SATELLITE RADIO MERGER STILL ORBITING HURDLES Jeffrey Yorke – Billboard Satellite radio companies Sirius and XM invested billions in infrastructure and millions more in marketing to differentiate themselves from one another. Now, they're spending millions more in an attempt to merge.
Already they have put up $13 million -- $5 million by Sirius, $8 million by XM -- trying to convince Washington, D.C., regulators that their union "will bring unprecedented benefits to consumers and significantly enhance, rather than harm, competition," according to the companies.
But with a decision from the regulators expected before year's end, there's plenty of money pushing against the merger as well. A disclosure that the National Association of Broadcasters filed with the Senate Office of Public Records states that broadcasters spent $4.28 million during the first half of 2007 on lobbying against such issues as the Sirius-XM merger, resurrection of the Fairness Doctrine and the Recording Industry Association of America's proposed performance royalties.
Why is the NAB so up in arms, and where does the proposed merger currently stand?
A LA CARTE PRICING
At the forefront of the companies' pitch to become one entity is a la carte pricing, a programming plan that, if the merger is approved, lowers the satellite radio subscriber entry price from $12.95 per month to $6.99 with a base of 50 channels that the consumer chooses. Other plans feature more options, but freedom of choice also costs more, up to $16.99 per month. When Sirius CEO Mel Karmazin unveiled the plan July 23 during an address at the National Press Club in Washington, D.C., he said the new rates would take effect only if the merger is approved.
"The reason we've not offered it in the past is very simple: Last year, Sirius lost $1 billion. Our company has not made a profit in the years since it started," he said. XM, for its part, lost $719 million last year; the two satcasters' combined revenues for the year totaled $1.57 billion.
"The idea of offering this a la carte service," Karmazin said, "is made possible by the synergies connected with the merger."
Not surprisingly, persistent satellite radio nemesis the NAB isn't buying it. The organization has called the a la carte menu "a sham" and says consumers will be hurt because the average price of channels will cost more per month. After completing analysis of the satcasters' new menu offering, NAB senior vice president of legal and regulatory affairs Jane Mago led a party of NAB lawyers and "in-the-know" staffers to the Federal Communications Commission to convince commissioners and associates that the satcasters' numbers don't add up.
The observation garnered an immediate reaction -- but not necessarily from the expected parties. The million-member-strong Parents Television Council, a generally conservative lobbying group that defines itself as "pro-family" and often tangles with the NAB over sexual and violent programming on TV, took on the broadcasters.
The PTC, in a statement, said the a la carte pricing plans "will offer more affordable packages, including an option for families to block adult-themed channels and receive a price credit for the unwanted programming."
The FCC has not officially commented on the merger or the a la carte proposal, but, at a recent briefing with reporters, FCC chairman Kevin Martin said he is "pleased any time companies come forward with proposals that give consumers more control over what they pay for."
MONOPOLY MONEY
The NAB, meanwhile, hopes to convince regulators that a merger would create a monopoly that would "inevitably result in increased prices, fewer programming choices, less local programming for radio listeners and other public interest harms."
Sirius and XM face enormous obstacles to get their deal cleared. The Department of Justice is reviewing the plan for possible anticompetitive violations and the FCC, which will wait for the DOJ's decision, will also re-examine its decade-old rule that prevents one operator from holding both satellite licenses.
Ultimately, a decision on the merger could set a precedent in how federal regulators view the media marketplace. In 2002, when EchoStar's Dish Network and satellite TV competitor DirecTV proposed a similar marriage, the FCC took less than four months to reject the plan as anticompetitive and not in the public interest.
And while rumors of a merger between Sirius and XM began almost as soon as their birds were flying, chatter in Washington, D.C., communications lawyer circles grew louder in spring 2006. Radio wasn't just radio anymore, but a whole new world of audio entertainment. Satellite radio didn't compete only with terrestrial radio, but with every other product and medium that delivered sound to ears.
And that is exactly the point the satcasters are making today. In a recent filing with the FCC, they point out, "All available evidence shows that consumers have a variety of reasonable substitutes for satellite radio, including, of course, terrestrial radio, but also (high-definition) radio, wireless phones, iPods and other MP3 players -- and new technologies are appearing by the day. With all of these alternatives, it is abundantly clear that a combined Sirius and XM would lose subscribers if it attempted to raise prices without providing greater content or quality of service."
"Yet with all this change and competition, one fact remains pretty much the same," Karmazin said during his Press Club address. "Terrestrial radio is still the 800-pound gorilla in the audio entertainment market, with 230 million weekly listeners and radios capable of receiving broadcasts in virtually every home and automobile in America. By contrast, (satellite radio) has 300 channels and accounts for just 3.4 percent of the national radio audience as measured by Arbitron."
WHY THE WAR?
What changed in this competitive landscape that has the NAB spending millions of dollars to try to block the merger? And if the NAB is correct in its theory that a monopolistic satcaster would mean fewer programming choices and higher rates, wouldn't that be a huge benefit to free radio broadcasters?
NAB executive vice president of media relations Dennis Wharton said no. "When the FCC authorized satellite radio in 1997, it specifically issued more than one license, citing the fact that competition serves consumers better than a monopoly," he said. "Nothing has changed to suggest that consumers would benefit from turning two hotly competitive companies in the finite area of satellite radio into one." In addition, he said, government should not reward two companies that have made bad business decisions (e.g., paying Howard Stern $500 million) with a monopoly.
In early July, the NAB filed a petition to deny the merger with the FCC, and it continues to lodge similar briefs every few days with the commission and members of Congress. At the NAB's urging, the National Association of Black-Owned Broadcasters, the Consumer Federation of America, Consumers Union and various state broadcasters' associations filed petitions against the proposal. Even National Public Radio, which supplies news channels and information programming to Sirius and XM, filed a 21-page petition, stating, "We fear a (satellite radio) monopoly might reduce the amount and quality of public radio programming offered via the (satellite) platform." |