I Want My Sirius-XM

by publius

I was happy to see that, after approximately 50 years of regulatory review, the Sirius-XM merger finally got approved. It was a little absurd, frankly, that it was even controversial. Just call me Grover Norquist on this one.

The strongest objection to the merger — raised primarily by broadcasters (more on them in a sec) — was that it would create a monopoly. But what makes a monopoly is not so much the existence of a single provider, but whether that provider has the ability to screw you over in certain ways (e.g., raise prices, suppress output). Here, the new company won’t have that ability. And I don’t think it’s a close question.

Unlike true monopolies, the new Sirius-XM will face substantial competition. Take cars for instance, which is satellite radio’s strongest area. When you get into your car, you have several music choices. You can listen — for free — to terrestrial radio, eagerly anticipating the next Katy Perry song. Or, you can play your own music (CDs, iPods). Or, you can purchase satellite radio. If satellite radio suddenly, say, doubled its price, then the other options would look comparatively better.

That’s why the broadcasters’ argument was so misguided. They claimed the new Sirius-XM would face no competition, but that’s obviously false. In fact, the whole reason broadcasters cared in the first place was because they compete directly with Sirius-XM. If terrestrial radio weren’t so god-awful, there wouldn’t be a need for satellite radio.

Plus, the demand for music is not exactly inelastic. If the cost of music suddenly quadrupled, I’d survive without it (I already have Thriller anyway). If, by contrast, the cost of water or electricity or broadband quadrupled — well, that’s a different story. The demand is much less elastic — you gotta have that stuff regardless of how much it costs. That’s why the competitive concerns raised in the broadband access context don’t have much relevance here.

But to step back, the real reason I’m so annoyed is because broadcasters were involved. It’s not too much to say that broadcasters — particularly, NAB, their trade association — are a force for evil in the communications world. Their primary skill is blocking — or delaying for decades — the emergence of cool new technologies (see also, The History of Cable Television).

For instance, they’ve been sitting on top of beachfront spectrum for decades, blocking attempts to do anything more productive with it. Maddeningly, a lot of them don’t even use it. It’s criminal how much spectrum sits idle on a daily basis, particularly in rural areas.

Even though they have to give some spectrum back after the digital transition, they’ll still have tons of awesome spectrum. And that’s particularly absurd since only a sliver of the population still relies on over-the-air broadcasts.

It’s really a question people should ask more often — why do we allow broadcasters to have any spectrum? Why not just take it away from them? If they only care about keeping it for must-carry rights, then grant them the frickin’ must-carry rights and boot them from the spectrum.

But anyway, merger good. NAB, bad.

Comments

[freelunch]

I think that competition within satellite radio would have been good for the segment in the long term, but I can see how the losses incurred to date and the high fixed cost of the product combined with surprisingly strange bidding wars (there certainly wasn't anything they offered that persuaded me to consider subscribing) persuaded the two companies that they would be more likely to survive or prosper as a single company than separately.

Who would ever guess that an industry trade association could be up to no good. It's almost as if they are legal cover for those who are coming together to engage in criminal conspiracies. I would strongly recommend that Mr. Fitzgerald be given a job in the Obama administration investigating how many crimes the NAB, RIAA, MPAA, and other such trade associations have engaged in over the past few years. I'm sure they will keep him busy until he is ready to retire.

[Adam]

Rather than taking it away it could just be regulated as a commons -- spread spectrum technologies and standards could be developed that would let secondary users transmit on the spectrum while idle without interfering with primary uses. There are also plenty of technologies that allow low-level transmissions that wouldn't interfere with high-intensity transmissions on the same band.

Powell tried to push this (commons usages) in the FCC a few years back but it never really goes anywhere, because there's no natural constituency -- or at least none as powerful as the broadcaster lobby, which gets support from other telecom giants too.

[publius]

no adam -- you've just lost your head this time. it must be taken, with force, and their still beating hearts must be handed to them. that's the only way i'll get subjective satisfaction. :)

[Adam]

Hey, we could set up a pirate radio station!

[Bruce Baugh]

Interesting to read this the very day I tried out Sirius' internet radio option, got hooked, and subscribed.

[Phil]

Meh, it's academic to me. I cancelled my Sirius subscription in May after three years, partly because I didn't like this upcoming merger, partly because I felt like they were starting to limit the playlists on their channels just as severely as terrestrial radio does. (Hey, classic rock channel: Everybody on Earth has heard "Won't Get Fooled Again" about 10,000,000 times now. How about a deep cut from, like, "It's Hard" or "The Who Sell Out?")

[Gromit]

As it happens I cancelled my Sirius subscription just this morning. My iPhone let's me get Internet radio in the car now, including customizable services like Pandora. I can put the monthly subscription toward my gargantuan phone bill now.

[Jon]

Publius, you're a really smart person, but you've let your thinking about the terrestrial broadcasters lead you into an unsupported place here. You show that there's some substitutability between satellite radio and other ways of getting music. Sure. I listen to Sirius *and* terrestrial radio *and* recorded music in my car, and if Sirius were so expensive that I stopped buying it, then I would listen to more of the others. At the same time, there's only limited substitutability (we know that here because people are willing to pay much more for satellite radio than they are for terrestrial). So this is like a whole lot of markets in which there's significant substitution coexisting with significant market power. Think about, say, luxury cars: if every automaker in the world agreed to sell the portion of its business relating to cars costing more than $40,000 to a new MonopolyLuxuryCarCo, that entity would have significant market power, even though consumers could still buy cheaper cars in a competitive market, and even though that fact would have * some * constraining effect on the monopoly's prices.

In this case, the Sirius-XM merged entity won't be able to exploit its market power by raising prices; the merger conditions forbid that. So the main effect of the merger will come from the lessened quality competition -- Sirius and XM will no longer be trying to make their services more attractive so as to woo customers away from each other. The merged entity still has to make its product attractive enough so as to justify the price premium over other forms of music delivery. It can approach that problem, though, from the same perspective as any monopolist selling a nonessential good, where keeping prices constant but lowering costs and quality will cause some users to drop away and still increase profits.

There may well be justifications for this deal; I haven't really been following it all that closely. Maybe absent the deal one or both of the companies would fold; I dunno. But the new company *will* have increased ability to screw you over.

[Nombrilisme Vide]

Unlike true monopolies, the new News Corp Fox-CNN-MSNBC will face substantial competition. Take television for instance, which is cable news' strongest area. When you turn on your TV, you have several news choices. You can watch — for free — terrestrial news, eagerly anticipating the nightly news broadcast. Or, you can play your own news (DVDs burnt from online broadcasts, vlogs, and slideshows of blogs and newspapers). Or, you can purchase cable news service. If cable news suddenly, say, doubled their price in channel packages, then the other options would look comparatively better.

That’s why the bloggers' argument was so misguided. They claimed the new News Corp Fox-CNN-MSNBC would face no competition, but that’s obviously false. In fact, the whole reason bloggers cared in the first place was because they compete directly with News Corp Fox-CNN-MSNBC. If broadcast and online news weren’t so god-awful, there wouldn’t be a need for cable news.

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Which is to say, regardless of your overall conclusion, this particular argument is beyond spurious.

[publius]

NV - seems right to me. Are you suggesting the government should step in and stop a merger between MSNBC, CNN, and Fox News?

Media ownership of broadcast stations would be a better argument for you, not the cable networks.

(I'd like the style of the comment though -- well done)

[low-tech cyclist]

It’s really a question people should ask more often — why do we allow broadcasters to have any spectrum? Why not just take it away from them? If they only care about keeping it for must-carry rights, then grant them the frickin’ must-carry rights and boot them from the spectrum.

Hell, even require cable companies to give free access to the must-carry TV stations, in return for their near-monopoly position. Then - in urban areas at least - TV broadcasters would have no need of their spectrum.

[Nombrilisme Vide]

Fair enough, it's an imperfect analogy. Let me try again, albeit with less flair. Your argument is analogous to a claim that, should Microsoft's next OS refuse to run any web browser but Internet Explorer, it wouldn't be monopolistic, because people would be free to switch to Linux or Mac for their web browsing needs. Or since I can run a generator out behind my house, or throw up some solar panels, the municipal power company isn't really a monopoly.

The existence of somewhat similar alternative technologies to a given technology does not mean that unary control of said technology wouldn't be a monopoly. It may be a desirable monopoly from the consumer's standpoint, but it's no less a "true" monopoly. The reason it should be tolerated would be because the market structure is ill-suited for numerous competitors, not because it isn't "really" a monopoly.

(Honestly, I'd not have gone picking at nits had you not opted to throw in playback of recorded music. CDs != broadcast/satellite radio. Rather different animals, particularly since radio is more than just music.)

[Sidgwick]

After several strongly worded letters to Sirius about its use of the name "Patriot" for the wingnut station, I left it. Wherever I can I try not to encourage the right wing's theft of patriotism (or "patriotism") and the Flag.

[Mike Schilling]

Hey, classic rock channel: Everybody on Earth has heard "Won't Get Fooled Again" about 10,000,000 times now. How about a deep cut from, like, "It's Hard" or "The Who Sell Out?"

One vote here for "Mary Anne with the Shaky Hands".

[Adam]

The existence of somewhat similar alternative technologies to a given technology does not mean that unary control of said technology wouldn't be a monopoly.

Likewise, the merger of two competitors within a single market does not create an anticompetition issue where that market has other suitable alternatives.

Within the satellite radio market, it might create inferior technology because Sirius and XM no longer compete with one another, but that's their problem, not the government's.

At this point you're merely splitting hairs over the definition of a "monopoly." A Microsoft monopoly over Internet Explorer is problematic because it's anticompetitive. The Microsoft monopoly over Windows is not necessarily optimal, but it's not anticompetitive.

[Nombrilisme Vide]

At this point you're merely splitting hairs over the definition of a "monopoly."

Like I said, it's nitpicking. But then, I wasn't the one quibbling about whether or not this was a "true monopoly". Publius should have been willing to buck up and called a cat a cat. Not all monopolies are undesirable, so there's no reason to run away from the word when it should fit, just because one's in favor of this monopoly. Satellite radio will be a monopoly, radio won't. And that's just fine.

...this still doesn't mean that CDs and iPods are a substantive alternative to satellite or terrestrial radio, tho'. That's just silly.

[Jon]

I'm a little surprised at the pushback to NV, since s/he's clearly correct here. The basic-cable-news analogy is imperfect for reasons that go to the nature of basic-cable money flows, so I'll try to construct a cleaner example. Imagine, for the sake of tidiness, that every cable (and DBS) TV customer bought premium cable channels a la carte, and paid the programming provider directly (so folks would pay Time Warner to get HBO, CBS to get Showtime, etc.). Now imagine that all of the premium movie channels merged. Does anyone disagree that the merged entity would have the power to charge a higher price than the competing premium cable channels had? How seriously would you take somebody who argued that the merged entity had *no* such power, because people still had the option of not subscribing to any premium cable channel, and watching their movies on terrestrial broadcast?

[hairshirthedonist]

My favoring or opposing this merger depends on one thing: how it affects the probability of realizing my dream of the creation of and access to "The Air Supply Channel."

[Adam]

Ah, I think I may have misunderstood where you were going with the Microsoft analogy, NV. mea culpa.