Firstly the companies argue that the
monopoly issue can be ignored in this case out because they
are competing not only with each other but also as part of
an audio entertainment sector that includes not only advertising-funded
terrestrial radio but also Internet audio and downloads and
audio that can be played on portable players.
This argument in our view misrepresents the situation. Firstly
a prime reason for many subscribers to pay for satellite radio
is the avoidance of interruption from commercials. Thus, although
there is some degree of competition between the two sectors,
surveys indicate that - although the availability of terrestrial
radio may have a moderating influence on what the satellite
companies think they can charge, for most satellite subscribers
terrestrial is not really offering an alternative.
Score one against the merger.
Secondly: Other sources. If we assume the reason people
subscribers - who after all are the listeners who will be
primarily affected by a merger - choose Sirius or XM on the
basis of the mixture they provide of services including a
variety of news and comment and music without the commercial
interruptions, the other sources do not provide a one-stop-shop
ate a reasonable rate for these. True by searching the Internet
and subscribing to various services it may be possible to
put together a reasonably similar package, this is a little
like saying that because people could buy parts to put their
own receiver together a single supplier could reasonably be
allowed a monopoly of manufactured receivers. In terms of
the service people have chosen to subscribe to - and many
may well use other services as well - may indeed be spurred
to buy music by what they hear on their satellite radio -
the other sources do not provide a comparable product.
Score two against the merger.
Thirdly that the merger will mean the combined company
will provide a wider range of services. This argument might
well have been argued in a Stalinist state but in a market
economy it seems to us to be alien. If the executives really
think the evidence is that this is the likely result of a
monopoly in a sector.
Score three against the merger - and bring on the men
in white coats and straightjackets to take Karmazin and Parsons
for psychiatric evaluation.
Fourthly that the merger is necessary to preserve a
viable satellite radio sector in a period of rapid technological
development: This argument only stands up if graphs of the
progress of satellite radio show that both companies would
be fatally weakened were it not to be allowed. This argument
is being made at the same time that the companies say they
are into a positive cash flow from operations.
We accept that they have each had large losses in the past
but they are not relevant. The position in business terms
is that if the companies are into operating profit and still
growing subscriptions, then any administrator in bankruptcy
would find more value in keeping a company going than closing
it down and the customers' interest is in the latter. There
is no justifiable reason in a market economy for bailing out
shareholders who made a bad investment.
If of course this picture is not true, then the accounts provided
in companies' most recent quarterly financial reports are
Score four against the merger - unless the companies
actually are in dire straits contrary to their published accounts.
If the latter is true, reconsider but prosecute the companies,
their executives and their auditors and change the white coats
to orange suits for Karmazin and Parsons.
So what's left in favour? Well there's profit for investors
and big payouts for the executives but nothing substantial
for the subscribers.
As regards technological change, if the vaunted advance march
of WiFi and successors means wireless Internet will be seamlessly
available in automobiles -Do you really think this will apply
driving through across America? - then the companies have
a profitable content stream to sell to subscribers and they
would be able to do away with the expense of renewing their
satellites when their life expires.
We suspect that for the foreseeable future the reliability
of a continuous satellite audio stream will be marketable
in contrast to an unreliable WiFi service but whatever the
reality it does not mean that the merger can be justified
on these terms.
We conclude that that the arguments
in favour coming from the companies are spin and hype but
the merger would not benefit subscribers or would-be subscribers
as much as having two good quality competing services - who
have we would note pitched their services as being different
and thus presumably have staff whose culture is different.
The merger unless all the points made above can be contradicted
with sound arguments -not PR spin - should be rejected and
ideally Karmazin should end up looking like an omelette.
The only argument we've seen for the merger that really stands
up was the reaction of the National Association of Broadcasters
in opposing it. But we're not suggesting ordure on Karmazin-
leave that for The NAB- eggs will do for him.