By Peter Whoriskey and Kim Hart
Washington Post Staff Writers
Tuesday, March 25, 2008
The Justice Department approved the merger of XM and Sirius yesterday, ruling that the union of the nation's two major satellite-radio services does not create an anti-competitive monopoly.
The decision eliminates what was viewed as the toughest legal hurdle facing the $13 billion deal, which must be approved by the Federal Communications Commission. Consumer groups and traditional broadcasters have urged the FCC to impose conditions on the merger.
Founded 11 years ago in the District, XM pioneered a market for paid radio. XM and Sirius were emblematic of the growth in media choice for consumers, as the market for online, cable and digital media players boomed. But the strength of other media caused stock prices for XM and Sirius to sag and created financial incentives for consolidation.
In explaining the decision, Justice officials said the options beyond satellite radio -- digital recordings, high-definition radio, Web radio -- mean that XM and Sirius could merge without diminishing competition.
"There are other alternatives out there," Assistant Attorney General Thomas O. Barnett said in a conference call. "We just simply found that the evidence didn't indicate that it would harm consumers."
The deal, which was proposed more than a year ago, has drawn criticism from 72 members of Congress.
"We believe the elimination of competition between XM and Sirius is contrary to antitrust law and the interests of consumers," Sen. Herb Kohl (D-Wis.), chairman of the Judiciary Committee's subcommittee on antitrust and consumer rights, said in a statement.
He cited "the Justice Department's record in recent years of failing to oppose numerous mergers, which reduced competition in key industries."
Kohl and others urged the FCC to block it.
The merger's most vocal industry critic was the broadcast industry.
"This is a monopoly, and unless they defy history, it will act like monopolies act," said Dennis Wharton, executive vice president of the National Association of Broadcasters, which had argued that local radio stations would not be able to compete nationally. "Without competition, they will raise prices, won't improve their technology and will limit their offerings."
The FCC declined to comment, but analysts said yesterday that the agency often follows the Justice Department's lead.
"The FCC has never, to our knowledge, rejected a merger approved by the DOJ. We don't believe this one is likely to be the first," Blair Levin, an analyst with Stifel Nicolaus, wrote in a note to investors.
Attorneys for Sirius echoed that idea.
"The FCC standard [of review] is in many ways similar," said Kevin Arquit, Sirius's lead outside counsel. "The agency looks at whether a transaction is in the 'public interest,' and that has largely been an analysis of competition."
Public interest groups, including Public Knowledge and Free Press, have urged the FCC to impose restrictions on the merger, such as capping the prices companies can charge customers.
Consumers Union legal counsel Christopher Murray said the merger would be a monopoly, which could raise prices and force subscribers to listen to more advertisements.
"People love these services because they're mostly free of advertising," Murray said. "But when you take away competitive pressure, it seems like the result for consumers may be a significant increase in the amount of advertising customers will have to hear."
James Goss, media and entertainment analyst at Barrington Research, said he expects the company's marketing efforts to become more focused so that consumers may hear fewer ads.
If consummated, the merger will unite the firms' roughly 14 million subscribers, most of whom currently pay $12.95 a month for the service. Much of XM and Sirius's growth is from in-car radio systems.
Combined, the companies could save money and pass along some of those savings to consumers, XM and Sirius executives have said. The merger could also broaden offerings, allowing users of each service to get new channels from the other. The companies also argue that consumers have so many options, there would not be an incentive to raise prices.
This summer they announced an "a la carte" pricing system that would cut rates to as low as $6.99 a month for 50 channels and allow consumers to pay on a per-channel basis for any additions. Under that kind of tiered pricing system, XM customers could, in theory, receive some Sirius offerings, such as Howard Stern, while Sirius customers could partake in XM's coverage of Major League Baseball.
FCC Chairman Kevin J. Martin has signaled that he thinks an a la carte plan would benefit consumers.
Wall Street welcomed the approval: Shares of XM closed up 15.5 percent at $13.79. Sirius shares rose 8.6 percent, closing at $3.15.
Staff writer Cecilia Kang contributed to this report.