XM Radio Is in Sirius Trouble

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XM Satellite Radio and Sirius Satellite Radio have long been flirting with the idea of merger. The time has finally come. After years of both companies showing no profits, the two satellite entrepreneurs have decided to mold their companies together and master their financial problems.

There’s just one serious problem. The FCC feels that this merger will create an unfair monopoly dangerous to consumers. Further exacerbating the problem is an agreement Sirius and XM were coerced into signing in 1997 with the FCC to remain separate entities in order to prevent monopoly and promote competition. Without this agreement, they would not have been allowed to continue their visionary enterprise.

The FCC would like to stop this "monopoly" from occurring. Certainly just by coincidence, The National Association of Broadcasters composed of AM/FM radio stations have lobbied to stop this horrendous merger that would surely victimize consumers.

XM has really put its foot in its mouth. They have already made antitrust agreements long before the issue arose. XM and Sirius don’t have other competitors in satellite, but they are obviously in competition with other companies.

Look no further than the National Association of Broadcasters for the competitors. Consumers have other options including AM/FM radio stations. Further, the entire radio industry faces competition from portable music such as iPods.

The competition from other mediums for music such as iPod or internet has led to a decline in the overall radio broadcasting industry. The main competition facing regular radio is hardly satellite. Both satellite and terrestrial radio stations are together competing against other mediums.

This decline in overall radio can be seen in the incomes of Cumulus, Citadel, and Cox Radio. Almost no radio station companies are showing positive net income. The only ones that are truly profitable are diversified companies branching into other media such as Clear Channel Communications.

The radio stations are being out-competed by other digital music formats. Yet, these companies claim there is "danger" from the merger of XM and Sirius. It’s time to diversify and innovate or die out. XM and Sirius are doing worse than any other major radio competitor.

By previously agreeing not to merge, the companies have set themselves up. Their next problem is their lack of political influence. XM’s campaign financing contributions for the 2006 cycle were only $32,200 dollars. The political interest group competition from National Association of Broadcasters has given a total of almost a million dollars.

Companies like Microsoft quickly find out what happens when you don’t give pay offs to politicians. Antitrust laws are not passed in any fair or logical way. After Microsoft’s antitrust case, Microsoft’s political financing skyrocketed. When the case, United States v. Microsoft, was filed in 1998 Microsoft was only spending $267,500 toward politicians. By 2000, Microsoft had learned their lesson and began spending 1.2 million dollars in contributions. Almost 5 times more than before the case!

The question is political influence. When the scales of campaign financing lean against the satellite merger, the outcome looks gloomy. Common sense shows the competitors with the satellite radio companies. We don’t need a trial to determine the competitors. It’s a waste of taxpayer money. We already know there are competitors! Antitrust lawsuits are more or less advance auctions on next year’s campaign financing. Threaten an industry and then watch the money pour into campaign coffers.

It’s still remarkable to imagine antitrust being imposed on two new companies showing major losses. Of course there aren’t more satellite companies. This goes perfectly along with economic theory. When an unusual profit is made in an industry, more entrants arise in order to take part in that profit.

XM and Sirius are the only two competing satellite companies who are both showing losses. No new entrants will likely emerge until these companies can show that a profit can be made with satellite radio. This case really doesn’t get anymore textbook. No profits equals no new willing entrants.

The question at hand is only a matter of political influence decided during a mock antitrust hearing. XM is very aware of the game that they’re playing. In 2004, they spent only $3,000 on political contributions. Their new spending is ten times this number. I think XM and Sirius are far underestimating the political strength of the National Association of Broadcasters. XM knows the game they’re playing; they’re just not playing the game well enough. A million in the hands of politicians would have done them a lot more good than improving their broadcasting capabilities and quality.

Antitrust law throws economics out the window. This is a matter of politics. And in the world of politics, XM and Sirius have serious catching up to do. Logically proving that you’re not a monopoly is futile.

It’s obvious that these companies are not a monopoly by constantly competing with radio and other media showing constant losses from their very beginning. XM and Sirius advertise as having little to no commercials. If they felt that they were not competing with traditional radio, why would they advertise this aspect?!

In fact to take these companies through this process is accusing them of being guilty until "proven" guilty or a sizeable pay off is given to the political sphere. Using antitrust laws to slam down two failing companies desperately attempting to create a profitable innovative service for consumers is a blatant and disturbing display of what antitrust law really means, coercion and intimidation.

Vedran Vuk [send him mail] is a student of Economics at Loyola University of New Orleans, and a 2006 Summer Fellow at the Mises Institute.

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