Siri/XM Merger Opponents Aren't Considering Consumers

In an Exparte filing with the FCC, the Consumer Federation, Consumer Union, and Free Press stated once again that they still oppose the merger. The filing states that even after review of all of the documentation filed, they remain of the opinion that the merger is bad for consumers.

The letter which was written on November xx, 2007 (yes, that is how the letter was dated) was published on the FCC website Monday, and states that even with all of the various filings, nothing in their opinion has changed

Interesting Components of the Letter

1. They state that this is a “merger to monopoly”.

The NAB type phrase fails to consider that it is the Department of Justice, and not consumer groups that determine whether or not a monopoly will exist. Further, these consumer groups must realize that the audio entertainment landscape has changed and includes many competitors. Consumer Reports: The magazine published by Consumer Union categorized satellite radio along with dowloadable tunes in their “Gear Up For Electronics Gift Giving” for December of 2005. Even the Consumer Reports buying guide for iPods & MP3 players lists not only satellite radio, but cell phones as well. Clearly Consumers Union sees that there is crossover in the audio entertainment sector.

2. They state that the proposed a-la-carte offerings are ill defined, deceptive and do not state a duration for which this type of programming will be offered.

Did they review the filings that they claim to have considered in rendering their opinion? The FCC filings CLEARLY outline the a-la-carte programming packages as well as price points. How could this group have failed to see the pricing plans? They were published everywhere!

3. They state that nothing in the proposal will protect artists and retailers from the exercise of market power.

First, the market needs to be defined. The Department of Justice will make that determination. Second, artists are compensated from airplay on satellite radio. The rates at which artists are compensated is not part of the merger process. These rates are being determined in arbitration which will set rates for the coming years. Certainly consumer groups who are watching out for consumers are familiar with the royalty issue. There is even legislation before congress regarding performance rights. Additionally, what protection do companies such as Sirius (SIRI) and XM (XMSR) have from the artist groups and record labels? Why should they get a cut of revenue from content such as Stern, Oprah, Martha, MLB, or the NFL? As things stand now they are getting a cut. Wouldn’t a pay per performance system be the fair way?

4. They state that satellite radio is a clearly identifiable product in a market with high barriers to entry and only two competitors.

Satellite radio is indeed a market. It has a niche within the overall audio entertainment sector. The latest song from U2 is the same on terrestrial radio, CDs, cell phones, iPods, and Internet radio. The cost to start a satellite radio company is expensive. However, companies such as Slacker are finding ways to deliver content via satellite by leasing space. This brings down the cost of entry. Further, the competitive landscape in the near future needs to be considered. Already cell phones carry streaming content on a national scale, and with the 700mgz spectrum coming up for auction, the landscape of providers of content on a national scale will only increase. How exactly do these consumer groups think national shows on terrestrial radio are received?

5. They state that the companies are moving quickly towards profits, and are not claiming a failing business as a reason for the merger.

Interesting. Ask shareholders about the speed at which these companies are moving to profits. The failing business justification is not claimed, but that does not mean that it is not considered by regulators. In point of fact, regulators do review the strength of the businesses as they make their consideration. The companies have a right to claim this as a justification, but chose not to. The regulators will consider the viability of the business now, and into the future prior to making their decision.

6. They state that the merger will result in the elimination of choice by going from 2 to 1.

This argument does not hold water. Indeed there are many consumers who make a choice to not even subscribe. Fifty percent of those that get a trial of satellite radio decide that another choice is better for them, be it terrestrial radio, cell phones that stream content or MP3 players. Substitutionality is clearly demonstrated in the churn data. Both companies have stated clearly that the migration of consumers from one service to the other is minimal. Therefore, people do indeed have viable substitutes available, and the cross section of those substitutes is increasing.

7. They state that there will be a reduction of competitive offerings such as country western.

A Tim Mcgraw song is identical no matter where you listen to it. The top 40 songs are the top 40 songs. What you are terming as competitive offerings are in many way identical content.

8. A dramatic decline in spending such as advertising and R&D.

This is part of the synergies involved. However, satellite radio still has to garner the attention of the consumer. They still need to compete with Apple (AAPL), etc. Satellite radio will also need to offer compelling products that are consumer friendly. The merger does not negate the need for advertising and R&D, it enhances their ability to compete in an ever growing sector.

9. They state that there will be a reduction in channels from 260 to 160.

How exactly is this determination made? These companies have bandwidth that they need to use. They will use it to the best of their ability to offer a broad range of channels. If this range of channels is successful, they will continue to add content and services. They are not going to just sit on the bandwidth and do nothing with it. The assertion is laughable.

10. They state that there has been no discussion of price cuts without a regulatory solution.

Bogus. Sirius and XM have already offered pricing cuts and a-la-carte programming. They have also stated time and time again that they are “competing with free” and need to keep prices down and even lower them.

These consumer groups attack the a-la-carte programming packages, yet FAIL, YES FAIL to understand the consumer. Do they really believe that consumers listen to all of the channels these services offer? I would be shocked if people even set all of the 30 presets available on most SDARS receivers. Sirius and XM offering a lower price point for a smaller package of channels is reasonable, and what the market would dictate. The fact that the Consumer Federation does not understand the concept of Bulk pricing makes me almost question their credibility as a consumer watch-dog group.

NOT ONCE in their filings have these groups taken a moment to consider or publish the benefits of the merger. As a consumer I want the ability to make an informed decision. As consumer watch-dog groups, these organizations have a responsibility to fully inform the consumer. They have failed in that regard. This filing is filled with pointed animosity, and does not do the consumer one bit of good with respect to being able to weigh the sides of the issues being considered. This is a one sided report.

Position - Long Sirius, Long XM

Comments

[Uncle Freddy]

The filing is every bit as in touch with the consumer as this article. The merger will indeed reduce the number of available channels and consumer choice. Both companies have promised that existing radios will continue to work post-merger. Each company has its own operating system (CODEC), which is not compatible with the other. Therefore, it will be some time (10 years perhaps) before there is a sufficiently large population of radios capable of receiving all of the bandwidth before we start seeing the merged company utilize it for unique offerings. In the near term, we are going to see content duplicated on each operating system, and a reduction in the number of channels offered.

As for the assertion that the top 40 songs are the same anywhere, the music programming philosophies are different between the two providers, with the exception of those top-hits-based channels. So while the same "a Tim McGraw song is identical no matter where you listen to it," you're likely to hear a greater number of unique Tim McGraw songs on XM than on Sirius, which will have a "tighter playlist." Each philosophy has its fans, and when "identical content" channels are combines, consumer choice is going to be reduced.

Finally, while technologies are certainly emerging which can be substitutes, these technologies are not yet available everywhere. Someone who only has dial-up internet service available is going to be pretty limited when it comes to taking advantage of podcasts.

[Hippocritical Ass]

Doberman

The reduction in the number of channels from ~260 to ~160 appears to be correct. Bob Peck, the leading analyst on the sector, claims that an amount equivalent to XM's entire in-house production budget, will be saved by the merged company within two years. Peck has shown himself to be consistently well-informed from within the satellite radio industry.

The companies themselves have stated that "duplicative"... channels will be eliminated -- although, they have stopped short of explaining what THEY label as duplicative. For certain, the majority view is that virtually ALL music programming on Sirius is duplicative of the music programming on XM. Many of us don't see it that way, but just based on various news and blog accounts, the general public does.

When you eliminate about 60 music channels between the two, plus other duplicated programming (Fox News, CNN, CNBC, Traffic, etc.) the net loss of about 100 channels seems to be right on target.

[dontBhaters]

I think Bruce said it best...."57 channels and nothin on.."

Seems the 2 comments thus far are focused on the reduction of the reduction to the number of available channels being some sort of detriment to the consumer????
NAYSAYERS unite!!
I know its an opinion here but I'm a strong believer in the 'Less is More' concept...I dont know ANYONE who can say "I love my satellite radio but man I wish I had more than 30 presets!"
I use exactly 7 and thats between me and the wife.
Why is there an automatic assumption of a 'tighter playlist' ? Couldn't a combination of philosophies produce a...dare I say it...BETTER playlist???
Heck, there could even be an entire channel devoted to Tim McGraw if the demand were high enough!

I'm just so tired of the naysayers not to mention all of the attention and political adgendas involved with this merger request. If we could all just get past this so we can concentrate on the obvious operational hurdles - then we can finally all enjoy that which is the BEST form of audio entertainment available!

[Jesus Phone]

YOU SIR ARE AN IDIOT.. Sirius and XM being kept from merging is as frustrating to the consumer as Blu-Ray and HD-DVD still battling it out. People aren't choosing either or... and waiting and seeing instead.

Sometimes having to choose is a pain in the ass... What if a consumer likes Howard Stern on Sirius, but also likes MLB baseball on XM? They have to pay double and buy to recievers...

that sounds like less choice to me you freaking idiot! And as for duplicate channels... of course they will do away with duplicate channels. I have over 500 stations on my cable box... and it's annoying as hell navigating thru channels. I end up filtering out 450 of the 500 channels because I end up wasting time channel surfing instead of actually watching a show I like.

I know i'm getting off topic a bit.. But people against the merger are not looking out for the consumers best interests... They are in bed with terrestrial radio. I love my free radio too.. but when i buy a new car, I don't want to have to pick either/or for my premium radio service... I want BOTH for the same price.

And your trying to tell me I can't have that?!.. You sir are the idiot blocking my freedom to make a better choice....