Will the XM-Sirius Merger Pass FCC Regulations?

I. Introduction

     On February 19, 2007 satellite radio rivals Sirius Satellite Radio and XM Satellite Radio announced their intention to merge. [1] Both companies have experienced billions of dollars in losses. [2] Their net debt is approximately $1.6 billion. [3] According to Wall Street equity analysts, this merger will help the financial future of both companies by cutting their costs and resulting in a savings of over $3 billion . [4] However, the two companies have major hurdles to overcome. One hurdle was antitrust concerns about the merger by the Department of Justice. [5] On March 24, 2008 the United States Department of Justice closed its investigation and approved the XM-Sirius merger, finding that the merger would not harm consumers or competition. [6] Still, the XM-Sirius merger has one more obstacle in its path – the approval of the Federal Communications Commission (FCC). [7] In order for XM and Sirius to receive approval of their merger from the FCC, under the License Ownership Restrictions the FCC must find that the merger is in the "public interest." [8] In determining whether or not the merger is in the public's interest, this paper will analyze the merger's effect on consumers and competition as well as evaluate if the FCC will or will not approve the XM-Sirius merger.

II. XM-Sirius Merger Benefits Consumers

     XM and Sirius Radio have cited the merger as an opportunity for their customers. Opponents like the National Association of Broadcasters (NAB) have not shared XM and Sirius's enthusiasm. Instead, the NAB has criticized the possible reduced program diversity resulting from the merger. [9] The NAB has cited that, historically, media consolidation has led to political and artistic homogeneous content. [10] However, XM and Sirius have attempted to rebuke this critique. The new merged entity focuses on the increased subscription terms and programming that their merger will offer. [11] For example, the company will allow consumers to choose channels they would like to receive on a la carte basis. [12] Furthermore, the new merged company will also create packages and programs to meet consumers' interests. For example, there will be two family friendly package options, which will block adult-themed programs. [13] Also, the merged XM-Sirius entity will expand programs to include foreign language and religious programming. [14] This will give subscribers more choices for individual programming preferences.

     The NAB has expressed its belief that the merger will create a satellite radio monopoly that would result in increased prices. [15] However, XM and Sirius have contended that the merger will provide lower prices to customers. Instead of the current standard subscription rate of $12.95 a month, XM and Sirius announced that they will offer eight different program packages post-merger. [16] One of these packages will allow customers to choose up to fifty channels for $6.99. [17]

     As a result of the increased program packages, subscription terms, and lower prices, the XM and Sirius merger appears to be beneficial to consumers and therefore, would likely benefit the public interest.

II. Antitrust Concerns

     XM and Sirius have also argued that their merger will not result in a monopoly. The NAB asserts that XM and Sirius are the only two subscription-based satellite radio companies. [18] Therefore, their merger will result in a satellite radio monopoly. [19] XM and Sirius stress that the NAB is looking at the impact on the market too narrowly, as the NAB needs to focus on the entire audio audio entertainment market. [20] XM and Sirius point out that in the entire adult entertainment network, which includes terrestrial radio, Internet radio, and Internet-protocol enabled applications like the iPOD, XM and Sirius play a small share in radio services. [21] For example, in satellite and terrestrial radio services only, XM and Sirius have less than a 4% share of radio services. [22] XM and Sirius have an even smaller share when Internet entertainment is included. [23] By looking at the entire audio entertainment market, the XM and Sirius merger does not appear to hinder competition due to its small percentage of services. [24]

   The NAB also points out that the FCC explicitly prohibited the merger. When the FCC issued its 1997 order authorizing satellite radio service, it stated "one licensee will not be permitted to acquire control of the other remaining satellite DARS license." [25] However, XM and Sirius point out that this statement was not codified in the Code of Federal Regulations, and therefore, the statement is not a binding FCC regulation. [26] Instead, XM and Sirius contend that this statement was merely a "policy statement reflecting the Commission's views" based on the adult entertainment industry at the time. [27] Since then, the options for adult entertainment have expanded with the introduction of iPODs and the popularity of internet radio. [28] Therefore, the FCC no longer has this goal and is not precluded from finding that the merger benefits the public interest. [29]

   Due to the expanding audio adult entertainment network the XM-Sirius merger will have little effect on the competition.

IV. Conclusion

     The FCC most likely will approve the XM-Sirius Satellite merger because it benefits the public interest. In the XM-Sirius merger, customers can expect increased programming and subscription terms as well as lower costs. Since XM and Sirius will save billions of dollars from the merger, they plan to transfer these savings to their customers by creating program packages, such as family-friendly packages and decreasing subscription costs.

     Although the FCC appeared to have prohibited this type of merger in 1997, the audio entertainment market has changed in the past eleven years. In 1997, when the order authorizing satellite radio was made, there were no IPODs, and Internet radio was not as popular as it is today. Also, the FCC was not sure of the effect of satellite radio on the audio adult entertainment market. Eleven years later, these fears of antitrust concerns have diminished, as satellite radio only constitutes 4% of the entire audio adult entertainment market. Therefore, this prohibition should no longer make or break the XM-Sirius merger. Since satellite radio makes up a small percentage of the audio adult entertainment market, it does not appear that the merger will have antitrust concerns. Instead, the FCC needs to focus on the benefits to the customers.

     Therefore, because of the benefits to consumers and the lack of antitrust concerns, the FCC will most likely find that the XM-Sirius merger benefits the public interest and will most likely approve the XM-Sirius merger.

[1] Press Release, XM Satellite Radio, Sirius and XM to Combine In $13 Billion Merger of Equals (Feb. 19, 2007) http://xmradio.mediaroom.com/index.php?s=press_releases&item=1423.

[2] A Sirius Deal with XM, 27 Licensing J. 27, 28 (2007).

[3] Press Release, XM Satellite Radio, supra note 1.

[4] Id.

[5] Ben Steverman, XM-Sirius: Is Merger Approval Imminent, Bus. Wk., Nov. 30, 2007, available at http://businessweek.com/investor/content/nov2007/pi20071130_459661.htm? chan=search.

[6] Paul Gluckman, FCC Order Nixed Sirius-XM Merger, NAB Memo Says, Commc'ns Daily (Warren Commc'ns News, Inc., Washington, D.C.) Feb. 27, 2007, at 1.

[7] Catherine Holahan and Arik Hesseldahl, Sirius and XM Get the Justice Go-Ahead, Bus. Wk., March 25, 2007, available at http://www.businessweek.com/technology/content/mar2008/tc20080324_503251.htm?chan=search.

[8] 47 U.S.C. § 310 (d) (2000).

[9] Gluckman, supra note 6, at 2.

[10] Id.

[11] Rick Boucher, Why the XM-Sirius Merger Makes Sense, Bus. Wk., Nov. 16, 2007, available at http://www.businessweek.com/technology/content/nov2007/tc20071115_361525.htm?chan=search.

[12] Id.

[13] Id.

[14] Id.

[15] Gluckman, supra note 6, at 2.

[16] Boucher, supra note 11.

[17] Id.

[18] Gluckman, supra note 6, at 2.

[19] Id.

[20] Id.

[21] Gluckman, supra note 6, at 2.

[22] Id.

[23] Id.

[24] Id.

[25] Satellite Radio Implementation Order, 12 FCC Rcd at 5823 170 (1997).

[26]  Consolidated Application for Authority to Transfer Control, Mar. 20, 2007, at 49, available at http://svartifoss2.fcc.gov/servlet/ib.page.FetchAttachment?attachment_key=-126018.

[27] Id.

[28] Boucher, supra note 11.

[29] Id.