No Economic Reason to Fear XM/Sirius Merger
The graph above shows Sirius Radio (red) and XM Radio (blue) plotted vs. the S&P500 over the last two years. Sirius and XM have lost 50-70% of their value at the same time that the general stock market has increased by about 25% in value.
Steve Chapman writes in today's Baltimore Sun about the proposed merger between Sirius and XM in an excellent article titled "In A World of Options for Consumers, Fear of Mergers is Misplaced," here is an excerpt:
"The alternative to one (merged) satellite radio company may not be two companies but none. The existing ones have accumulated some $7 billion in losses between them (see chart above). The merger may allow them to reduce costs, so they can eke out a profit and stay in business. Raising prices would not be easy, because consumers have plenty of affordable options. Music fans can listen to terrestrial radio, pop in a CD, find an Internet feed, turn on an iPod, flip to the cable TV music station or check out unknown talents on YouTube.
Web radio may not get as much attention as Howard Stern, but it has four times as big an audience as XM and Sirius combined."
MP: In the begining of satellite radio there was only one station (XM) for almost one year, and if one of the companies fails soon before merging, there would only be one station, so what's the big deal about having one healthy company now resulting from a merger? As Chapman points out, there is so much competition now for music (iPods, cable TV, Internet, AM/FM), that it would be ridiculous to oppose a merger because it might result in "anti-competitive behavior."
And we should never underestimate the "threat of potential competition," which can also act to impose strict discipline on a single "monopoly" provider, like a merged XM/Sirius. As long as there are low barriers to entry, XM/Sirius will feel the threat of potential competition from possible rivals like Apple? Like maybe an iPhone with satellite radio service?
(HT: Cafe Hayek)