3.01.2007

Congress, Trust & Satellite Radio

by Rick Rockwell

Congress doesn’t trust the satellite radio business. Who can blame them?

As noted last week, XM Radio and Sirius have announced plans to merge. And as noted last year, Mel Karmazin, the chief executive of Sirius has made the merger his top priority almost since he took over Sirius. Some business plan. That roughly translates as: I need a monopoly to compete.

Smartly, at a hearing this week, Rep. John Conyers Jr. (D-MI) told the satellite industry their promises aren’t good enough. “We have unfortunately not too good of a record of satellite radio keeping promises,” he said.

As Conyers well knows, too many broadcasters and multi-media entrepreneurs have trampled upon the public interest in their pursuit of profits. The satellite radio firms are no different. The satellite firms promised their service would not interfere with traditional radio signals but their repeaters did just that in some cases. And there were other problems.

The satellite firms over-spent on high-priced talent (Oprah Winfrey signed with XM for $55 million while Howard Stern signed with Sirius for $500 million, plus hundreds of millions in stock) and sports packages (the National Football League and Major League Baseball) with the hopes subscribers would follow. They didn’t. What the satellite radio firms are producing, more than anything else is red ink: more than $1.8 billion together in the past year.

Why should consumers bail out firms for their foolish business deals? Thankfully, Congressman Conyers put the proposed merger on the docket for his anti-trust panel (part of the House Judiciary Committee) to ask that very question and to note that if the satellite firms manage to win (what looks to be at least a year-long battle) wouldn’t the result be a government-sanctioned monopoly? So much for anti-trust law.

And so much for conservatives and folks in the business community who rail, conveniently, about allowing the market to work its magic without regulation when that argument serves their purpose. But in this case, they are asking for government protection for this struggling industry. If those who usually preach about aggressive capitalism were true to their beliefs, satellite radio would die a slow death because those overseeing its rollout were not nimble enough to get it into cars fast enough, or smart enough to market it properly, or ingenious enough to come up with new formats. Instead, they followed the tired formula of throwing money at stars. They did not understand that in a niche-medium, the music and content matter more than the big names. Plus their plan did not account for the overwhelming popularity of traditional radio.

Karmazin and those who would give satellite a pass beyond anti-trust review and federal regulations want us to forget the economic model they want to emulate: the concessions made for cable television. You know how cable works. Cable is often a local monopoly. Sure, it exists in a universe of other delivery systems for television, but because it is a local monopoly it sets rates that have nothing to do with inflation. And the cable companies rarely respond to consumer needs or wishes. That’s the privilege of working in a limited monopoly.

Karmazin promises that won’t happen. He promises consumers will be able to pick a la carte packages to reduce costs.

“We are committed to not raising prices, and to in fact lowering the price,” Karmazin told the committee.

But the folks in Congress should know what a promise at a Congressional hearing is worth: a lot of hot air.

(Photo by Helga's Lobster Stew of Washington, D.C. via Flickr, using a Creative Commons license. Please check below to see a sample of Conyers questioning Karmazin.)









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