Associate Professor Phillip Napoli of Fordham University, hired by the NAB, has filed a response/rebuttal to the FCC regarding the statements of former FCC chairman Roth. Roth, as many readers are aware, came out in support of the proposed merger between Sirius and XM.

Napoli’s letter is pointed, and has some legitimate points, but like others who have taken similar positions, he forgets one key element in his analysis. THE CONSUMER, and the fact a deeper look into the analysis shows some major flaws.

Napoli breaks down his research into three main categories:

1. Upstream Content Market
2. Downstream Content Market
3. Audience Market

UPSTREAM CONTENT MARKET

Napoli almost defines the Upstream market properly, but in trying to make his stance, he adds the word “national”. If you remove the word national, you can see that there is indeed competition. The Upstream Content Market is:

BUYERS – Those that buy music for distribution
SELLERS – Content creators such as artists and

Napoli states that a merger between Sirius and XM would result in a monopsony situation because “there would be only buyer.” Here is what Napoli has left out or failed to consider:

  1. Terrestrial radio does not pay for upstream content. They get all of their music royalty free.
  2. Internet Radio, I-Pods, MP3 Players, and download services ALL buy music for distribution, and many services have “radio stations” where a consumer can tag songs for purchase. Napoli neglects to mention these other segments in his report, or tries to insinuate that the capabilities in these segments simply is of little consequence. He also fails to mention that in 2006, NAB member companies received over $200,000,000 in revenues from internet radio, and they expect that revenue figure to rise substantially.
  3. Napoli fails to consider or mention that because of the internet, terrestrial radio stations are indeed broadcasting on a national basis. It seems that their argument that they do not do things on a national basis is not really true at all.
  4. The term national is not really applicable here. In point of fact, a popular song in America becomes popular because it is played across the country on a national basis. In fact, artists measure their success by how their song ranks in weekly countdowns. These countdowns are broadcast and published weekly on a national basis. In order to believe Napoli’s assertions, one would have to assume that songs you hear in Boston are not being heard anywhere else. Further, and to a more direct point, a CONSUMER is only in one place at any given time. If you are in Boston, do you care what is playing in Orlando? The CONSUMER is always local.
  5. Napoli also fails to mention that there are some very large terrestrial radio companies that employ identical music formats and play lists on a national basis. Again, in order to side with Napoli’s statements, one would have to come to an assumption that station ownership is limited to local people.

DOWNSTREAM CONTENT MARKET

Again, Napoli inserts the word “national” into his definition, and again, he seems to neglect to consider that a CONSUMER can only be in one place at any given point in time. The Downstream definition is that there are Content distributors and consumers who take in the product.

DISTRIBUTORS – Radio stations, satellite radio, internet radio, download services, etc.

CONSUMERS – You, Me, Your Friends, Your Family, etc.

Once again, the national aspect of Napoli’s statements is not needed. Similar to what we pointed out earlier, a CONSUMER can only be in one place at a time. If I were to play Hotel California by the Eagles for you, would you be able to tell whether you were hearing it from terrestrial, satellite, MP3, cassette tape, CD, or internet radio? No, you would not be able to tell. As a consumer, you simply recognize that you are hearing Hotel California. You as a consumer make a decision as to which method you can hear it. On terrestrial, satellite, and some internet radio, it is a hit or miss proposition. You hear it when it is played. If you want to hear it on demand, you will use a download device, or go out and by the Eagles Greatest Hits Volume II CD.

The central point for Napoli rests on the word “national”, and he seems to miss many key elements such as internet radio, and the growing role that terrestrial radio is playing in this category.

AUDIENCE MARKET

In this market, the buyers are advertisers, and the sellers are ad based broadcasters. Napoli asserts that there is “insufficient competition between satellite and terrestrial radio” because:

  1. Satellite Radio does not receive most of it’s revenue from ads, while terrestrial radio is advertising based for revenue.
  2. Terrestrial radio relies on “local ads” while satellite relies on “national ads”.

Once again, Napoli seems to have taken a very narrow view of the world. To truly understand this, I would ask readers to visit Yahoo Music. As you are likely aware, Yahoo Music is an Internet based music service. As of this writing, there is an ad for McDonald’s on the front page of Yahoo Music. McDonald’s, like many companies has an advertising budget. They must decide where and how to advertise their product. Print, television, audio, etc. If McDonald’s spent $2,000,000 on their Yahoo campaign, that is money that will not be spent in the New York Times, Boston Herald, terrestrial radio, or satellite radio. To understand the advertising competition you need to think deeper than what Napoli presented.

Interestingly, go to the website of a terrestrial radio station local to you. You will likely see some national companies there. WEEI in Boston has Home Depot, Visa and other national advertisers prominently displayed on their website. You also hear these national advertisers on the on air broadcasts. Further, Napoli seems to not want us to consider nationally syndicated shows that sell nationally based advertising quite often.

The fact is that there are many mediums competing for advertising dollars. Be it local advertisers or national advertisers. Some advertisers have local, regional, and national campaigns running all of the time. By example, I can here an advertisement from my local Subaru dealer, an advertisement by the Subaru Dealers of New England, and advertisements of Subaru North America. All are trying to do the same thing…..sell me a Subaru, or get me to at least go to a Subaru dealer. Does Napoli point out that it is unfair that North Shore Subaru can only advertise on terrestrial radio, and is being shut out of advertising on satellite radio?

There seems to be a common thread in all of these NAB sponsored reports and opinions. They require you to suspend reality, and hope that you do not think any deeper than what is presented. I sometimes joke about the use of Crayola Crayons in the NAB’s campaign, citing that either their thinking is not mature or deep, or that they feel you and I are not versed enough to see all of the issues. Reports such as this one developed by Napoli are actually insulting the intelligence of the consumer.

Deeper thinkers see through these reports.

Position – Long Sirius, Long XM, No Position Home Depot, McDonalds, Subaru, Boston Herald, NY Times -IMOJB-