On With the Shows
A satellite radio merger that deserves approval

Saturday, December 1, 2007

CRITICISM was immediate and fierce when the proposed merger of Sirius Satellite Radio and XM Satellite Radio Holdings was announced this year. Opponents argued that a marriage of the only two providers of satellite radio service would eliminate competition, drive up prices for satellite radio and reduce choice for consumers. XM and Sirius shot back that a combined -- and thus financially healthier -- company would offer consumers a variety of programming options they can't get through regular broadcast stations.

In truth, neither side can say definitively whether its approach would help or hurt consumers. And both sides use the welfare of consumers to mask their real concern: their own bottom line. But XM and Sirius have the stronger case when they argue that the merger should be approved.

The National Association of Broadcasters, which represents 8,300 over-the-air, commercial radio stations, opposes the merger and argues that the Justice Department should define the XM-Sirius merger in light of the "market for satellite radio." Of course, if the issue is viewed in those terms, allowing the only two players to combine would create a monopoly.

But this is not a fair depiction of the market. There seem to be few listeners in the market exclusively for national satellite radio. Long-distance truck drivers, for example, might be a natural constituency, but most listeners consume music or talk or sports audio programs from a variety of sources, predominantly from commercial, over-the-air broadcast stations that provide local programming. Far from having a monopoly if the merger is approved, the satellite providers, who paid a combined $170 million in 1997 for their satellite spectrum, will continue to compete for listeners accustomed to "free" radio and will have to persuade them to fork over money every month for a subscription service. And it's not as if the over-the-air stations are simply standing by. They are almost daily increasing the competitive nature of the business by adding high-definition channels to better target even more distinct audiences.

Perhaps to appease the Federal Communications Commission, which must decide whether the merger is in the "public interest" -- or perhaps in hopes of luring more subscribers as a means of stanching the loss of billions of dollars -- XM and Sirius agreed to offer a la carte pricing. For example, rather than paying the current flat fee of $12.95 a month for XM's more than 170 channels, subscribers would be given the option of paying $6.99 a month for 50 channels of their choosing or $16.99 for all XM channels and 10 of the most popular channels from Sirius. (Premium channels, such as those that carry sports programs, would be extra.) These options make sense and would provide consumers with more choices. The agencies should require XM and Sirius to agree to this pricing scheme as a condition for approving the merger.

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