Monday, March 24, 2008

Good Guys Win One

The Department of Justice ended its investigation of the deal combining Sirius Satellite Radio and XM Radio, concluding that "the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers." The decision:
means the DOJ has concluded that the merger is not anti-competitive and it will allow the transaction to proceed. SIRIUS and XM each obtained stockholder approval in November 2007. The pending merger is still subject to approval of the Federal Communications Commission.
Long-time merger opponent National Association of Broadcasters--the terrestrial radio & TV lobby group--claims to be "astonished" by the decision, which was predicated on the DoJ's conclusion that:
the evidence does not demonstrate that the proposed merger of XM and Sirius is likely to substantially lessen competition, and that the transaction therefore is not likely to harm consumers. The Division reached this conclusion because the evidence did not show that the merger would enable the parties to profitably increase prices to satellite radio customers for several reasons, including: a lack of competition between the parties in important segments even without the merger; the competitive alternative services available to consumers; technological change that is expected to make those alternatives increasingly attractive over time; and efficiencies likely to flow from the transaction that could benefit consumers.
It's been an exhausting year and the deal still awaits actual approval of the transfer application by the FCC (as opposed to the DoJ's "no action"). Stay tuned.

MORE:

The March 26th Wall Street Journal proclaimed "Justice for Satellite Radio":
The Justice Department's approval this week of the XM-Sirius satellite radio merger was a long time coming -- maybe too long given that the deal was announced more than a year ago. Still, credit Antitrust Division chief Thomas Barnett for making the right call in the end.

Because XM and Sirius are the nation's only two satellite radio providers, the major concern is that a merger would create a monopoly able to raise prices willy-nilly. But Justice concluded, correctly, that "the evidence did not support defining a market limited to the two satellite radio firms that would exclude various alternative sources for audio entertainment."

In other words, XM and Sirius don't compete merely with each other but as part of a huge media marketplace that includes free radio, iPods, MP3 players, Internet radio stations, cable radio services and even cell phones.
(via Carpe Diem)

8 comments:

MaxedOutMama said...

So is the FCC likely to get a raft of hysterical pressure over this? As a society, we seem to be PMSing on a number of topics.

MaxedOutMama said...

What confuses me so much about this is that the market seems to be small enough to prevent anti-trust concerns from being applicable.

I thought that as a lawyer you might enjoy the rumor about Bear Stearns. The financial markets have been taking it as an endorsement of great things ahead, but it may just be leverage granted by foolishness.

Carl said...

M_O_M:

1) Reading these two filings (both recent) by merger opponents should answer your question.

2) I'm inclined toward the latter view; see my QOTD for tomorrow (March 25).

OBloodyHell said...

So, the argument is that competition by broadcast and/or netcasting services are sufficient competition to satellite radio to keep them from "owning" the market?

In the end, that may not be the case, although I'll buy it for now.

The chief question, I guess, is how difficult it is for another company to jump into the market should SR take off and squelch the broadcast market and gain a defacto monopoly position (I'm assuming it can't squelch netcasting, that is too difficult to destroy*). How much does it cost to startup an SR system -- presumably by leasing casting capacity from existing satellites? This would define how much of a potential monopoly this merger would give SR. As long as they are within a reasonable amount, then SR will be constrained from persuing any monopoly they gain.

==========================================
*OBloodyHell's Law:
If it is true that The internet treats censorship as noise, and routes around it then it is also true that The internet treats copyright as noise, and routes around it. Both are about controlling access.

Copyright, as historically constituted, cannot exist in a multi-owner distributed network. The rewards for content creation cannot invoke access control as a means to such rewards, but instead have to attain their goals by other mechanisms.

OBloodyHell said...

BTW, you may find this article over at Carpe Diem of interest:

http://mjperry.blogspot.com/2008/03/satellite-radio-let-consumers-decide.html

Carl said...

OBH:

Perry accurately states the companies' argument:

"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?"

OBloodyHell said...

> Perry accurately states the companies' argument:

Yes, I wasn't arguing the current condition. I'm presuming, however, that SR is looking to substantially increase their market share. My question isn't their state now, but 10 years from now... I see the issue as twofold (to somewhat restate what I said above)

a) What are SR's chances of gaining a large (say, oh, 40%) of the market? Currently, it costs money to install equipment to use SR. Are these costs doing as most electronics do, and getting to the point where they can be the razor to SR's razor blades?

b) How serious is the entry cost for potential competitors? Would someone have to loft their own satellite constellation, or are there satellites one could lease bandwidth from in order to form a competitor, if SR attempts to jack prices up in the future, confident of their market share.


Another (minor) issue, is, of course, the concept of "market share" -- if once considers, instead of population distribution, but instead signal distribution, how does SR compare that way? Gainesville, FL, despite being a college town, has the suckiest bunch of Broadcast radio stations imaginable. So, living there, one finds strong encouragement to look for other sources for audio entertainment.

Then there's the Howard Stern/Rush Limbaugh argument -- if SR locks up all or radio's "heavy hitters" with exclusive contracts, what then?

I repeat -- I'm not disputing there's no concern "at the moment"... but you could've said the same thing with regards to M$ and the computer OS in 1990. Now, just 18 years later, M$ is the 2000-lb gorilla of computing -- if M$ says 'jump', even INTEL would have to listen. Given the ridiculous nature of current copyright law (as noted above), there is all sorts of potential for future abuses in the realm of IP distribution, which SR is certainly a part of. I can see a potential for a rather dark time as the Fed uses the same anti-Drug tactics it's used in the past to attempt to clamp down on 'piracy', with SR as a motivating force.

Copyright has got to change, but there are people out there who will ruin the world's economies before they'll give in to change. I think WWI and the Depression were both outgrowths of the switch from an Ag economy to an Industrial one -- they were the physical and economic manifestations of the necessary "reset" to get rid of invalid "old" ways of doing things.

I can easily see a considerable turmoil ahead as we switch from an Industrial economy to an IP & Services economy. We live in, in the Chinese sense, "interesting times", indeed.

Carl said...

OBH:

Because the issue involves a client, this response is limited to laying out facts:

1) The competitive landscape in a decade is well beyond the legal standard, which considers possible entry within two years.

2) Six years after beginning commercial operations, satellite radio listenership (XM and Sirius) amounts to 3.4 percent of the total radio audience, see page 22. Is SR's share in Gainesville, FL, significantly different? M$ had a majority of the OS platform from nearly the moment IBM introduced the PC.

3) The DoJ said:

"The parties contended that they compete with a variety of other sources of audio entertainment, including traditional AM/FM radio, HD Radio, MP3 players (e.g., iPods®), and audio offerings delivered through wireless telephones. Those options, used individually or in combination, offer many consumers attributes of satellite radio service that they may find attractive. The parties further contended that these audio entertainment alternatives were sufficient to prevent the merged company from profitably raising prices to consumers in the retail channel. . .

Most notable is the expected introduction within several years of next-generation wireless networks capable of streaming Internet radio to mobile devices. While it is difficult to predict which of these alternatives will be successful and the precise timing of their availability as an attractive alternative, a significant number of consumers in the future are likely to consider one or more of these platforms as an attractive alternative to satellite radio."

What are the entry costs for those competitors?

4) Of the so-called "upstream" market (for talent or programming), apart from Stern and Oprah, almost all the content is non-exclusive in that it also is available on traditional radio (e.g., baseball).

5) Right now, terrestrial broadcasters do not have to pay a performance royalty, and so have a copyright law advantage over satellite/internet radio. Changes to this are anything but inevitable.