Sirius satellite radio boss Mel Karmazin expressed impatience in January with how long it was taking the Federal Communications Commission to rule on the proposed merger of Sirius with rival XM. Karmazin finally got good news this week when FCC chairman Kevin Martin issued a statement indicating he would support the merger.
The bad news for Karmazin is that Martin's support comes with a list of challenging conditions a merged company would have to meet. Even with Martin's support, the merger is not a foregone conclusion. He will need at least two more members of the five-member FCC to join him in the merger decision. Leading Democrat at the FCC, Michael Copps, has said approval "has a fairly steep climb." A final decision is expected in a couple of weeks.
The merger was proposed in February, 2007 as a way to keep Sirius and XM from financial ruin. Neither company has ever turned a profit in six years of operation. Combining the services was designed to save money, and perhaps, the satellite radio industry altogether.
Ever since the merger plan announcement, opponents have swarmed the FCC with protests that a merger would eliminate competition in satellite radio. Consumer groups, terrestrial broadcasters, powerful Congressmen, and a group of state attorney generals, among others, have voiced disapproval. They all expect the FCC to deny the merger.
At the very least, they want any merger go-ahead conditioned on a long-term price freeze to protect consumers from monopolistic costing. They also want channel set-asides for special interest programming. They want a la carte pricing, so subscribers can just pay for channels they actually might use. These conditions, in some form, are all in the Martin approval plan.
XM and Sirius combined only have about 18 million subscribers nationwide. The implications of the FCC decision, however, are broader than what happens to those relatively few listeners.
First, the decision will tell FCC watchers a good deal about how the commission defines accountability. When the FCC gave the go-ahead to create satellite-delivered radio programming ten years ago, it specifically prohibited the two competitors from ever merging. The satcasters now expect the FCC to overlook that minor detail. The FCC told the satellite radio providers at the time of licensing to create radios that could receive either service, so subscribers could switch between the competitors without having to buy separate equipment. That has yet to be accomplished. Martin now expects these interoperable receivers to be available within a year of the merger, even though the satcasters have not met that commission requirement over many years.
There have been problems with receivers not complying with FCC engineering standards. Satellite radio repeating towers have caused interference with regular radio signals in some urban areas and have been located in places not approved by the FCC.
If, as Dr. Phil says, the best predictor of future behavior is past behavior, the FCC should not expect a merged satellite industry to effectively meet any conditions that would be imposed. A consumer group opposing the merger recently blasted both companies, calling into question "the truthfulness and candor of both Sirius and XM with respect to their dealings with the commission." No doubt, if the FCC approves this merger, it will have many headaches, constantly babysitting to make sure the company complies with the imposed conditions.
Then, there is the matter of whether the FCC should be propping up companies whose difficulties are the result of those companies' own poor business performance. A merger amounts to a government bailout. XM and Sirius spent big money on high-priced celebrities and got little subscriber growth for the effort. Oprah is in the midst of a three year, $55 million deal with XM. Howard Stern gets $100 million a year from Sirius. There are expensive deals with the likes of Martha Stewart and Bob Dylan. Both companies have emphasized acquiring subscribers through units installed in new cars, but are now hurting as car sales struggle. XM's high profile Major League Baseball contract is reported in jeopardy because XM is having trouble meeting the contract's escrow requirement. Investors have remained unenthused as stock prices sag for XM and Sirius, both down a third from 2007 highs.
It is sad to see the once-promising satellite radio industry in such a state. The industry provides great content for music lovers, sports fans and others, but a merger of two under-performing companies won't necessarily help from the engineering or business side of things. Even with a temporary price freeze, consumers will eventually be vulnerable to cost hikes in what will generally be an anti-competitive environment. |
