Six Common Sense Points To Counter 90 Pages
In a 90 page filing with the FCC, C3SR’s consultant Gregory Sidak places forth his argument that Sirius and XM satellite radio have not provided any real evidence of Buy Side (consumer) protections if the companies were to merger. Sidak trys to point out that there are no restraints on the merged company to keep prices from artificial inflation. Readers can get the gist of Sidak’s stance by clicking the link above, and then can see six points that counter that stance below.
Well, this wont take 90 pages, but perhaps Sidak should have considered the following:
1. Sirius and XM have already guaranteed that consumers will not have to pay more than they currently do for the level of service that they currently have.
2. Whether Sidak wants to admit it or not, terrestrial radio is indeed competition, and the price for terrestrial radio is FREE.
3. Whether Sidak wants to admit it or not, consumers DO find that terrestrial radio is a substitute for satellite radio. Half of those that receive satellite radio as a trial when they buy an equipped car choose not to keep the service. Does sidak believe that these people opt to listen to nothing?
4. There is strong evidence that consumers DO NOT switch between the two existing satellite carriers. If a consumer leaves one of these services, they tend to find other means of audio entertainment outside of satellite radio. Again, does Sidak feel that these people drive around in silence?
5. Sidak argues that evidence of substitutionalty does not exist when a consumers AM and FM listening decrease with the decision to become a satellite radio subscriber. He states that this is the case, because price increases have not happened that would demonstrate a consumer going back to terrestrial. I argue that there already was a price increase….FROM FREE to a pay service. For those consumers that have become subscribers, they see value in what satellite delivers. However, that value is not seen by the millions upon million who have not chosen to subscribe. In fact, with retail sales slowing, it could be argued that satellite radio may need to trim subscription prices to attract a wider audience.
6. Aside from terrestrial radio, satellite radio also competes with Internet radio, cell phones with streaming content, MP3 players, and even CD players. It is common sense that a consumer will only be listening to one of these formats at any given time. They all compete for consumer attention.
The irony in this is that common sense on 6 points that took about ten minutes to compile can shoot down virtually everything in a 90 page report that took countless hours and many dollars to develop.
Position – Long Sirius, Long XM
These people do not understand that subscribers choose to pay for radio. If I am not happy with the pricing, I cancel my subscription. It is that simple. NAB and all the other idiots are not looking out for the consumer. They are looking out for their own interests. They want it to appear they are looking out for the consumer. Why would the NAB be looking out for me, a three sub subscriber? The messege that needs to be sent is that sat radio is not holding a gun to anyone’s head and forcing them to subscribe to sat radio. They have no augument…it is my choice.
It’s very interesting that they would counter terrestrial radio being competition. I’m currently working on a case study for a strategtic management course, and the authors of my textbook, Charles Hill and Gareth Jones, site 3 sources of competion. One source, of course, being terrestrial radio.
The other two sources being both internet radio and satellite television!
I find this exceptionally interesting, as I ended up with Sirius radio, after weighing my options — satellite tv being one of them.
Further….again Sat Radio is my choice. It is not like your electric service…you have no choice, water service…you have no choice…heating gas…you have no choice…car insurance…you must have. Cable TV…I have NO choice and MUST pay to receive. House insurance..you MUST have. Sat Radio…MY CHOICE not anyone else’s.
I do some work with the NAB, and the argument that satellite and terrestrial radio are in direct competition simply because they compete for consumers’ attention is incredibly weak. Using that argument, one could assert that satellite radio is in direct competition with not only terrestrial radio but also CDs, MP3 players, the Internet, TV, video games, movies, the theater, books, knitting, etc…
Nabisco.
How is such an argument weak. The fundamental reason for existence of audio entertainment is having listeners. Television stations compete with each other for viewers. They also compete with other mediums as well. Do you think NBC, CBS, and ABC have seen an impact from cable channels? Have you seen studies that show that the growth of the Internet has cut down the amount of television viewership?
The point is exactly that various mediums are in direct competition with each other. Terrestrial radio also competes with CD players and MP3 devices.
These businesses NEED listeners. In order to obtain listeners they have to offer a compelling product or service. Terrestrial has some advantages, satellite radio has some advantages, CD players and MP3 players do as well.
When looking at the competitive landscape, one needs to get down to the ROOT of what consumers seek. The ROOT is entertainment and information.
I have met people who will state quite clearly that they have given up television because they now read more books. While the presumption that the latest novel competes with television seems silly, consider what would happen if 30,000,000 people did the same. Do you think that the board rooms of CBS, etc. would be talking about this issue? You bet they would.
At a root level there is competition for attention of consumers. Within that very basic level of competition there are segments that compete more directly with each other. Still further, there are even closer competitive relationships as the content becomes more specific.
Look at you typical terrestrial radio dial. All of the stations on that dial are competing for listeners. A Classic Rock station is not only competing with another classic rock station, but also a talk radio station, and a Jazz station. What if that market has no country station and there is a country music fan? Does terrestrial radio in that market lose a listener to an iPod, or satellite radio? You bet they do.
To argue that the audio entertainment sector is not competing for consumer attention is the weak argument.
I like this particular comment from the Sidak report:
“There can be no doubt that the cross-price elasticity of demand of potential SDARS customers is more sensitive than that of existing SDARS customers. But the only class of customers whose elasticity matters for defining the relevant product market under the Merger Guidelines is existing SDARS customers.”
If the “relevant product market” just includes existing customers, then satellite radio is not a viable product market, since they do not have nearly enough subscribers to make a profit yet. That pretty much destroys the premise for the rest of his report. It takes a lot of balls to say that potential subscribers mean nothing.
Tyler, I agree that all of those different mediums compete with one another for consumers’ attention. But in the context of the merger argument, and using your example, if television is losing viewers to the Internet, should we allow all of the television stations to merge so that they can better compete with the Internet’s offerings? Of course not. So why should we treat satellite radio any differently?
Nabisco
Using this arguement why disallow a merger between television stations?
Nabisco –
The difference is market share. Sirius and XM combine for a total of about 5% of radio listeners. They don’t even have enough subscribers yet to make a profit, with or without the merger. Does that sound like a company that will have excessive market power?
It sounds like the satellite radio companies’ problems lie with their product and the free market, not the FCC. The government shouldn’t be abandoning long-standing anti-monopoly laws simply because the Karmazin and Parson aren’t making as much money as they’d like.
Nabisco….
The first thing that needs to be addressed is the “monopoly” thinking. The Department of Justice is charged with making that determination. In doing so they will consider many factors. No laws have to be abandoned here. It is a study of the marketplace, and any impacts this merger may have on that marketplace. Just because the NAB decides to characterize the merger as a monopoly does not make it so.