Wednesday, February 21, 2007

The Merger of XM and Sirius: Necessary to Survive or No Competition?

Sirius Satellite Radio and XM Satellite Radio announced on Monday that they are planning to merge. Chairman of XM Gary Parsons is shown here with Mel Karmazin, CEO of Sirius. These two companies are America’s only services licensed to provide satellite radio. As a result, this amalgamation has raised significant antitrust concerns. In order for this merger to continue the Federal Communications Commission and the Justice Department must be convinced that there is sufficient competition for both pricing fairness and innovation incentive. This is addressed in Peter Kaplan’s Reuters article. Although Sirius and XM suggest that terrestrial HD Radio and other new technologies may act as competition, both Sirius and XM offer a product unique enough to compete on its own. Their union would only stunt the growth of satellite radio.

CNET boasts the special qualities of satellite radio: it is commercial and static free, uncensored and provides artist/title read outs, weather and traffic for big cities, video and internet radio. Today, XM and Sirius are the only operators that widely deliver these services. However, the relatively unknown, but growing industry of terrestrial HD radio provides several of these amenities for free. Sirius and XM cited this audio device as reasonable competition in Kaplan’s article. HD broadcasting allows stations to supply music digitally, increasing quality and making artist/title readouts possible. Digital terrestrial radio comes from stations already known to listeners and offers more specialized traffic and weather than satellite. Unlike Sirius and XM, HD has commercials, but it offers the allure of a nonexistent price tag. These are all qualities that make HD radio a significant technology, but do they make it a competitor?

Similar to why people buy cable, satellite radio must have the programming listeners are willing to pay extra for. This merger will obviously create a wider programming pool: more music, more news and both Oprah Winfrey and Howard Stern. However, is this necessary to keep satellite radio alive? XM and Sirius’s content may be appealing enough as it is. XM radio boasted 8 million subscribers last year and Sirius had 6.3 million, according to Ashok Bindra’s report of In-Stat Worldwide Research. This is an increase of 5 million subscribers to each provider since CNET’s early 2005 data, a significant jump that is only expected to continue growing. Bindra states, “The In-Stat report titled ‘More Consumers to Tune Into Digital Radio in 2007’ indicates that this growth [of satellite and digital radio markets] will come from increased awareness of terrestrial HD radio and the continued popularity of satellite radio in the United States.” This study, conducted before XM and Sirius’s announcement, projects that satellite and HD radio will both continue substantial growth. Though HD may seem like a competitor, offering many of the same services for free, the two are different enough to coexist. Listeners can have both; satellite for specialized programs, like specific sporting events or talk shows commercial free and HD for local traffic, news, and weather. Satellite might be considered the “cable” of radio and HD the broadcasting networks. Now imagine if America had only one cable provider.

As indicated in Bindra’s article, Satellite and HD are the future of radio broadcast with an expected 25 million digital receiver shipments in 2010. In order for satellite radio to develop as predicted, there must be several service suppliers in the field. At this moment there are only two and by them combining they are creating a force with which emerging providers will have difficulty competing. Antitrust lawyer Stephen Axinn states in Reuters, "The fact that somebody invented satellite radio and charges for it, and a million people own it, is a strong indication that it's a different market than something that is free…It looks to me like a deal that can't happen." If this agreement were to continue, they would be limiting the growth of satellite radio to the development of this single company. What is going to persuade them to continue researching and improving? There will be no competitors attempting to out do them or other services keeping the price down. Although digital terrestrial radio will compete, realistically it could just be considered a better version of what there is now. Better quality and digital readouts will not steal numerous people away from satellite radio; these services are just a fraction of its appeal. The graph to the upper right, from Jacobs Media, shows that at least three of the top four reasons why Sirius clients subscribe are qualities that will still be exclusive to satellite radio even after HD radio emerges. With XM and Sirius in a unique market, this combination shows definite signs of a monopoly that should be prevented.

1 comment:

NSAreject said...

"In-Stat: Digital Radio Set to Take Off"

"In 2006, 73 percent of respondents to an In-Stat U.S. consumer survey were aware of HD Radio on some level."

"Sirius, XM, and HD: Consumer interest reality check" (Alexaholic)

"While interest in satellite radio is diminishing, interest in HD shows no signs of a pulse."

This just confirms, the lack of interest for HD Radio, on Google Trends:

HD Radio/IBOC is dead.