Gregory Sidak, a consultant hired by C3SR, which in turn receives funds from the National Association of Broadcasters has missed the most obvious and simple points with regards to substitutionality and the competitive landscape. Sidak's theory is being presented to the FCC today, and the slides from the presentation were filed with the FCC
While consultants for both sides in the merger have spent countless hours pouring over data and creating charts to illustrate their arguments, there is a few extremely simple statistics that answers the question of substitutionality in the audio entertainment sector, and it does not take a formal meeting with the FCC to see what is right there for everyone to see.
OEM CHURN / TAKE RATE
At this point millions of cars are manufactured with satellite radios installed at the factory or dealership. All of these cars come with a term of "free" service to either sirius or XM. At the end of the "free" term, roughly half of those that have had a chance to experience satellite radio make a decision to not continue the service. This statistic has been regularly supplied at quarterly conference calls for satellite radio, and is commonly known.
If half of the people elect not to keep the service, is it Sidak's position that these people are listening to nothing at all? Such an assumption would be foolish. These people simply find that terrestrial radio, MP3 player, CD's, or their cell phones satisfy their audio entertainment needs. Half of the people exposed to satellite radio in the OEM channel find an adequate substitute elsewhere. It is a documented and well established statistic that cuts right to the heart of the substitutionality issue.
Instead of keeping it simple, Sidak would rather go through a long and convoluted process to find some way to prove his point. The basic and simple churn statistics ( or OEM take rate) are concrete samples of how consumers do indeed find terrestrial radio as a viable substitute.
SELF PAYING CHURN
In order to ascertain whether terrestrial radio is a viable substitute for satellite radio, one only needs to look at the statistical data of the self paying churn for the companies. It has been publicly stated that when a subscriber leaves one satellite radio service that they are not then subscribing to the other. The vast majority of these people are finding other alternatives. Last quarter over 1,000,000 subscribers decided to leave satellite radio. Does Sidak want us to believe that these people now do nothing for audio entertainment? Realistically speaking, these people are listening to terrestrial radio, MP3 players, CD's, or content via a cell phone. the fact of the matter is that MOST are likely listening to terrestrial radio.
How does Sidak counter this simple statistical data? Why does he not address it? The fact of the matter is that the audio entertainment landscape is far broader than it was only 10 years ago. The fact is that people will migrate to the product or service that meets their specific needs.
Sidak can jump through hoops, tap dance, and juggle all he wants, but at the end of the day, he can not avoid the simple data outlined above.
position - Long Sirius, Long XM