If Terrestrial Radio Broadcasters Don't Compete With Satellite Radio... Why Are They So Concerned With The Merger?

from the you've-got-some-explaining-to-do dept

We've talked about the debate concerning whether or not XM and Sirius should be allowed to merge a few times. Those who are worried about it creating a monopoly seem to ignore the fact that the market isn't for "satellite radio" but for audio entertainment -- which goes well beyond satellite radio to things like terrestrial radio, HD radio, iPods, podcasts and much, much more. It seems like a no brainer. However, there's almost no way to make sense of the testimony of David Rehr, President of the NAB, to the House Judiciary Committee on why the merger should not be allowed. He starts out by saying that the merger would create a monopoly. However, if that's true, then it's not clear why he's an interested party at all. He's there representing the terrestrial radio broadcasters -- and the more that he complains about this merger, the more that it sounds like those broadcasters absolutely do view the satellite radio companies as direct competition. In fact, the terrestrial broadcasters have publicly admitted that they face strong competition from satellite radio. If those broadcasters are so worried that the satellite radio firms would "abuse" their so-called monopoly position to raise rates, then wouldn't that represent a huge opportunity for terrestrial radio to win back listeners?

In the meantime, we're still wondering how the NAB can say with a straight face that satellite radio doesn't compete with terrestrial radio, while at the same time demanding a relaxation of media ownership rules and using satellite radio as an example of why old media ownership rules no longer apply. That NAB page says: "The FCC should relax unreasonable ownership restrictions on the media. Broadcasters believe that these decades-old rules should be updated to reflect the dramatic changes in the media marketplace, including the growth of cable TV, satellite TV and radio, and the Internet." So, apparently, satellite radio is competition when it comes to media ownership... but not competition when it comes to mergers?

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  1. identicon
    Rainy Day, 1 Mar 2007 @ 10:15am

    Sat Radio Merger

    There are a few facts that have been ignored here.

    First, related to a car company buying one or both of the Sat Radio companies: XM only has a contract with GM, and I don't think anyone has a contract with Sirius. The FCC has ruled, as part of the licensing agreement, that any company that signs a contract with one of the service providers, must sign with the other one as well. So the competitor service can demand any terms they want. GM has a contract with XM because that deal was done before the FCC made their ruling, and was grandfathered in.

    Second, the FCC got caught with their pants down when the gave away the broadcast frequencies to the Sat Radio companies. Normally, broadcast frequences require a license fee. There was talk at the time that the frequencies should be auctioned, but the FCC chose to give them away (giving up what was valued at millions of dollars of revenue) so the FCC could mandate things like competitive services. The FCC has held all the cards in this game, and has misplayed many of them. Part of the competitive requirement is that by the 3rd generation of receivers the systems must be compatable, like FM and AM are both compatable with all radios today. That doesn't mean they must use the same chip sets, just that radios must be able to receive both. We are currently about half way through generation 2. The idea of forcing a competative balance was supposed to be in the consumer's best interest. So if the FCC now says a merger is OK, then they must admit that the competitive thing was wrong, and they got screwed out of license fees.

    As a result, this merger is much less about the SEC approval and much more about FCC approval. It is possible that the FCC could pull the broadcast licence if the two merge as a result of breach of contract related to competitiveness.

    I still think that some high priced lawyers can make comelling arguements for the merger, but I hope it doesn't happen.

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