Tuesday, March 25, 2008

Satellite Radio: Let Consumers Decide

NEW YORK -- The Justice Department gave its OK on Monday to a deal that would put Howard Stern and Oprah Winfrey under the same satellite radio company roof. The announcement boosted XM shares 15.5% to $13.79 and Sirius 8.6% to $3.15 (see chart above).

Now that the Justice Department has stepped aside, Sirius and XM only need to win approval from the Federal Communications Commission before they can close the deal that they struck in February 2007. Both companies are unprofitable and want to cut costs.

Still, opponents plan to push the FCC to stop the merger or at least put conditions on it. "This monopoly will lead to higher prices, less innovation and lousy service," says National Association of Broadcasters (NAB) Executive Vice President Dennis Wharton.

Comment: Satellite radio is less than 1% of the total radio market, according to NAB's website, so why should they care about high prices and lousy service in such a small segment of the market? It seems like that would serve to help terrestrial radio, not hurt it.

And if one company has 1% of any market, is that even a "monopoly?" Mercedes has about 1% of the U.S. vehicle market, and has a "monopoly" on the unique Mercedes features and design, is anybody worried about Mercedes?

When it comes to radio, or just about any other product, consumers can probably decide better than Justice, FCC or NAB what is best for them.

5 Comments:

At 3/25/2008 10:10 AM, Blogger John B. said...

Dennis Wharton has got to be the biggest hypocrite of the 21st Century. The NAB has lobbied furiously to let its members enjoy exactly the kind of monopoly he now says XM and Sirius should not be allowed to have. The kind of monopoly that has led to the "less innovation and lousy service" that gave rise to satellite radio in the first place.

 
At 3/25/2008 11:49 AM, Blogger Marko said...

One of the main problems of the government being heavily involved in everything is that this gives businesses a great incentive to lobby the government. When the government gives "big business" a club, it is no suprise that they try to use it. This would be helped if we remembered the purpose of the government should be only to remove obsticles to a free market. Nothing else.

 
At 3/25/2008 2:07 PM, Anonymous Anonymous said...

When their competition is giving away their produce for free, it's hard to see how there is a monopoly. And if they did manage to have a monopoly why is Sirius a $3 stock?

 
At 3/25/2008 4:02 PM, Anonymous Brad S said...

Dr. Perry, there is one big reason why the NAB cares about a XM/Sirius merger: Rush Limbaugh. Terrestrial radio cannot pay Limbaugh anywhere near the $250Million deal he received in 2001, and his contract comes up in 2009. Only a recapitalized and rightsized XM/Sirius could pay Limbaugh that much money (and stock options), and only Limbaugh could bring the subscribers to make it work.

When that deal is announced, nearly all of syndicated right-wing radio will follow in short order, starting with Sean Hannity. His contract is also up next year, and his syndicator (ABC Radio/Citadel) has one foot in its economic grave.

 
At 3/26/2008 1:44 PM, Blogger Gregory said...

After the merger Rush Limbaugh is not going to get $250 million anymore, since as you say he will have no where else to go that brings in that much money.

The purpose of this merger is not to squeeze customers. The purpose is to squeeze content producers which I think would be a good thing.

 

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