Merger Would Benefit Consumers

Posted October 21, 2007 at 11:00pm

The ongoing debate over the proposed merger of satellite radio providers XM and Sirius is high volume and contentious, as diverse interests work to influence the impending decisions by the Department of Justice and the Federal Communications Commission. In my view, the merger is in the public interest and should be approved.

The key questions for both agencies are whether the merger would hinder competition in the relevant market and the effect the merger will have on consumers. In each instance, a close examination supports merger approval.

As the two subscription-based satellite radio companies, XM and Sirius transmit music, sports programming, news and other types of programs to a combined total of 15.4 million subscribers.

At first blush, one might conclude that a combination of the only two providers of this satellite-based service would be an obvious antitrust abridgement. In fact, the “bumper-sticker-like” campaign of merger opponents stresses the harm of a 2-to-1 combination.

The reality, however, of the relevant market is both more subtle and more compelling. That market is the entire marketplace for audio entertainment, including terrestrial radio, Internet radio and Internet-protocol-enabled applications, such as iPods.

In the radio marketplace of both satellite and terrestrially delivered radio services, XM and Sirius occupy less than a 4 percent share of listeners. The balance is held by AM and FM stations. In the broader audio entertainment market of radio and Internet-based news and entertainment, XM and Sirius have an even smaller share. When one concludes that the broader market is the proper measure, it is clear that the merger would not hinder competition.

In case one doubts whether the relevant market is just satellite radio or whether it is audio entertainment generally, consider the following:

In a fall 2006 Arbitron survey, satellite radio listening accounted for only 3.4 percent of all radio listening. That same survey showed that satellite radio listeners are avid listeners to terrestrial radio. In fact, satellite radio listeners listen to XM or Sirius for 10.75 hours weekly while they listen to terrestrial radio more, for an average total of 14 hours weekly. They listen to Internet radio 8.25 hours weekly. Even XM or Sirius customers listen to AM and FM more than to satellite radio.

These figures clearly show that satellite radio is in competition with terrestrial radio, that people who listen to satellite radio interchange their listening patterns among various radio sources, and that satellite radio listeners are listening to other types of radio more than twice as much as they listen to satellite radio. Not only do listeners treat the market as unified among satellite, terrestrial and Internet radio, but they also prefer terrestrial radio to the other mediums.

Consider also the repeated statements by leading broadcast companies that they are in competition with satellite radio. For the past decade, broadcasters have fought satellite radio, and they continue to do so today. In fact, the leading opponent of the merger is the National Association of Broadcasters, the trade association for AM and FM stations, whose mere presence in this debate as a merger opponent is compelling evidence that terrestrial and satellite radio are in direct competition and are part of a unified market.

When one rightly concludes that the market for antitrust purposes is broad and that the two satellite carriers hold less than a 4 percent market share, an antitrust green light should quickly follow. But the FCC has a broader public interest screen and will question whether the merger will benefit consumers. Again, a careful review favors merger approval.

Today, both companies maintain separate entertainment offerings. The merger would eliminate duplication of programming and expand the spectrum for program delivery by a unified carrier, enabling the extension to consumers of larger choices from both program offerings. XM and Sirius recently announced, for example, that they will offer eight different program packages post-merger, including several options that will enable consumers to select channels on an a la carte basis and pay substantially less than the current subscription price. This unprecedented offering will provide subscribers with more choices and lower prices and pave the way for a unique form of competition in the entertainment industry — one based on the individual programming preferences of listeners.

One new programming option will allow subscribers to choose 50 channels for just $6.99 — a 46 percent decrease from the current standard subscription rate of $12.95 per month. The combined company also will offer several other new programming packages, including two “family-friendly” options. Those subscribers choosing one of the family-friendly options will be able to block adult-themed programming and, for the first time, receive a price credit.

As an additional benefit of the merger, the extra bandwidth that the elimination of duplication would produce will result in the offering of more public interest programming than either XM or Sirius now offers. The combined company will be able to expand diverse programs for underserved interests, such as foreign language and religious programming.

Given the vibrancy of competition in the audio entertainment market and the substantial consumer benefits that the merger will produce, the reviewing agencies should allow XM and Sirius to complete their proposed merger this year.

Rep. Rick Boucher (D-Va.) is a member of the Energy and Commerce and Judiciary committees.