In an Exparte filing with the FCC, the Consumer Federation, Consumer Union, and Free Press stated once again that they still oppose the merger. The filing states that even after review of all of the documentation filed that they remain of the opinion that the merger is bad for consumers.
The letter which was written on November xx, 2007 (yes, that is how the letter was dated) was published on the FCC website today, and states that even with all of the various filings, that nothing in their opinion has changed
Some Interesting Components Of The Letter
1. They state, that this is a “merger to monopoly”
The NAB type phrase fails to consider that it is the Department of Justice, and not consumer groups that determine whether or not a monopoly will exist. Further, these consumer groups must realize that the audio entertainment landscape has changed and includes many competitors. Consumer Reports The magazine published by Consumer Union, categorized satellite radio along with dowloadable tunes in their “Gear Up For Electronics Gift Giving” for December of 2005. Even the Consumer Reports buying guide for iPods & MP3 players lists not only satellite radio, but cell phones as well. Clearly Consumers Union sees that there is crossover in the audio entertainment sector.
2. They state that the proposed a-la-carte offerings are ill defined, deceptive and do not state a duration for which this type of programming will be offered.
Did they review the filings that they claim to have considered in rendering their opinion? The FCC filings CLEARLY outline the a-la-carte programming packages as well as price points. How could this group have failed to see the pricing plans. They were published everywhere!
3. They state that nothing in the proposal will protect artists and retailers from the exercise of market power.
First, the market needs to be defined. The Department of Justice will make that determination. Second, artists are compensated from airplay on satellite radio. The rates at which artists are compensated is not part of the merger process. These rates are being determined in arbitration which will set rates for the coming years. Certainly consumer groups who are watching out for consumers are familiar with the royalty issue. There is even legislation before congress regarding performance rights. Additionally, what protections do companies such as Sirius and XM have from the artist groups and record labels? Why should they get a cut of revenue from content such as Stern, Oprah, Martha, MLB, or the NFL? As things stand now they are getting a cut. Wouldn’t a pay per performance system be the fair way?
4. They state that satellite radio is a clearly identifiable product in a market with high barriers to entry and only two competitors.
Satellite radio is indeed a market. It has a niche withing the overall audio entertainment sector. The latest song from U2 is the same on terrestrial radio, CD’s, cell phones, iPods, and Internet radio. The cost to start a satellite radio company is expensive. However, companies such as Slacker are finding ways to deliver content via satellite by leasing space. This brings down the cost of entry. Further, the competitive landscape in the near future needs to be considered. Already cell phones carry streaming content on a national scale. and with the 700mgz spectrum coming up for auction, the landscape of providers of content on a national scale will only increase. How exactly do these consumer groups think national shows on terrestrial radio are received?
5. They state that the companies are moving quickly towards profits, and are not claiming a failing business as a reason for the merger.
Interesting. Ask shareholders about the speed at which these companies are moving to profits. The failing business justification is not claimed, but that does not mean that it is not considered by regulators. In point of fact, regulators do review the strength of the businesses as they make their consideration. The companies have a right to claim this as a justification, but chose not to. The regulators will consider the viability of the business now, and into the future prior to making their decision.
6. They state that the merger will result in the elimination of choice by going from 2 to 1.
This argument does not hold water. Indeed their are many consumers who make a choice to not even subscribe. Fifty percent of those that get a trial of satellite radio decide that another choice is better for them, be it terrestrial radio, cell phones that stream content or MP3 players. Substitutionality is clearly demonstrated in the churn data. Both companies have stated clearly that the migration of consumers from one service to the other is minimal. Therefore, people do indeed have viable substitutes available, and the cross section of those substitutes is increasing.
7. They state that there will be a reduction of competitive offerings such as country western.
A Tim Mcgraw song is identical no matter where you listen to it. The top 40 songs are the top 40 songs. What you are terming as competitive offerings are in many way identical content.
8. A dramatic decline in spending such as advertising and R&D.
This is part of the synergies involved. However, satellite radio still has to garner the attention of the consumer. They still need to compete with Apple, etc. Satellite radio will also need to offer compelling products that are consumer friendly. The merger does not negate the need for advertising and R&D, it enhances their ability to compete in an ever growing sector.
9. They state that there will be a reduction in channels from 260 to 160.
How exactly is this determination arrived at? These companies have bandwidth that they need to use. They will use it to the best of their ability to offer a broad range of channels. If this range of channels is successful, they will continue to add content and services. They are not going to just sit on the bandwidth and do nothing with it. The assertion is laughable.
10. They state that there has been no discussion of price cuts without a regulatory solution.
Bogus. Sirius and XM have already offered pricing cuts and a-la-carte programming. They have also stated time and time again that they are “competing with free” and need to keep prices down and even lower them.
These consumer groups attack the a-la-carte programming packages, yet FAIL, YES FAIL to understand the consumer. Do they really believe that consumers listen to all of the channels these services offer? I would be shocked if people even set all of the 30 presets available on most SDARS receivers. Sirius and XM offering a lower price point for a smaller package of channels is reasonable, and what the market would dictate. The fact that the Consumer Federation does not understand the concept of Bulk pricing makes me almost question their credibility as a consumer watch-dog group.
NOT ONCE in their filings have these groups taken a moment to consider or publish the benefits of the merger. As a consumer I want the ability to make an informed decision. As consumer watch-dog groups, these organizations have a responsibility to fully inform the consumer. They have failed in that regard. This filing is filled with pointed animosity, and does not do the consumer one bit of good with respect to being able to weigh the sides of the issues being considered. This is a one sided report.
Position – Long Sirius, XM