Wednesday, March 26, 2008

Wrong Again! Where’s Van Morrison When You Need Him?



XM, Sirius Move Closer To Improbable Merger
Justice Department Approves Joining Radio Companies; FCC Poses the Final Hurdle


By SARAH MCBRIDE and AMY SCHATZMarch 25, 2008; Page B1

The Justice Department approved the merger of satellite-radio companies Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc., leaving one more major regulatory hurdle -- the Federal Communications Commission -- before a deal that was given little chance of success a year ago can be completed.

—The Wall Street Journal

In our continuing look-back at previous efforts to Not Make Things Up, we can’t help but include what we got wrong along with what we got right, all efforts to shade our batting average to the good aside.

And a prediction we made almost exactly one year ago—that the Sirius/XM merger effort would come to naught—looks about as wrong as you can get.

It is hard to fathom what the Justice Department looked at in reaching the conclusion that the two companies “simply do not compete” in “several important areas,” including this howler from Thomas Barnett, the assistant attorney general for antitrust:

At retail outlets like Best Buy and Circuit City, where consumers can choose one service or the other, he said investigators couldn't determine that customers were limiting their decision to just the two companies and not also choosing among other audio-entertainment options.

Precisely what “other audio-entertainment options” a consumer is going to “choose” for one’s automobile when shopping at Best Buy is not clear—unless Best Buy now offers, say, Van Morrison to ride with you and sing “Brown Eyed Girl” while you commute.

In any event, here’s how we looked at it not much more than one year ago:


Monday, March 12, 2007

No Thought Experiments for Mel

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, i.e. 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.

© 2007 Not Making This Up LLC


Jeff Matthews
I Am Not Making This Up

© 2008 Not Making This Up LLC

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. The commentary in this blog in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.

12 comments:

Neal said...

You cannot rule out the IPOD as legit competition to satellite.

Stock Market Beat said...

I think the fact that terrestrial radio was the primary opponent to the deal shows that they are the real competitors. Maybe they shot themselves in the foot by complaining?

RMK said...

They're called iPods and MP3 players. Check one out sometime. You can actually hook one up to your car stereo and listen to thousands of your favorite songs right in your car - I'm not making that up! Oh, and let's see, there's also something called old fashioned terrestrial radio - which used to have the monopoly before any satellite option came along, nevermind two satellite options. Then there is HD radio in many big cities now...oh and don't forget the arrival of broadband capable portable wireless devices that will be able to stream audio from the web into your car stereo...that actually was mentioned by the FCC in their report. (I don't think the live Van Morrison option was considered however.)

jimmy105 said...

Jeff, I thought they already let Clear Channel buy up all the terrestrial stains, or at least the ones that anyone listens to.

Mark said...

I think the reality behind this decision is twofold:

1) Without a merger, they'd BOTH be out of business, and then you'd have ZERO "non-video" competition (other than recorded music) for terrestrial radio... Would that be better?

2) A lot of people think two competing services lets Howard negotiate to make too much money!

Mikhail said...

As much as I love reading the thoughts on this blog, the conclusions here sure seem made up.
Every driver out there has an increasing number of music options while driving, such as MP3 players, terrestrial analog radio, terrestrial digital radio and increasingly, cell phones with high speed connections allowing streaming of music and video.

You might also want to address why is NAB so worried about this supposed monopoly. If it's a monopoly, the consumers are the only "victims" here and it has nothing to do with NAB. Unless, of course, this creates a better competitor to terrestrial radio, which in turn means that we do not have a monopoly here. I hardly think that NAB is so altruistic as to go out of the way to protect consumer interests just because they got extra lawyers around. By throwing Clear Channel as a comparison point into the mix, the argument of "monopoly" is undermined even more.

Finally, the Clear Channel thought experiment is quite interesting. Can we have a Fact Experiment as well? In the past 10 years, has the number of radio stations by Clear Channel and the rest of the top three companies increased or decreased? Yes, that's a leading question. Clear Channel might not be allowed to have ALL of the market, but certainly there is quite a bit of tolerance for their expansion. And again, XM/Sirius are not allowed to have the entire market of music deliver to your car.

Oh, and while we are making up ridiculous examples, don't you think you should consider whistling to yourself an option as well?

Spam_vt said...

You can choose plenty of other music options at Best Buy or Circuit City. You can buy a ipod and hook it up to your car. You can buy a zune and get the $15/month music subscription. You can even buy (gasp) physical CDs. XM and Sirius are selling the product of music, and they are definitely not going to get a monopoly on music. The satellite part is just the medium for providing that product.

I am an XM subscriber, and I am really hoping the merger goes through. Everyone seems to be having the same reaction of "OMG - a monopoly! Monopolies are bad!" But I think the "monopoly" would be good in this case. Monopolies are desirable if the cost of infrastructure is too high to support two competing companies. Right now, both companies are loosing a lot of money and it doesn't look like they will be able to turn a profit in their current states. If they both go out of business, we'll have 0 satellite radio choices instead of 1. A merged company would have a better chance at reaching profitability (and continuing to provide radio service).

Also, I would like to have access to Sirius's channel lineup without paying for another subscription. I want to be able to listen to NFL and MLB games on the same system. Imagine two competing cable companies which offered near-identical channel lineups for the exact same price, except one was missing ESPN and the other was missing CNN. I wouldn't consider that to be competition that benifits the consumer.

Jim said...

"Precisely what 'other audio-entertainment options' a consumer is going to 'choose' for one’s automobile when shopping at Best Buy is not clear..."

Seems pretty clear to me. I googled "mp3 auto best buy" and got this page as the very first result. A similar search yields a page for HD Radio. Heck, if you feel you simply can't choose, you can have all three at once!

And I wouldn't be the least bit surprised to see Internet radio end up in cars. (Currently, it looks like the closest thing is an iPod-like device that stores pre-recorded Internet radio stations.) In-auto DVD players are now commonplace, so I'd think that an "iRadio" won't be too far behind.

Randy said...

I think both companies are jumping through hoops trying to say they won't be a monopoly, when clearly they will be. But that doesn't mean that this merger won't be hugely beneficial to consumers. I'm a Sirius owner, and when I look at a new car that wants to shove a built in XM unit down my throat I almost puke. A merger means I don't have to care which unit I get, I'll still have access to my favorite programming. Not sure why the FCC just doesn't make them freeze their rates (which they can easily due with the elimination of overlap and competition for programming) to ensure consumers aren't "harmed", and step out of the way. But I guess the problem is that consumer groups that claim to represent me and other customers want to control what programming is offered, and Jesse Jackson wants a payoff, and terrestrial broadcasters want to hobble the service so it's less competitive, etc, etc, etc.

Ludlow said...

Sure, right now the Sirius/XM offering is so lousy that terrestial radio or an IPod is functionally equivalent. But just think - as technology improves and we develop the ability to uplink to satellites, the combined company will have zero competition in the best and most efficient global communication service on the planet. Using federally protected wavelengths. With zero competition. Why would anyone (other than an investor) possibly want to turn this industry into a monopoly?

Mikhail said...

"Ludlow said... Sure, right now the Sirius/XM offering is so lousy that terrestial radio or an IPod is functionally equivalent. But just think - as technology improves and we develop the ability to uplink to satellites, the combined company will have zero competition in the best and most efficient global communication service on the planet. Using federally protected wavelengths. With zero competition. Why would anyone (other than an investor) possibly want to turn this industry into a monopoly?"

Ludlow, you might have missed the part where we have 3G cellphone networks that are finally growing and INHERENTLY have an upload capability that will always be far beyond anything a satellite system can handle. Recent additions to the services have not only TV on the telephones, but also radio stations. The argument about future monopoly does not hold water any more than about current monopoly.

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