Broadcasters Escalate Attack Against XM-Sirius Merger

NAB submitted to the FCC an analysis by Crowell Moring attacking the heart of the market power arguments made by XM- Sirius and asked that the analysis be included in the record. “XM and Sirius would like the regulators to ignore the fact that, from its inception in 1997, satellite DARS was considered a unique and separate market from terrestrial radio (AM/FM) -- a complement, not a substitute,” the analysis said: “Consequently, from the beginning the FCC rejected a satellite radio monopoly in favor of competition between two providers.”

The report questions how MP3 devices, part of the larger market the satellite operators cite, are fundamentally different from devices like CD and cassette players available in 1997, when satellite radio service launched. “These devices were not then considered substitutes for satellite radio,” the analysis said. Internet radio also isn’t a substitute, the report contends: “Internet radio is offered via Internet servers to an entirely different audience than Sirius and XM serve with their constellations of orbiting satellites. Although Sirius and XM offer their programming to subscribers via the Internet, and satellite DARS receivers can be used in the home, this does not make Internet radio a viable substitute for the vast majority of satellite DARS consumers who use the service while they are mobile.”

Another problem with XM-Sirius’s argument is that consumers wouldn’t substitute other services for satellite radio if prices increase following the merger. “Although consumers may rely on a variety of complementary forms of receiving audio content, it is unlikely that satellite DARS customers would cancel their subscriptions and switch to other sources of audio entertainment if such a price increase were to happen,” the analysis said: “Nor have the parties appeared to offer support for the proposition that these alternative formats have a disciplining effect on the ability of XM/Sirius to raise prices or diminish the quality of their services.”

Meanwhile, 4 state broadcaster groups weighed in opposing the merger. “The proposed merger will create a government-sanctioned monopoly which is anticompetitive and we ask that on behalf of the citizens of the state of Kansas you vigorously oppose the merger and express your opposition to the Department of Justice, the U.S. Attorney General, the Federal Communications Commission and members of the Kansas congressional delegation,” said a letter from the Kan. Assn. of Bcstrs.

Sirius could also have problems with its satellites, Karmazin said, agreeing with a shareholder question during a Q&A session during the company’s annual meeting, which was dominated by talk of the proposed merger. “I haven’t found a senior vp willing to go up there and fix them,” he joked. But an analyst said redundancy isn’t a panacea, because it would take a software change for satellite subscribers to receive signals from both providers. XM said it was a software upgrade that caused its problems this week.

Sirius can succeed if the merger isn’t approved, Karmazin again assured investors: “Our [business] model stand-alone works. This is not about a deal that had to get done.” Wall Street practically pushed the 2 satellite radio companies to merge and then has punished their stocks because the merger won’t be approved, Karmazin suggested. The combination can succeed where EchoStar and DirecTV failed because the TV market is so different from the radio market, said Karmazin: “Virtually, nobody gets its TV from free over the air, virtually everybody gets their radio free over the air.”

Meanwhile, the Latino Coalition (TLC) came out in support of the merger saying it will create competition. “For far too long, the Latino market has been ignored by traditional radio companies. Hispanics must turn to alternative sources like satellite radio for Spanish-language news, sports, music and diverse cultural programming,” said TLC Pres. Robert Posada.