The XM-Sirius Merger: Unanswered Questions

by Rick Rockwell

The mainstream corporate media are swooning with the news this week that the Department of Justice has approved the merger of the nation’s only satellite radio firms, XM and Sirius.

But there are plenty of unanswered questions on the way to the corporate media lovefest.

What no one has adequately answered is: what will it mean for consumers?

More on that in a second, but a larger question looms: what will inevitably be lost when satellite radio becomes a monopoly?

Based upon the history of monopolies and economics, here is what subscribers of satellite radio are about to see: poor service, less originality, less niche programming, pricing schemes that look more like cable television, more advertising. And more dependence on star performers, such as Oprah Winfrey and Howard Stern, both of whom make me want to gag. The economics of mergers tells us only the biggest stars will survive the inevitable personnel cuts that follow such corporate marriages.

Finally, what no one has answered is what happens to XM once its smaller but more aggressive competitor is done swallowing it up? (Although the specifics of the merger call for each company to have equal weight in the new corporate structure, Mel Karmazin, who heads Sirius, would be the CEO of the merged firms.)

Like many of the mainstream media, The Washington Post splashed news of the merger’s approval across its front page. The story was mostly a glowing review of the Justice Department’s decision, with all the consumer concerns stuffed at the end of a long piece. The Post has usually taken a favorable view of XM, their recent send-off for XM founder Lee Abrams is just one of many examples. Truly, XM has been good for Washington, D.C., and the operation was one of the businesses spurring an urban revival in the city’s New York Avenue corridor. The Post's favorable coverage rightfully reflected this, but sometimes this cheerleader role unbalanced the newspaper’s view of the merger.

Luckily, Post business columnist Steven Pearlstein set his own paper straight this week, calling the merger just another example of special deals from the Bush administration for the privileged. Pearlstein pointed out that if the XM-Sirius merger passes muster you might as well tear up anti-trust law. Merge any company you want, he said, including Pepsi and Coke. And he makes an excellent point.

So far though, The Post in all of its local boosterism hasn’t seen fit to explore what happens if the merger means XM’s studios are shuttered due to cost cutting by the Sirius bosses in New York. But corporate media operations often don’t give us the full picture of what these mergers mean when it comes to local jobs and development. Perhaps that strikes too close to home. But one would have thought The Post would have learned something from the debacle of the AOL-Time Warner merger, which also happened in its back yard. Maybe not.

The XM-Sirius merger is designed to give satellite radio special competitive advantages after both companies piled up a mountain of debt in an orgy of spending, seducing high-profile stars. But the public didn’t follow those stars to what amounts to pay radio, although the number of subscribers for the service is growing slowly. (Currently, the services have 17 million subscribers who pay $12.95 per month.) The Federal Communications Commission (FCC) started satellite radio as a duopoly, which is bad enough. Once the merger is complete, with no competition, one large satellite monolith can raise prices much like TV cable companies do now. Consumer groups and others opposed to the merger have already criticized the satellite firms’ bundling and a la carte offerings as too expensive. Various states also oppose the merger. But the FCC is not likely to stop the merger. Usually the commission follows the lead of the Justice Department.

Only three things can stop this corporate marriage now: 1) broadcasters who oppose the merger could file suit or 2) consumer groups could file suit. And then again, maybe Sirius and XM could fall out of love with each other. But with so much mismanagement and debt to cover up, that’s not likely.

(For more background, please also see "Congress, Trust & Satellite Radio," and "The NAB Gets It Right, Sometimes.")

(The graphic of a radio satellite is from the National Oceanic and Atmospheric Administration — NOAA; as the graphic is from the government, it is in the public domain.)

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Jeff Siegel said...

If the federal government is going to bail out Bear Stearns, why should we be surprised that it will allow this merger? Even more depressing is that neither of the Democratic candidates have opened their mouth to deplore this -- no doubt because they are stuffed with Sirius and XM campaign cash.

And, son of a gun, look at this -- Mel Karmazin has given more than $150,000 to various Democrats and Repbulicans over the last several years, according to the Federal Elections Commission (http://query.nictusa.com/cgi-bin/qind/

Rick Rockwell said...

Jeff, thanks for the tag team reporting. Yes, that's another instance of an unasked question. Glad you asked and answered it for us: as usual, the height of journalistic practice.

Unfortunately, the Federal Election Commission doesn't allow links directly to searches so Jeff's link does not go directly to the results. If anyone is interested, they can go to this page and punch in "Karmazin, Mel" to get the results.

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