Satellite Radio Merger: Antitrust Law in All Its Splendor to Be Revealed

Michael Giberson

XM and Sirius, two satellite radio networks, announced plans to merge yesterday. Amusingly, in the New York Times the story begins with “The nation’s two satellite radio services, Sirius and XM, announced …”, while in the Washington Post leads with ”XM and Sirius, the two satellite radio companies ….” In each case the hometown company goes first.

Both stories highlight the apparently high antitrust standard the two companies must overcome to gain approval for the merger. The Post:

The FCC bars a single company from controlling the satellite radio market, but FCC Chairman Kevin J. Martin recently noted that such rules can be changed. Martin said yesterday that the hurdle “would be high. . . . The companies would need to demonstrate that consumers would clearly be better off with both more choice and affordable prices.”

As the Times explains:

An army of merger and antitrust lawyers for both sides worked several marathon weeks of conference calls and trips to Washington to gauge the political climate for the transaction before opining that the deal should pass regulatory muster. Simpson Thacher & Bartlett and Wiley Rein are representing Sirius; XM is being advised by Skadden, Arps, Slate, Meagher & Flom; Jones Day; and Latham & Watkins.

Doesn’t it seem a little silly that federal regulators are suggesting somehow the world would be worse off with one satellite radio company (for the time being) where as of a few years ago there were none? Do consumers have a right to two money-losing national music, talk and news services? Doesn’t the FCC know that by raising barriers to exit, they create barriers to entry for some future satellite radio rival?

I’m not a subscriber to either service — in fact I just barely had a CD player put in to my car a few months back when I started commuting to an office. The CD player also plays mp3 files and has an audio imput so I can plug in an iPod. I don’t really need more options for in car entertainment, but I’ve been tempted to go satellite after conversations with a few passionate fans.

You know, just maybe if they called up Texas Fred, the Zydeco Cowboy and put him on coast-to-coast, I might have to do it.

7 thoughts on “Satellite Radio Merger: Antitrust Law in All Its Splendor to Be Revealed

  1. Hey dude, welcome back! [Oops, didn’t mean that to sound so surfer-ish] Nice post. I did more than my share of eye-rolling yesterday over this story.

    If satellite radio would pick up WOXY and SomaFM, then I’d be tempted. I’d also like to be able to listen to radio broadcasts of English Premiere League games (any English football, really), which are currently licensed in ways that they can’t put the stream on the Internet.

  2. The competitors to XM is not just Sirrius, but low def radio, HD radio, iPods, CDs, and talking on the phone. And those are just for the XM users in cars. Home users have many more entertainment alternatives.

    Can anti-trust take all of this very real, very diverse competition into account?

  3. Yes, antitrust economists can and will do their best to take all substitute goods into account. Trust me, they know that low def radio, HD radio, iPods and CDs are all possibly in the relevant market.

    And Mike, you’re asking the wrong question. Will consumers be worse off after the merger than they would be “but-for” the merger? That’s the question, not whether or not the existence of satellite radio makes consumers better off than they were before the first entry.

  4. I’m not sure that Mike’s asking the wrong question; it’s likely that the way Mike put it is the way the FCC will look at it. I am skeptical of their ability to construct and evaluate the correct counterfactual.

    Which raises my other question in this: why does the FCC have ANY merger approval jurisdiction? Why isn’t this just in the FTC’s jurisdiction? I don’t think the FCC (or FERC, for electricity or gas mergers) should have merger approval jurisdiction. To the extent that I even believe in antitrust at all, having the layered agency jurisdiction is not surplus-enhancing.

  5. Actually, I think knitress has the technical question right, but the key to getting a good answer is in the timing of the measurement of the counterfactual.

    I’ll concede that consumers may be worse off for a year or three if the merger goes through, in the sense that the companies involved will spend real resources to merge without much expansion in service. In the short run, there may be somewhat less competion for talent and less service innovation. But surely antitrust policy should look a little further down the road than just two or three years.

    Soon enough I’ll be able to subscribe to podcasts through my digital car radio, only the podcasts will be more like radio shows, and my car radio will, TiVo-like, figure out what I like and find more stuff for me. (I wouldn’t have to stumble across a note in the newspaper to learn of because my radio would have already told me about it.) I’ll be able to skip all of the stupid radio commercials, and so radio commercial will become less stupid and I’ll be less tempted to skip.

    The point is that with a narrow enough perspective the merger could look like a bad idea from an antitrust perspective, and the FCC could try to block the merger. But, disallowing the merger raises prospective exit costs for firms entering into innovative lines of business. Higher exit costs, and heavy handed regulation more generally, discourages innovation and threatens to deprive me of the opportunity for my future TiVo-like smart radio.

    So sure, from a short-futured, narrow-minded perspective consumers may be worse off due to a merger, but let’s hope the FCC isn’t so thoughtless.

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