vaguelyaware.com

Originally written in March of 2007. Not going to proof-read.

If anyone glances at a Wall Street Journal at least once a week they will have seen this, the two only players in the satellite radio industry have struck a deal to merge into one large company, the only barrier now is the FCC. One problem being the obvious antitrust laws, but the FCC also added a law specific to the satellite industry requiring that the only two broadcasting licenses not be owned by the same entity. Well thanks FCC, although you seem to be over-stepping your bounds there by trying to regulate issues already passed on to other branches of the government, it at least seems it is coming from a good place by offering the consumer more competition which usually causes benefits the consumer. We all know if the governments worked like that our taxes would be far less than half of what they are now. But thats a discussion for another day.

My main complaint is of former AG John Ashcroft’s letter regarding the matter. In the letter he compares the satellite radio industry to the satellite tv industry and opposes the merger based on precedence. What Ashcroft seems to ignore is that the two business although they both have satellite in their name are working with a much different playing field.

Lets look at the differences: TV broadcasters all distribute the same content. This reduces the bidding wars the companies have to provide their subscribers with exclusive content which they pay dearly for.

Other competing sectors: This one is well covered by the Siri/XM guys, there are terrestrial radios, online radio stations, CD players, and the juggernaut, iPod. iPod has already alienated a majority of terrestrial radio due to its easy updating and lack of commercials. This is the only advantage to satellite radio right now, and the reason these guys are pushing for exclusive content.

Costs: We all know profits are maximized with more customers, right now the SatTV companies have many more customers (DirecTV now at 16M subscribers, Dish @ 13M, Siri & XM @ 6M each) to spread their costs over because they have been around far longer. The reason the SatTV companies were able to blossom is because of the lack of cable or terrestrial signal availability in rural areas. The SatTV fixed that issue and people were willing to pay a premium for the technology, which was needed to allow the companies to operate. About the time that the SatTV companies covered their startup costs and have enough customers to operate with positive cash-flow the cable companies started rolling out more cable which means now SatTV companies have to start competing with the competition, but they still don’t have the huge bidding contests for content like SatRadio.

Technology: Satellites cost a lot of money to launch and operate. The last figure I heard was about 100M per year for its usable life (approx 10yrs). Even though SatRadio does not need many satellites to provide service (they use much less bandwidth than SatTV), they have to deal with possible down-time due to unexpected problems, read: they need backup satelittes. XM also has to work with the problem of having LEO sats, which means they have an elliptical orbit where the spacecraft is unusable for a portion of its orbit. Siri uses a GSS orbit that remains fixed so will need fewer spacecrafts, XM seems to be joining that system with its new crafts. Unfortunately using this system, they are extremely limited in their coverage area, usually limited to the CONUS.

Advertisements: The TV industry and terrestrial radio is driven by having the most appealing show so the broadcaster can demand more money for the ads broadcasted during the show, unfortunately the majority of the content on the SatRadios is free of commercials and does not adhere to these practices, so the only way to attract more money is more customers, and the only way to do that is to get people away from their iPods. A difficult task to take on.

The differences go on and on far beyond what is here, the only real similarity is that both industries use satellites to broadcast their content, the rest is completely different .

Regardless how ignorant Ashcroft is of these differences he is right on one account, a single company discourages competitive behavior. The critics are also right, both companies have poor business models and are stupid to pay so much for content just to one-up each other. Where all the critics are wrong is if this particular instance of an anti-competitive-sounding-merger is a negative step for consumers. A Siri/XM merger may have a monopoly on a specific sector of radio broadcasting, but they surely do not have a monopoly on mobile music. If they push costs too high consumers will go elsewhere, they have plenty of options. This is an instance of people getting paranoid of anti-competitive mergers. Apple has sold well over 88M iPods, there are thousands of radio stations in this country, and it is quite easy to pop a CD into that car CD player.

[Update] As I post this nearly a year later, I just want to add: why is the national broadcasting association so adamantly fighting the merger if they don’t compete?