Speaking before an antitrust task force of the House Judiciary Committee, Mr. Karmazin said he was shocked by the very idea that anyone would see a monopoly as the logical result of merging the only two satellite radio broadcasters. “There is no monopoly or duopoly,” he told the hearing. “That’s the most bizarre thing I have ever heard.”
—The New York Times
You can’t blame him for trying.
“Him” is Mel Karmazin, the uber-salesman currently attempting to sell the deal of a lifetime to the relevant authorities–the merger of the only two satellite radio companies in America. And Mel is pulling out all the stops—going so far as to unload the following whopper on a rightly suspicious Congress:
Mr. Karmazin’s essential message is that satellite radio is competing with all forms of audio entertainment and information — from commercial radio to iPod jacks in cars to Internet radio….
Anybody ever try sticking a desktop PC in the car and tuning into Internet radio while you’re whaling down a crowded freeway?
Me neither.
And I suspect at the end of the day—this is my opinion only, and for what it’s worth—the XM/Sirius deal will not go through for precisely the same reason the Dish/Echostar deal did not go through.
Still, to test Mel’s own theory, it might be helpful to perform what is called a “Thought Experiment.”
The thought is this: would the Feds allow a single terrestrial radio company—Clear Channel, say—to buy every radio station in America, thereby owning 100% of the terrestrial radio business?
If the answer is “yes, because of all those iPods and Internet radio stations out there,” then one could suppose the Feds might allow a single satellite company to own 100% of the satellite radio business.
But I don’t think Mel is going to encourage anybody at the FCC to be doing that kind of thought experiment any time soon.
Jeff Matthews
I Am Not Making This Up
© 2007 Jeff Matthews
The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews’ recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.
10 replies on “No Thought Experiments for Mel”
And what happens when one of the satellite radio companies goes belly up? Will the other one get shut down because they will then be a monopoly.
I don’t get your analogy. I live in an area where Comcast is the only cable company – just like most markets where there is a single cable provider. The only competition is Dish and DTV (though Verizon is coming at some point). I don’t see how one satellite radio company would be any different than one cable company. The music and talk shows played on satellite radio are not much different (ex sensorship issues) than those on AM/FM. From a music perspective, there is no question that digital music has changed how people “consume” music. Wimax and other wireless broadband technologies promise to provide additional options for consumers.
I can’t necessarily agree with your internet radio and ipod arguments here. WiMax which is less than 5 years out on the horizon has the power to send the internet into a car while the car is moving at highway speeds and the content that can be beamed to the car doesn’t necessarily have to be restricted to internet radio as karmazin said. 3G and 4G is also capable of this but the technology to implement it into cars hasn’t been created yet.
Satellite radio definitely competes with terrestrial radio and HD radio and I don’t think that can be argued. The problem that Karmazin has to overcome is that spectrum is very sparse and the government is very protective about how it gets used. They specifically gave out those 2 bands for 2 seperate companies and stated that it was going to remain that way. The merger directly contradicts that obviously, but it the outcome would be much the same regardless if XMSR and SIRI continue to operate in the red and one dies, leaving one with this mystical satellite radio monopoly.
Jeff.
Is it possible that this is one of the best marketing schemes ever hatched? Is it possible that they know this deal will never go through, but they’re thinking folks out there who’ve never heard of them (maybe there are some) may have their interest raised?
As we currently see in the MLB-related issues with DTV, the FCC and lawmakers want it both ways. They want to have multiple services in order to foster competition, but also want to prevent those services from competing by forcing major content suppliers to work with all of them, rather than allowing one or the other to have an actual competitive advantage.
If they really want to take the position that all services must offer all content (sports, local channels, etc.), then they should give up on the notion that it is a competitive market and allow all these mergers to happen. Otherwise they should get out of the way and stop insisting on anything: sports, local channels, Howard Stern or anything else. And if that means you need to get two different services to get all the content you want, then so be it.
For my own purposes, my iPod has replaced 80% of radio listening in the car already. The other 20% is split between Sirius (OK, I’ll admit it, mostly Stern) and local traffic/weather reports.
And in my vehicle there’s no competition for satellite radio anyway. It came Sirius-ready, would cost me hundreds of dollars to retrofit to XM and in the process would sacrifice all the nice integration that’s built in. That’s the case with most vehicles on the market today already. If the FCC was serious about competition, they would prevent the satellite companies from making such deals, then I’d really have a choice.
-btc
you’r just an idiot
I agree with you 100% — this deal is dead as a doornail.
I have to tell you, though, that when the free trial period was up on the XM service in my new car, I cancelled it because I have an i-pod jack in my car with 1200 songs I like and I wasn’t willing to pay $13/month for XM
When they lowered it to 6.99/mo, I took it. Maybe Mel has a point, not that anyone will buy it.
I usually agree with you Jeff but not here. Name me a place in the US where you cannot pick up any radio station? There is none. But there are plenty of places where there is no cable TV or over the air stations, hence the sole solution is a dish.
One is a duopoly, the other isn’t.
Tim,
I tend to agree with you. I think the problem with this merger is it’s about three years too soon. Within three years it’ll become obvious that the government’s decisions about how to allocate spectrum, made over a decade ago, are no longer quite right given the new alternatives including iPods, Wimax, etc.
Everybody knows that Satellite competes with FM, and especially with new HD radio alternatives that will be coming along soon. If that were not the case, the National Association of Broadcasters would not be lobbying so vociferously against the merger. They’d rather compete with two poorly capitalized and capital intensive businesses which also have to compete with each other than to face a single better-capitalized alternative.
I think Juliette is typical of what these companies face. People are willing to pay, but only up to a point. For most people (other than perhaps long-term Stern fans like me or some sports fans) that number is probably under $10 and that fact won’t change despite the merger.
My own guess is that eventually they’ll come to the table with an offer to provide a some (maybe 20) free stations with commercials that will be available to anybody with a receiver, and cheaper packages for specified types of content rather than an all-or-none offering. This will probably make it more palatable to most.
-btc
Jeff,
I believe you are wrong about the XM/Sirius merger. I am a Sirius subscriber and former shareholder. The merger will go through because satellite radio is a niche player in an enormous market that includes terrestrial radio, IPods, CDs, etc.
People will continue to have alternate ways of consuming music other than through satellite radio.
If they raise prices, customers, like me, will leave in droves.
It isn’t as if the industry is making money hand over fist, prices are rising and consumers are signing on in droves. Neither company has made a dime in profit.
JMC
Surowiecki from the New Yorker has a good take on the reasoning. I have heard it expressed in the same way in other places but he does a good job in his latest article.
http://www.newyorker.com/talk/2007/03/19/070319ta_talk_surowiecki