I’ve never thought that there is only one “public interest” position in communications policy, although it is relatively rare that the most prominent groups disagree. The proposed XM-Sirius merger is one of those rare occasions. First three and now six public interest groups have called for flat-out rejection of the merger. PK, on the other hand, reserves judgment on whether the deal passes antitrust scrutiny, saying that if the antitrust authorities allow the merger, then the FCC should permit it as well, but only subject to the following three conditions:
the new company makes available pricing choices such tiered programming.
the new company makes 5% of its capacity available to non-commercial educational and informational programming over which it has no editorial control.
the new company agrees not to raise prices for its combined programming package (as opposed to each individual company’s current programming package) for three years after the merger is approved.
If you haven’t seen them, PK’s House testimony is here, and our Senate testimony is here.
So why is Public Knowledge differing from its public interest kin in this case? Here are the two main reasons why:
No Slam Dunk on Antitrust Analysis. Of course it is true that XM and Sirius are the only two satellite-delivered, mobile, multi-channel audio services. But that fact is not sufficient to determine whether the combination violates the antitrust law. What is relevant is whether the existence of other competitive services (like cellphone music services, Internet radio, broadcast and new digital “HD radio”) in the market are “substitutes” that would constrain the combined entity from raising its prices more than 5%. Again, those competitive services do not have to be identical. Without knowing more about why consumers buy or do not buy satellite radio, this is impossible to determine. Remember, only 3.4% of Americans choose to get XM and Sirius, so one would think that there are some market forces that are dissuading them from doing so. What is also not immediately known is whether new technologies, such as mobile Internet radio services like Slacker, will be available within the 2-year time frame that is relevant for antitrust analysis.
There is Far More to Fear from a Broadcast Monopoly than a Satellite Radio Monopoly. It is no accident that the National Association of Broadcasters is vigorously opposing this merger — despite their protestations to the contrary, they view satellite radio as a major competitor. As a result, they have done everything possible to hobble the satellite radio industry ever since the FCC set-aside spectrum for what was to be 4 services in the mid-90’s. I recall being approached by the NAB at that time (when I was at the Media Access Project) to advocate imposing public interest obligations on what was then called DARS (Digital Audio Radio Service) or S-DARS. For the past two Congress’ the broadcasters have tried to legislatively prohibit satellite radio services from providing any local service, including emergency information. They filed a similar petition at the FCC. At least two broadcast groups refuse to carry satellite radio advertisements, and another forced XM to carry advertisements on the channels it programmed.
Nothing would please the broadcast industry more than this merger being denied - leaving two weak companies to compete with the 80 year-old broadcasting behemoth. Don’t believe the nonsense that broadcasters do not compete nationally with XM because they cannot/do not aggregate demand. Ever hear of syndicated programming like the Tom Joyner Morning Show? Rush Limbaugh? Or Opie and Anthony? (who, by the way, are on both XM and terrestrial radio). Large station groups use their national reach to aggregate demand, just like satellite radio. Nor should anyone be fooled by merger opponents’ talk about the “unique characteristics” of satellite radio. There is nothing inherently subscription-based or non-commercial about satellite radio. Indeed, one of the early applicants for an S-DARS license proposed being free and advertiser supported. And both XM and Sirius originally had commercials on their music channels before competitive pressures caused them to change. Finally, digital HD-radio makes it possible for radio broadcasters to charge subscription fees, and indeed, some are considering that alternative.
Consumer advocates and policymakers opposing this merger might take heed from the failure of the 2002 proposed Echostar-DirecTV DBS merger. That merger was premised on the notion that one strong satellite TV company would be better competition to incumbent cable than two weak companies. We did not take a position on the merger at the time, but interestingly, several of the organizations opposing the merger here supported that merger with fewer conditions than PK is seeking for XM and Sirius. The merger was denied at the behest of Fox, which ended up buying DirecTV (which Murdoch is now selling, having called DirecTV a “turd bird.” ) The result? Cable prices continue to go up, DBS cannot provide competitive broadband, and the DBS industry did not have enough resources to successfully bid for new Advanced Wireless Services spectrum, which was largely gobbled up by the incumbent telcos (so much for a competitive third broadband “pipe”).
I see parallels to the DBS merger here - one strong satellite radio company will be able to push radio broadcasters to provide better, more diverse programming and fewer commercials, particularly as broadcasters provide multiple HD radio streams. This competition could be even stronger if satellite radio providers are permitted to do more local programming, which, ironically, is the one type of programming most public interest groups want more of. But two weak companies are unlikely to provide any competitive or political pressure on broadcasters - hence their vehement opposition to the merger. James Surowiecki of the New Yorker, no lover of media consolidation, agrees with us on this point..
So I caution my public interest colleagues to be careful about giving aid and comfort to the broadcasters. They haven’t earned your support, and you should expect nothing for giving it. Strict opposition to the merger may preserve some public interest principles, but it certainly will not help the public.
A merged satellite radio
A merged satellite radio company could potentially provide more value for its customers than two separate services even before PK’s conditions are applied. Right now, when you start thinking about satellite radio, you have to decide which of the flagship programming you would rather have. If you want Oprah, you have to go to XM, and if you want Howard Stern, you have to use Sirius. But if you’re one of those weirdos that likes Oprah and Howard, you’re stuck. A merger of the two services would provide a better service together, and that’s what terrestrial broadcasters are afraid of.
It should also be noted that ClearChannel is a significant stakeholder in XM in a somewhat convoluted deal that may or may not expire next year. The deal allows ClearChannel to select programming for a portion of XM’s bandwidth, including advertising. I haven’t seen any discussions on ClearChannel’s involvement in the merger debate, though, such as whether their position creates a conflict of interest.
You make a good point about
You make a good point about being able to receive all the programming of both services - and it is one that I make both in my House and Senate testimony. ClearChannel has kept quiet about the merger - a wise move, in my opinion, since they are seeking ownership relief at the FCC. Why the NAB has chosen to risk its advocacy of ownership relief by opposing this merger is somewhat of a mystery to me, except that they have always viewed satellite radio as public enemy number one.
A number of us are a)
A number of us are a) cynical of the NAB’s motives and b) just want the combined programming (I personally don’t want to have to have one receiver for MLB and a separate service for NFL, I’m willing to pay, and a la carte sounds just fine with me).
I’d be equally cynical too of just handing Karmazin carte-blanche, but I believe getting the concessions he’s promised locked into an agreement with the FCC would do a lot to mitigate that concern.
The petition has started to gain some momentum… and there’s a link to directly send comments to the FCC (pro or con).
At times I feel I am too
At times I feel I am too black and white on issues, but frankly, I don’t get what all the tumult’s about?
Paying for Satellite Radio (SR) is a personal choice. One either chooses to do so or not. If SR becomes too expensive as the result of this proposed merger and the potential greed it may spawn, simply say “bye bye” and be rid of it.
I subscribed to SR late last year and I do enjoy not only the choice, but the ability to listen uninterupted across vast distances of driving. Having said that, if both companies imploded tomorrow, my life would not be affected in any manner that truly matters. We’re not speaking of, say, an oil company merger here, where serious issues of, among other things, public need are involved. We’re speaking of an entertainment medium which one chooses to support, and that support can be withdrawn at any time. In fact, less than 10 years ago, SR was no more than a twinkle in some visionary’s eye, and I woke up each morning, got out of bed, and functioned absolutely normally (???) all day long.
Although I may be giving both XM and Sirius a bit too much credit, I seriously doubt they would be short sighted enough to risk the success of two companies, and the wrath of their shareholders, by merging and then saying, “Wow, we’ve now got a monopoly!!! Let’s take ‘em for all they’re worth.” Sorry, folks, but the NAB and its members are still very much a force, and the shareholder’s wrath leads nicely compensated executives down a path many of them would rather not take - just ask people like Michael Eisner and Steve Wynn.
This is not an anti-trust issue. It’s simply a way for the real monopoly - those who have been in control of the airwaves for years - to exercise a bit of control every now and again. And for public interest groups to even spend one second contemplating what, they think, might be the earth shattering damage done by this merger is truly horsehockey. Instead, they should use that energy in trying to get Congress to wake up to the fact that a small group of speculators, not the oil companies, are controlling gas and oil prices and causing economic damage lightyear’s greater than that which would be the result of this merger. A bit of misplaced priorities, don’t you think?
To defeat NAB in this
To defeat NAB in this short-term battle over XM-Sirius, Public Knowledge appears to concede that partial substitutes to satellite radio and a few conditions that do nothing to prevent long-term market domination are sufficient to protect consumers and independent programmers from abuse by a monopoly satellite radio provider. But in so conceding, it hands the NAB a far more significant victory.
In Consumers Union’s long-standing fight with NAB over whether the FCC should eliminate current broadcast ownership limits, NAB argues, just as XM and Sirius do now, that all media outlets (the Internet, newspapers, free radio, pay radio, devices, etc.) are substitutes for local television, newspapers and radio, making rules prohibiting broadcaster consolidation unnecessary. That NAB hypocritically takes the directly opposite position about competition in the XM-Sirius proceeding will not shame it into abandoning that argument in the media ownership fight. If XM-Sirius is approved on the asserted “substitutes” rationale, NAB will have lost the battle, but won the war. Dominant television and radio broadcasters will have greater ability to justify more station mergers, making the local “broadcast monopoly” that the public interest community fears a far more likely reality.
Second, there are direct consumer costs to this merger and virtually no tangible benefits. Consumers Union supported the merger of DirecTV/Echostar because satellite TV providers were trying to compete against an entrenched cable monopoly that was jacking up consumer prices annually, with hikes in some years at almost three-times the rate of inflation. Moreover, the channel lineups and packages offered by satellite and cable were nearly identical except that limited capacity made it virtually impossible for DirecTV and Echostar to offer the programming that consumers still want the most ― local broadcast channels. So competition analysis suggested a stronger satellite company that was required to offer local broadcast channels in each community plus its existing programming could directly produce price competition benefiting consumers.
But here, satellite radio is distinct from free radio ― it offers far more programming, of a different type and greater diversity, throughout the nation, for a fee. The possibility that a stronger satellite radio provider might encourage modest improvements in free radio content is little comfort to satellite subscribers who will see their rates rise as their choice between competitors vanishes. And a stronger satellite radio company can do nothing to make broadcast radio any cheaper ― it is already free. The cable rate hikes that continued after denial of the DirecTV/Echostar merger illustrate, rather than rebut, the risks an XM-Sirius merger poses to satellite subscribers: Without a substantially similar product or direct competition on the same platform, prices increase.
Third, Consumers Unions’s support for the DirecTV/Echostar combination was conditioned on significant divestiture of spectrum to a ready and willing, not hypothetical, satellite TV competitor (Cablevision Systems). And we also knew that News Corp., which owns programming, was the other likely buyer of DirecTV and was unlikely to compete with cable on price. After the merger was rejected, that’s exactly what happened; DirecTV, under News Corp.’s control, never sought to compete on price for the core multichannel programming package. Thus, our support for a satellite TV merger was based on the potential for price competition with cable; the availability of a satellite competitor to the merged company; and the reality that without the merger, price competition with cable would remain minimal. In short, where there were direct and tangible consumer benefits in a DirecTV/Echostar combination, there are virtually none here. Conditions can’t make the merged satellite radio company produce local programming if it doesn’t want to or if it is cost-prohibitive. Such a condition would likely result in the same syndicated, homogenized news that broadcast radio already relies on, adding nothing to the public interest. And XM-Sirius won’t agree to give up any spectrum, assuring it will never face head-to-head competition.
The short-term satisfaction of defeating the NAB in this battle is simply not worth the long term costs of higher satellite radio prices, fewer choices and greater consolidation across the entire media landscape.
Jeannine Kenney, Senior Policy Analyst, Consumers Union