XM-Sirius Hearings Are First Big Test for New Judiciary Task Force

Posted February 26, 2007 at 5:28pm

A new House Judiciary Antitrust Task Force on Wednesday is ready to question executives from the two digital music giants, XM Satellite Radio Holdings and Sirius Satellite Radio, on their proposed merger.

The proposed merger, announced Feb. 19, is set to create a $13 billion company. House Judiciary Chairman John Conyers (D-Mich.) said the first hearing, set for Wednesday afternoon, will allow Members to determine whether the XM-Sirius merger enhances or diminishes competition in the digital music industry

Among those slated to testify before the task force are Sirius CEO Mel Karmazin. Karmazin has argued that the deal would help cut costs, by eliminating duplications in programming and operations, and would cut down on recruiting costs to lure radio personalities to their stations.

The proposed merger of digital music giants marks the first test of the clout of the House Judiciary’s new antitrust task force. Democrats established the task force during this Congress — but before the radio merger was announced — to review whether business consolidations are harming consumers.

The task force, comprised of Democratic and Republican members of the Judiciary Committee, will have a six-month term. It will not draft legislation. Rather, it is expected is to serve in an oversight capacity, with members reporting to the panel’s subcommittees if there’s a need to follow up with legislation.

“Digital music is at the cutting edge of technology and innovation,” Conyers said in a statement. “We are holding this hearing to allow Members to probe whether this merger will enhance or diminish competition in the digital music distribution industry. Our members will explore how to define this new marketplace and whether this merger will lead to increased choices and lower prices for consumers.”

Judiciary ranking member Lamar Smith (R-Texas), sits on the task force ex-officio, and has expressed interest in examining how satellite radio competes against traditional terrestrial radio stations, the Internet and emerging technologies.

Smith also plans to question how the merger would affect consumer pricing and programming options for satellite radio users.

“XM and Sirius provide unique programming options for millions of customers nationwide. Consumers’ interests should remain our priority,” Smith said in a statement. “This hearing will help determine whether customers will get higher or lower prices or more or fewer programming options with the proposed merger. In particular, the committee will examine whether satellite radio competes against terrestrial radio, the Internet, or other emerging technologies.”

Both the Justice Department, which looks at how mergers affect competition, and the Federal Communication Commission, which considers financial viability when deciding on license transfers, are expected to review the deal.

Crucial to the deal’s success is an FCC rule governing the satellite companies’ operating licenses.

Under the rule, XM and Sirius are prohibited from ever owning each other’s license. However, the commission could waive that rule, if it is convinced that the companies are not each other’s sole competition. The companies have argued that Internet radio stations and music from MP3 players are competitors.

Trade groups that represent the broadcast and consumer industries say that the proposed merger has raised antitrust and media consolidation concerns.

Dennis Wharton, the executive vice president of the National Association of Broadcasters, noted that when DirecTV began talks with EchoStar-owned DISH Network in 2003, federal regulators rejected the merger of the nation’s only two satellite television companies.

“When the FCC authorized satellite radio, it specifically found that the public would be served best by two competitive nationwide systems. Now, with their stock prices at rock bottom and their business model in disarray because of profligate spending practices, they seek a government bailout to avoid competing in the marketplace,” Wharton said in a statement.

Celia Wexler, vice president of advocacy at Common Cause, said her group hasn’t taken an official position on the merger, but noted that the group usually opposes media consolidation because it raises concerns on the impact of programming diversity.

Still others say XM and Sirius could coax FCC and Justice Department to approve the deal by agreeing to limit the increase in costs of subscriptions.