House Gets First Crack At XM-Sirius Proposal
Wednesday, February 28, 2007
Congress and federal regulators need to get with the times.
That's the message that Mel Karmazin, chief executive of Sirius Satellite Radio, plans to deliver today at the first public hearing on a proposal to merge the nation's two satellite radio companies, Sirius and XM Satellite Radio Holdings.
Karmazin, who will face skeptical members of the House Judiciary Committee's newly formed antitrust task force, says satellite radio is in stiff competition not only with free, over-the-air radio but also with such newer products as MP3 players, Internet radio and music-downloading cellphones. "What I need to do is lay out the realities of the marketplace as we see it," Karmazin said in a telephone interview yesterday.
He can expect resistance. "What I'm concerned about now is whether we're creating a monopolistic situation," Rep. John Conyers Jr. (D-Mich.), who will chair the task force hearing, said in an interview yesterday. "I don't think it will stimulate competition, and it could very well take away from the competition taking place now in the industry."
The Justice Department and Federal Communications Commission, not Congress, will decide whether to allow Washington-based XM and New York-based Sirius to merge. But today's hearing seems certain to introduce the chief arguments for and against the plan, whose outcome may not be decided for nearly a year.
Sharing a witness table with opponents from the broadcast industry and consumer groups, Karmazin said he will remind Congress that XM and Sirius charge customers about $13 a month and struggle to attract enough subscribers to make money. "It's a little hard for me to understand" the argument that a merged company would raise prices or reduce service, he said.
Karmazin and his XM counterpart, Gary Parsons, have already visited with the five FCC members who will vote on the merger, and have combed the files of rival companies to buttress their claims that an array of audio services see the two satellite firms as competition. Consumers would benefit, not suffer, from having Howard Stern, Oprah Winfrey, the NFL and Major League Baseball on one radio network, rather than having them divided between the two satellite companies as they are now, Parsons said yesterday.
In 1997, the FCC granted licenses to XM and Sirius on the condition that no one owner control both. FCC Chairman Kevin J. Martin has said the merger-seekers must clear a high hurdle to persuade the commission to change the rule. Karmazin said yesterday: "Our sneakers are on, to be able to jump high."
With FCC hearings yet to be scheduled, the new Democratic-controlled Congress will get the first public whack at the debate. Conyers, a champion of liberal causes and a 42-year House veteran, called it "a great discussion, because it gets into the whole question of where the consumer comes in when these mergers take place. And too often recently, they've been taking place with too little concern for the people who are paying the freight."
As a sign of how complex the debate could become, Rep. John D. Dingell (D-Mich.), chairman of the Commerce and Energy Committee, yesterday addressed the National Association of Broadcasters, a chief critic of the proposed merger. Dingell made no reference to the XM-Sirius matter in his prepared remarks but nonetheless offered a tidbit that might underscore Karmazin's main point. Referring to rapidly changing technology, Dingell told the broadcasters: "Believe it or not, my favorite Gilbert and Sullivan tunes are delivered to me via iPod."
XM and Sirius have lost millions of dollars, signing multimillion-dollar contracts with Stern, Winfrey, sports leagues and others in their attempts to lure subscribers. Yesterday, Sirius reported a narrower loss for fourth quarter, as revenue rose substantially.
Revenue was $193.4 million, compared with $80 million in the fourth quarter of 2005. Sirius lost $245.6 million (17 cents a share), compared with $311.4 million (23 cents) a year earlier.