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July 9, 2007
By Edwin Meese III and James L. Gattuso
Ronald Reagan Distinguished Fellow in Public
Policy and Chairman of the Center for Legal and
Judicial Studies, The Heritage Foundation
James L. Gattuso
Senior Research Fellow in Regulatory Policy,
The Heritage Foundation
Applications of Sirius Satellite Radio Inc. and
XM Satellite Radio Holdings, Inc. for Consent to
Transfer Control MB Docket No. 07-57
Submitted to the
Federal Communications Commission
July 9, 2007
In accordance with the Public Notice issued by the Commission on
June 8, 2007 we respectfully submit these comments on the
applications of XM Satellite Radio Holdings Inc. and Sirius
Satellite Radio Inc. for consent to transfer control of licenses in
connection with their proposed merger. We believe that the proposed
merger is consistent with the public interest, and the Commission
should grant the applications.
Sirius and XM won their licenses in an FCC auction 10 years ago
and began offering service in 2002 and 2001, respectively. Growth
has been rapid, with combined subscribership nearing 14 million
last year. But despite this growth, the firms have struggled
financially. The cost of launching and maintaining satellites and
other infrastructure is high; as is the cost of programming (Howard
Stern alone costs Sirius some $100 million per year.) Neither XM
nor Sirius has ever made a profit - Sirius lost $1.1 billion and XM
$719 million, in 2006 alone.
By merging their operations, XM and Sirius hope to improve this
financial performance. Among the benefits they foresee: accelerated
development of new technologies as research budgets are combined
and increased variety of programming due to increased channel
capacity. In addition, the firms predict they will save $200-$400
million in costs. Of course, none of these benefits are guaranteed.
In dynamic markets, no particular outcome is ever certain. Nor
should it be - whether a particular business plan works is best
determined by consumers in the marketplace. The Commission's duty is to
determine whether a proposed transaction is inconsistent with the
public interest. Because of the dynamic competition in the audio
entertainment market, there is little or no possibility of such
harm from this proposed merger.
This January, the National Association of Broadcasters filed
comments in the Commission's Quadrennial Regulatory Review
proceeding declaring that "…there can be no reasonable doubt
that the current media marketplace is robustly competitive, and
indeed exploding at the seams with consumer choices for both
delivery mechanisms and content."It was right. Consumers today
can choose among terrestrial radio, satellite radio, and -
increasingly - Internet-based radio programming Excluding Internet
programming, XM and Sirius account for only 3.4 percent of total
radio listenership. Moreover, other forms of audio
entertainment compete for American ears. In fact, i-Pods and other
MP3 devices, which have grown phenomenally in recent years, may be
the biggest challenge to radio of any kind.
Critics of the XM-Sirius merger, however, have argued that this
competition doesn't count. Satellite radio, it is argued, is so
different from these other alternatives that it is really a
separate market all to itself. But is the satellite radio business
really that distinct? To consumers, after all, radio is radio. They
don't care how it gets there. Certainly, there are differences -
terrestrial radio has more local programming and is free, while
satellite radio is more specialized and is subscription based. But
these differences do not mean that the two industry segments
operate in separate markets. Instead, they are simply alternatives
within the market from which consumers may choose. Such differences
are not at all unusual in a healthy marketplace. In fact, rather
than preclude competition between the segments, they foster it.
Critics have also argued that if competition does exist between
satellite radio and broadcast radio, it is on a "one-way" basis.
Specifically, they have argued that XM and Siriuscompete with
traditional radio in local markets, but that traditional
radio doesn't compete with satellite for national
programming. However, while broadcasters transmit signals locally,
national programming - through networks and syndication - is
commonplace. Critics also argue that competition is uneven because
satellite radio is subscription-based and - unlike broadcasters
whose ad-revenue depends upon ratings - doesn't lose money unless a
customer drops his or her subscription. But does satellite radio
really have a lock on consumers? A radio subscription isn't like an
electric bill; few consumers see it as a "must-have". If radio
broadcasters provide enough of what they want, subscribers will
The merger of XM and Sirius will not harm the public interest.
Satellite radio is just one of an increasing array of audio
entertainment choices available to Americans. Rather, the
transaction offers a number of potential benefits to consumers, and
increases competition. The Commission should not block this
Edwin Meese III is
a Distinguished Fellow at The Heritage Foundation, where he holds
the Ronald Reagan Chair in Public Policy. James L. Gattuso is Senior
Research Fellow in Regulatory Policy in the Thomas A. Roe Institute
for Economic Policy Studies at The Heritage Foundation.
this reason, the Commission should refrain from imposing any
conditions on the proposed merger imposing price or service
Reply Comments of the National Association of Broadcasters "2006
Quadrennial Regulatory Review-Review of the Commission's Broadcast
Ownership Rules and Other Rules Adopted Pursuant to Section 202 of
the Telecommunications Act of 1996", , MB Docket No. 06- 121, at 34
(filed Jan. 16, 2007).
"Arbitron: Satellite Radio Accounts For 3.4% Of All Radio
Listening," RadioInk.com (http://www.radioink.com/HeadlineEntry.asp?hid=137022&pt=archive).
See, Remarks of David Rehr, National Association of Broadcasters,
National Press Club, October 4, 2006, p. 5 ("Who are our newer
competitors?. On the radio side, we have satellite radio, Internet
radio, iPods, other MP3 players, cell phones and others. How will
In accordance with the Public Notice issued by the Commission onJune 8, 2007 we respectfully submit these comments on theapplications of XM Satellite Radio Holdings Inc. and SiriusSatellite Radio Inc. for consent to transfer control of licenses inconnection with their proposed merger. We believe that theproposed merger is consistent with the public interest, and theCommission should grant the applications.
Edwin Meese III
Ronald Reagan Distinguished Fellow Emeritus
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James L. Gattuso
Senior Research Fellow in Regulatory Policy
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