Bryan Caplan  

Shocked, Shocked!: Opposition to the XM-Sirius Merger

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My family subscribes to both XM and Sirius satellite radio. The reason is that XM has a deal with the manufacturer of my car, and Sirius has a deal with the manufacturer of my wife's car. When I heard of the possibility of an XM-Sirius merger, my reaction as a consumer - not to mention an economist - was: Sounds good!

I severely doubt that prices will go up by much (thought perhaps they should - satellite radio has yet to turn a profit), and I'm confident that there will be more selection. And perhaps more importantly, it also boosts my confidence that satellite radio will continue to exist despite the indifference of the iPod generation. (I pre-paid XM for five years, and I get nervous every time I poll my undergrads and find that none of them subscribe).

Unfortunately, everyone doesn't share my positive reaction. As usual, there are two groups who oppose this merger and just know that it will be a disaster for the world.

First, "consumer groups" like C3SR (Consumer Coalition for Competition in Satellite Radio). Here's what one of its founders, Chris Reale, has to say:

“[A] monopoly satellite radio provider would be able to raise prices and cut programming to a growing number of consumers that have come to rely on satellite radio for news and entertainment.” He adds, “If this merger is permitted to go forward, there will be no protection of competition and there will be no competitors."

[...]

“Our main goal right now is to stop this merger,” Reale added. “If a merger were to be approved, subscribers would likely end up paying more for less programming, and would end up subsidizing unwanted services.”

Which is it? Will there be less programming, or subsidization of unwanted services?

To answer that question, we need look no further than the second group of merger opponents: The National Association of Broadcasters, also known as Lobbyists for Old-fashioned Unlistenable Land-based Radio. Here's what they've got to say:

"Given the government's history of opposing monopolies in all forms, NAB would be shocked if federal regulators permitted a merger of XM and Sirius...

"In coming weeks, policymakers will have to weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly platform for offensive programming. We’re hopeful that this anti-consumer proposal will be rejected."


Shocked, shocked! Where have I heard this before? Call me a cynical economist, but this is just the kind of whining we'd expect if the NAB realized that the XM-Sirius merger would make satellite radio more attractive to consumers. If the merger were really going to lead to higher prices and less selection, the purveyors of Old-fashioned Unlistenable Land-based Radio would be celebrating.

P.S. If you really hated Howard Stern, wouldn't you want his services to be sold by a monopoly? Maybe not, once you realize that "merger to monopoly" will supply Stern to millions of additional listeners.


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TRACKBACKS (9 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/656
The author at Club for Growth in a related article titled Opposition to the XM-Sirius Merger writes:
    Bryan Caplan at EconLog expresses his economic dismay over the opposition to the XM-Sirius merger.... [Tracked on February 21, 2007 8:51 AM]
The author at SateLink.net in a related article titled Day 3 of the the Sirius - XM “merger of equals” takeover: Reactions and speculations writes:
    Are XM Satellite Radio and Sirius Satellite Radio merging, as they claim, or is Sirius acquiring XM, as many newsreports claim? Reuters “mergers and acquisitions reporter” Michael Flaherty tries to explain what’s causing the confusio... [Tracked on February 21, 2007 9:48 AM]
The author at What Would You Say If You Weren't Afraid? in a related article titled XM-Sirius merger writes:
    Because of my connection with XM Radio (I'm a monthly guest and an occasional host on XM 169) I had a few folks ask me yesterday about the merger between XM and Sirius. [Tracked on February 21, 2007 1:32 PM]
COMMENTS (11 to date)
Arnold Kriegbaum writes:

Quality economic arguments only make sense if self-interest is assumed. As Bryan says, the NAB would be quietly encouraging this merger if they really thought that the consumer would be worse off. In fact, the consumer if better off, so the NAB is against it.

On a separate and quite esoteric topic, I find it curious that the FCC can even justify their sphere of influence, given that the satellites themselves are drastically out in space and, in XM's case, aren't even over the US directly (the Sirius birds do circle over the territorial US). Governments claim all sorts of rights that they shouldn't.

Richard Pointer writes:

Yeah, I don't know one person that has 'for pay' radio. Why would I when good stuff like Econtalk is for free baby!

Steve Sailer writes:

Just like how cable TV prices didn't go up after it was de-regulated.

Oh, wait, they did ...

Never mind.

Jeremy writes:

Perhaps instead of making fun of the arguments of the opposition, you could tell us a few reasons as to why you believe consumers would be better off with one monopoly provider for satellite radio.

Randy writes:

I'm not an economist or economics student, but I do subscribe to Sirius, so please forgive my ignorance on this. How is the merger between XM and Sirius going to create a monopoly? I know that they are the (only) two commercial satellite audio providers for the US, and after the merger there would essentially be only one. But wouldn't a monopoly mean that other (future) satellite companies would be prevented from competing with them? If a merger between XM and Sirius occurs, how does that prevent a person from starting up their own satellite company and competing with them? I thought that a monopoly entails prevention of competition.
Thanks.
-RY

Les writes:

The most obvious point is that satellite radio has many competitors, including FM radio, FM HD radio, AM radio, CD's, Cable TV, satellite TV, MP3 players, etc. So the ability of satellite radio to charge monopoly prices is extremely limited.

Steve Miller writes:

As an XM subscriber, my guess is that if the merger goes through I'll pay about $2 more a month (in 2007 $'s) and get access to a large amount of material I wouldn't otherwise have (maybe 25-50 new channels). Not that this affects Bryan, but for sports fans it may be the best thing that could ever happen with NBA, NFL, NHL, and MLB all available with the same service (not possible right now because of exclusive contracts). Of all the mergers I've heard of in the past decade, this one seems likely to benefit consumers the most. I think if DirecTV and Dish Network merged it would be a similar situation.

Carl Marks writes:

Oh wait, cable tv was de-regulated by the federal government, down here on the local level its all about exclusive franchises and government restriction of competition. Use a better example next time, and try to control for the fact that I now have over 400 channels, compared to the 40 when I first got cable tv.

While most of the channels are crap, it is only because government has forbidden a la carte offering

Tom Rexton writes:

Les is right. This may create a monopoly in "satellite radio", but there are numerous alternatives to satellite radio that are very easy to switch over to, so easy in fact, that the proper market to evaluate the merged entity's market share is probably the entire market for music sales, including CD's, internet downloads (iTunes), HD radio, FM radio, etc. I'm pretty sure the price elasticity of demand is high enough to justify this wider definition of the market.

Remember that when determining market share, one first has to define the appropriate market, including geographic extent and product type. If chosen arbitrarily, then one can make a monopoly out of nearly all firms. After all, only Coke makes Coke, Dell makes Dell computers, etc. Economists generally include in the market products which are easily substitutable. In the wider market for music sales, be it via HD radio, satellite radio, iTunes, CD's, or whatnot, XM and Sirius combined would have a very miniscule market share. Besides, the opposition continues to parade the fallacy that monopoly is ipso facto "bad". This is not true, especially if this merged entity will strengthen its competitive edge against the likes of Apple's iTunes and other firms.

If you're going to argue that this will create a monopoly, you'll first have to argue that the relevant market is STRICTLY satellite radio. Considering the obvious consumer behavior with respect to music sales, this would be an extremely difficult feat. Of course that's not the only step. Assuming you've proved this merger will create a monopoly, you'll then have to argue that the bad effects will outweigh the good effects (yes, there can be a good monopoly). To many people overlook this, as if monopoly is bad per se.

mjh writes:
If a merger between XM and Sirius occurs, how does that prevent a person from starting up their own satellite company and competing with them? I thought that a monopoly entails prevention of competition.
It doesn't. However it does make it difficult. There is a natural barrier to entry in any broadcast business in that you have to negotiate deals with content providers. Content providers are going to be less amenable to negotiating a deal with a startup with no subscribers than with XM/Sirius.

That being said, I agree that there is plenty of competition to a merged XM/Sirius. There are always alternatives. As for me, I'd love if they merged. I subscribe to XM because that's the hardware that came in my car. I'd much rather have the content available on Sirius (specifically NFL).

What I don't understand about the whole deal is this: Why isn't satellite radio subscription free? The value of being able to broadcast a national message has to be worth something. It seems to me that XM and Sirius would have an incentive to rapidly increase the number of ears that have access to them in order to maximize the value of the advertising space. Why doesn't XM fully pay for the content in order to get access to everyone's radio time? Are there legal hurdles?

I understand that both XM and Sirius sell "commercial free" content. But, with XM it's certainly NOT the case that all of their content is commercial free. So why not maximize the value of the content with commercials by making sure that everyone gets that content. And those that wish to pay for the commercial free stuff can as an add on.

What am I missing?

Brian writes:

In response to the possible merger of Sirius and XM I feel that this should not be allowed to happen. If these two companies join it will create a monopoly in the satellite radio industry and prices could potentially rise because of the lack of competition in the market. This merger is nothing more than illegal. Monopolies have been proven to be a negative element in the American economy. If this merger is allowed consumers will lose any power that they had in the satellite radio industry and the service provider will be granted the opportunity to take advantage of those individuals that are current subscribers and those that wish to become subscribers. I do not see anything positive about the joining of these two companies.

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