bottom line: unless you can deliver programming with the quality of HBO or other premium cable television channels on radio, Americans won’t subscribe in large numbers.

Also, Americans prefer the bargain product, even if it is of inferior quality. Remember the Beta versus VHS wars over home video? The cheaper, inferior product won.

If you want satellite radio, you must buy a new receiver or have a new one installed in your car. Although over-the-air radio is filled with tired formats, most of the hardware that delivers it is built to last. Why replace that old radio? Do you really like bluegrass or obscure alternative rock that much?

Apparently not.

The six-year experiment with satellite radio is over and traditional radio won.

How do we know? Well, the only two satellite radio providers in the U.S., XM and Sirius told us as much this week when they asked the Federal Communications Commission (FCC) and the Justice Department for permission to merge. They admitted unless they have a monopoly, they can’t compete with traditional radio. They also admitted that Howard Stern is not the savior of satellite radio, another myth the hype masters wanted us to buy. (Notably, this blog predicted both the merger request and the fact that Stern could not save Sirius in "Stern Wants to Rule the (Satellite) Universe!" almost three months ago.)

This is also an admission that the iPod is affecting not just how people listen to music at home or as pedestrians, but also in their cars. Even radio programmers on traditional radio are reacting to that by shuffling formats or moving to formats with listeners who seem more loyal (for now) to traditional radio, such as the Latino audience.

Even if the satellite radio companies are flying the white flag of surrender and are warning they will fold, the FCC needs to hold the line and keep the regulation that satellite radio can only work with at least two competitors. If the FCC approves the merger, the precedent will be set for more mergers and media consolidation. And the companies that dominate traditional radio (Clear Channel and CBS) will move to further consolidate against what remains of independent radio. Some in the mainstream media (like The Washington Post) have already realized this is imminent.

Mel Karmazin, the chief executive officer of Sirius is an agent of the huge media conglomerates. Remember, he was a top executive at Viacom (before Viacom split and before Infinity Radio was absorbed by the revamped CBS) and Stern’s protector there for many years. He is a warrior of the consolidation wars that began in the 1990s which ruined what little was good about traditional radio. And he was fighting on the side of the media conglomerates, not the listeners. He certainly can’t be trusted to make consumer-oriented decisions.

So the rallying cry is out: Stop the merger. Don’t let the corporate programmers win again. Less choice is not better.

Update: For the latest on the review of the proposed merger, please see "Congress, Trust & Satellite Radio."

(Photo by leduardo of Flickr.)

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