Should Satellite Radio Ditch The Satellites And Go Online Only?

from the kill-two-birds dept

In discussing the troubled satellite radio business, we noted that two of the major difficulties faced by the industry were the huge capital costs required to build and maintain the business, combined with the rise of (somewhat unexpected) competition in the form of internet radio and internet downloads combined with portable MP3 players like the iPod. Over at Slate, Farhad Manjoo has a suggestion that would solve both of those issues: Sirius XM should ditch the satellites and become a web only broadcaster. It's an interesting idea, but it seems unlikely (even though they offer online streams currently). Sirius XM still remains so car focused, it still thinks that being in automobiles is a competitive advantage. However, as Manjoo points out, it's actually damaging the company, because it's had to pay large sums to automakers to get the devices installed in cars. Instead, if it went to an internet-only solution, and cut the subscription prices, it could reach a much larger audience, much more easily and cheaply. Build mobile apps, and people can use their phones to listen to content. Add downloadable podcasts of popular shows, and anyone with a portable device can time shift. It's so reasonable that it'll never happen.

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Was Sirius' Bankruptcy Inevitable?

from the possibly,-but-it-had-help dept

Back in 1999, when plans for satellite radio were first talked about, I thought it was destined to fail. I had two reasons for why: I didn't think there really was that much demand and having just closely watched the disaster known as Iridium, I was intimately familiar with the massive and business-strangling capital costs associated with running a satellite-based business. It just seemed so capital intensive that any underestimate in terms of demand would kill you. And, in fact, Sirius has a pretty long history of being on the verge of failure.

With the news of Sirius XM preparing for bankruptcy, it's worth revisiting those original thoughts. While I'd love to claim credit for calling this a decade ago -- I think my reasoning turned out to be wrong. I vastly underestimated the number of folks willing to sign up for satellite radio (though, I think I was correct in recognizing that the number of subscribers would need to be massive and that would be difficult to achieve). And, while the capital expenditure costs were large, it seems like they, by themselves, may have been imaginable. What I hadn't fully expected, was the massive expenses the companies (now company) would ring up trying to lock up "talent" to drive subscriber numbers up. Also, I didn't expect ridiculous regulatory restrictions. The 18 months it took federal regulators to approve the merger between XM and Sirius, combined with the ridiculous restrictions that were put on the combined company significantly contributed to satellite radio's troubles. And, finally, additional competition in the form of internet radio and podcasts/portable media really have put pressure on satellite radio -- none of which I foresaw at the time.

While the company is clearly looking to restructure and keep going, you have to wonder if it even makes sense at this point. With those alternatives increasingly becoming popular in the market, it's difficult to see how satellite radio can possibly provide enough excess value to pay for the increased capital costs compared to the competition. Even if the company restructures and comes out of bankruptcy, who's willing to bet it will have to through this whole process again in a few years?

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Howard Stern Learns: Going Behind A Paywall Is A Good Way To Lose Influence

from the the-price-of-influence dept

We've talked for years about the danger any media makes in focusing on setting up a paywall. In an age where openness and the ability to get others to spread and promote the content for you is often a key barometer of success, locking yourself up behind a paywall takes you out of the wider conversation, and by its very nature, decreases your overall ability to influence. The LA Times has an article noticing that this seems to be exactly what's happened with Howard Stern, who famously made the jump from terrestrial radio to satellite radio -- and in doing so, appears to have lost a large percentage of his audience, and with it much of his influence. Of course, he was paid handsomely for doing so, but Sirius almost certainly expected Stern to bring a larger percentage of his audience with him. Yet, as the article notes, Stern's waning influence due to the switch means that even he's having trouble getting the level of celebrity that he used to command to even bother coming on his show. Amusingly, the article also notes that the very reason why Stern claimed he was moving to satellite -- his troubles with the FCC -- may be contributing to his lack of influence with the new show. In the past, every time Stern got in trouble with the FCC, it boosted ratings, giving him plenty of free publicity. Without that foil, he loses much of the free publicity. Such is life behind the paywall, apparently.

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Radio Companies Try To Force Satellite Radio Devices To Play HD Radio Too

from the let-us-tag-along! dept

Well, the terrestrial radio companies failed to stop the XM-Sirius merger from a happening with a rather ridiculous campaign against the merger, but that doesn't mean they can't continue to try to cause problems. The latest is that they've convinced Representative Ed Markey to introduce legislation requiring all satellite radio devices to include the ability to play HD Radio (terrestrial radio's attempt to provide a better quality product to compete with satellite). The FCC had just begun investigating whether or not such an HD Radio mandate made sense, but apparently Markey can't wait and is pushing to have the mandate pushed through as law before the FCC can study the issue. Is it worth mentioning that the NAB, the lobbying arm of the terrestrial radio stations (and the group that resorted to all sorts of questionable actions in trying to prevent the Sirius-XM merger), is one of Markey's biggest campaign contributors? Oh, and that XM CEO Mel Karmazin contributed to Markey's campaign back in 2001 (when Karmazin worked for Viacom), but apparently hasn't contributed more recently? Feel free to express your thoughts on the bill with this voting widget (if you're reading in RSS, click through to see it):

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Is The FCC Just Toying With XM And Sirius Now?

from the and-next...-we-want-you-to-clean-our-offices-with-just-a-feather! dept

The 18-month saga of XM and Sirius trying to merger just keeps getting more and more ridiculous. Yesterday, we pointed to all of the silly hoops the FCC was trying to make the companies go through, that often had absolutely nothing to do with antitrust issues, and today comes the news that the FCC has fined the companies nearly $20 million for technical violations as some sort of precursor to merger approval. What do these technical violations have to do with the antitrust questions the FCC is supposed to be deciding? Absolutely nothing. Instead, it appears that the FCC is simply using its position as the decider over whether or not the merger goes through to get whatever licks in that it can against the two satellite radio companies, knowing that they'll have to obey quietly. Its like hazing. Because XM and Sirius need the approval of the FCC, it can just do anything it wants to them, such as adding bizarre requirements or even asking them to hand over $20 million.

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FCC's Adelstein Drags Out XM-Sirius Review Even More

from the unbridled-discretion dept

As we predicted last month, the FCC's approval process for the XM-Sirius merger continues to drag on. This is becoming absurd. The merger was announced almost 18 months ago, which should have been more than enough time for the FCC to reach a decision, or at least come up with its merger conditions for the companies to consider. Yet it was only last month that Chairman Martin came up with his initial proposed conditions, and now Commissioner Adelstein is proposing even more restrictions as a condition of approving the deal. As I've pointed out before, the way antitrust law is enforced is problematic because of the unbridled decision it gives to government bureaucrats.

Adelstein's laundry list of merger conditions appears to have no particular connection to preventing the abuse of monopoly power, the supposed purpose of antitrust law. For example, he would require a 6-year freeze on price increases. If he believes the merged company would have too much market power, then he should vote to deny the merger. If, on the other hand, the merged company would not have too much market power, then a price freeze isn't necessary because competition will be sufficient to keep prices down. But the idea that they have too much monopoly power today, but won't in 6 years, doesn't make a lot of sense. His other major requirement, more minority-owned and non-profit channels, has even less connection to limiting the firm's market power. More minority-owned radio stations may or may not be good policy, but it has nothing to do with antitrust law, and it seems problematic for the FCC to impose those sorts of requirements as part of the merger review process.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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FCC Setting Conditions For XM-Sirius Merger (Finally)

from the what-took-so-long? dept

It's not clear exactly what Kevin Marin and the FCC have been doing over the last year and a half since XM and Sirius announced plans to merge. The Justice Department gave its approval of the deal back in March. That had already taken over a year, and then everyone turned to the FCC to get its approval. From the length of time it took, perhaps the FCC had just figured that the DoJ wasn't going to approve the merger, and had to scramble to figure out the details before granting (or not) its own approval. FCC boss Kevin Martin has now sent around to the other commissioners his recommended concessions to approve the merger, and it includes things like a temporary ban on raising prices (for a few years) as well as requirements for some channels to be turned over to noncommercial and minority programming. While XM and Sirius eagerly agreed to these concessions (after all this time, they just want the damn thing to be over), other commissioners may try to impose additional requirements as well -- so this might not be over just yet.

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Why Should XM Have To Get Permission From The Recording Industry To Innovate?

from the still-asking dept

In a rather disappointing move, satellite radio company XM has now settled with EMI concerning a lawsuit over its Inno device, that allowed users to record XM streams. This follows XM's similar settlements with the other major record labels last year. No terms are being announced, which is problematic. The whole problem with this lawsuit was the fact that the record labels seemed to believe that XM was unable to innovate without getting their permission and paying them. The Inno device was simply a device to record satellite radio streams -- which is perfectly legal. Time shifting and recording radio is well-established as being legal. But the recording industry used the case to try to squeeze extra royalty payments out of XM.

This is exactly the sort of "chilling effect" that people keep pointing out when it comes to copyright laws. These laws put the entertainment companies in a position where they get to dictate what kind of devices are legal and which are not. Increasing the uncertainty over whether or not a simple device like the Inno is legal, and forcing a two year legal battle to take place is no way to promote progress and innovation. It just makes many companies unwilling to go through that process just to offer the type of device that makes perfect sense and which customers want. It's doubly troublesome in that the RIAA specifically said that it would not step in to prevent these types of devices. Except that it did.

With that said, I was hoping that XM would stand up to the lawsuits and set a precedent, making it clear that the record labels cannot sue to block new technologies. However, with all of these settlements, that's not the case -- so the uncertainty and the chilling effects remain for all others. No settlement terms have been released, so it may even be that XM agreed to pay off the record labels to get them to settle, which would be even worse. It would just give the labels that much more incentive to keep suing every innovative new product that hits the market. This is extortion that slows down innovation and progress -- which is what we thought copyright was supposed to be promoting.

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DOJ Finally Approves XM-Sirius Merger

from the took-'em-long-enough dept

It only took over a year of ridiculous protests from traditional radio stations, but the Justice Department has finally decided that XM and Sirius can merge without creating a monopoly. It will be interesting to see if the NAB's own lobbying efforts helped disprove its point. The NAB, representing terrestrial radio stations argued vehemently that if XM and Sirius merged, it would create a "monopoly." The only problem with that statement is that if that were the case, it would mean that terrestrial radio wasn't competing in the same market. And, if that were true, why would the NAB care? So, by arguing so vehemently against the merger, it effectively showed what we all knew: terrestrial radio and satellite radio compete in the same market. Of course, the merger isn't a done deal yet, as the FCC still needs to weigh in. But given the amount of time it has already taken for the DoJ to make its decision, you would hope that the FCC was at least close to being done with its review as well. Update: No surprise here, the NAB is "astonished" by the decision.

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And So We Wait Some More For XM And Sirius To Merge

from the how-long-will-it-take? dept

The Justice Department and the FCC sure are taking their sweet time on approving (or denying) the XM/Sirius merger. The two companies' merger agreement was about to run out, so they've now had to extend it a few more months as they wait patiently for the government agencies to figure out whether or not satellite radio is a unique market or if it actually competes against other forms of audio entertainment. It's hard to justify what could possibly be taking this long. Terrestrial radio stations, as represented by the National Association of Broadcasters, have been the most vocal against the merger, claiming that to allow the merger would create a monopoly in satellite radio. However, the very activity of protesting the merger suggests that they know that satellite radio isn't an independent market and actually does compete with terrestrial radio. Still, the NAB must be thrilled it's been able to hold off the merger approval for this long, even if it eventually does get approved. The real question, though, is whether they've done anything else to try to compete with satellite radio, or if they're just hoping that the miracle of a blocked merger will simply force the satellite competition into bankruptcy.

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Why Should XM Have To Pay The Record Labels In Order To Innovate?

from the a-waste dept

In a bit of unfortunate news, it appears that XM has given in and decided to settle its dispute with the record labels. The company has already settled with Universal Music, with the other major labels expected to quickly follow suit. The Reuters article incorrectly states that this was a patent infringement suit (fact checking, anyone?) but it's actually a copyright issue, where the record labels were using copyright to try to prevent XM from innovating. Specifically, XM has a license so it can play music from the record labels and it fairly pays all the royalties required. The problem, though, was that XM decided to introduce a new device, the Inno, that allowed XM subscribers to record songs and listen to them later. That's a perfectly legitimate use -- and the courts have backed up the fact that "time shifting" by recording programs is perfectly legal. Not so, according to the RIAA, who suddenly felt that because people could record the music from XM, XM now had to pay another licensing fee on top of the licensing fee it already paid. This went directly against what the RIAA had said earlier, when it promised that it would never use copyright laws to prevent new technologies like the VCR, TiVo or the iPod. The Inno clearly fits in as a device just like that... and yet, here was the RIAA demanding extra money to allow such a device to exist. It's really too bad that XM wouldn't continue this fight in court, as it's clearly on the right side -- but with its economic troubles and the impending merger with Sirius, it looks like the company decided it was easier to just pay off Doug Morris and his cronies to leave it alone. Chalk another short-term victory up for Morris, who continues to do everything possible to win in the short-term at the expense of the long-term.

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NAB Spams FCC Over XM-Sirius Merger; Uses People Who Claim They Had Nothing To Do With It

from the sleazy-tactics dept

The National Association of Broadcasters (NAB) has been pulling out all the stops in fighting the proposed merger between XM and Sirius. What's most amusing is that the NAB's active involvement in the campaign against the merger weakens its own argument. After all, if XM and Sirius really would represent a monopoly, then doesn't that mean that the terrestrial broadcasters the NAB represents don't compete with XM and Sirius and therefore shouldn't care about the merger? Yet, the NAB keeps on fighting despite this rather obvious problem with its position. It seems as though the NAB can't resist pulling out just about every dirty trick in the playbook. It set up astroturf groups to create a pretend grassroots campaign against the merger. It also paid for a "independent" report from a research firm who had previously claimed that terrestrial radio and satellite radio competed -- but quickly changed its tune when the NAB was funding a study.

The latest is that, in the tradition of many other astroturfing campaigns, it bombarded the FCC with letters from "real people" against the merger. There's just one big problem. It would appear that many of those people have no idea they wrote the FCC, and some even claim they're in favor of the merger. That's what a Washington Post investigation found when it tried to track down the people who supposedly used the NAB's spam-o-matic website to protest the merger. Most of the people couldn't even be reached at all, suggesting that they might not even exist. Of those who were actually reached, nine out of ten claimed they had nothing to do with contacting the FCC and the 10th says she remembered reading something about the merger but doesn't remember protesting it to the FCC.

The NAB insists that its program is perfectly legitimate, and that the emailers all meant to protest the merger. An NAB spokesperson claimed: "It was a fairly rigorous process." How rigorous? Take a look at some of the quotes from folks who the NAB claims are absolutely against the merger and then let us know just how "rigorous" the process was:

• "How did they get my name? I don't want someone using my name for something I don't even know about."
• "No sir, I never sent any notes to Washington. This call is the first time I've heard of this."
• "I never sent an e-mail. I don't even know about the issue."
• "I don't know what the merger is about and I don't care. I have no idea what you're talking about."
• "Where did they get my name? If anything, I'd be for [the merger]."

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Political Gamesmanship In XM-Sirius Merger Rolls On

from the the-fun-never-ends dept

While comments filed with the FCC in support of the merger of satellite radio companies XM and Sirius outnumber those opposing it by nearly a four to one margin, they're not seen by many people to carry the same influence as those arguing against the merger. For instance, more than 70 Congressmen have told the heads of the FCC, DOJ and FTC that they should block the merger, and as stock pundit Jim Cramer points out, this has little to do with anything other than legislators' self-interest, since they don't want to upset local broadcasters in their constituencies. He adds that since XM and Sirius are up against such powerful opposition, they've had to go for broke, by announcing pricing plans that, if the merger's approved, could slice their average per-subscriber revenue. The plans offer consumers the ability to choose channels on an a la carte basis -- a move that looks like it's designed to appeal to FCC Chairman Kevin Martin, for whom indecent programming is always an issue. At the outset of the merger announcement, Martin said that XM and Sirius would have to show that "consumers would clearly be better off with both more choice and affordable prices" before the FCC would approve the deal. These new plans would appear to deliver consumers more choices and control over the content they receive, and do so at lower prices. But it's still hard to see that being enough to overcome politicians' objections, fueled by the National Association of Broadcasters' clout.

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New Reports Turn Over Conventional Wisdom On Pending Deals

from the forget-what-ya-heard dept

Two of the big pending M&A deals right now are Google's purchase of DoubleClick and the proposed tie-up between XM and Sirius. In the case of Google and DoubleClick, it's been assumed that the deal will clear regulatory muster, despite opposition to it from Microsoft. The Sirius-XM deal, however, has been seen as a longshot, in part because of the aggressive opposition to it from terrestrial broadcasters. But two new reports are pouring cold water on the conventional wisdom. An analyst at Bear Stearns believes that the satellite radio deal is looking increasingly likely, a conclusion arrived at by monitoring hearings and reviewing FCC documents. Meanwhile, a Washington policy expert believes that the FTC is likely to block the DoubleClick deal (via Tech Trader Daily), in light of the high concentration of online advertising power that Google would obtain through the deal. Whether you agree with his conclusion or not, he does argue persuasively that this market has indeed become quite concentrated. He also ends with the seemingly inevitable conclusion that Google is set to replace Microsoft as the chief target among the antitrust set.

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Clear Channel Says XM-Sirius Merger's Fine -- As Long As It Can Buy More Terrestrial Stations

from the the-more-things-change... dept

Matthew Lasar writes in to let us know that terrestrial radio behemoth Clear Channel says that if the XM/Sirius merger is allowed to proceed, restrictions on terrestrial radio station ownership should be lifted. Once again, by tying the two issues together, Clear Channel is making it clear that terrestrial broadcasters do compete with the satellite radio companies. It's hardly surprising to see Clear Channel take this stance, though, as it's consistently lobbied for the ownership limits (which state that a company can own no more than eight stations per market) to be lifted. The details from a Clear Channel exec's letter to the FCC are slightly amusing. The guy says "With poorer content, local radio stations will lose listeners, and, consequently, advertisers, not because local radio would face a better competitor after the merger, but because it would be able to offer only an inferior product to listeners and advertisers." His comments came in the context of saying that a merged XM-Sirius would lock up all kinds of content through exclusive deals, making it unavailable to terrestrial stations. But taken more broadly, you have to say that the guy knows what he's talking about, given Clear Channel's experience in churning out inferior products with little success.

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Company Says If XM and Sirius Merge, It Wants To Enter The Market

from the man-behind-the-curtain? dept

Originally, four companies bid on the licenses to operate satellite radio networks in the US; XM and Sirius were the only two left standing. However, one of the losing companies, Primosphere, is now requesting that if XM and Sirius merge, it be given half their spectrum so it can launch its own service. This is a particularly interesting development. On the face of it, the request by Primosphere would seem to take care of the supposedly pro-consumer concerns of the National Association of Broadcasters, which objects to the merger since it would only leave one satellite radio company. However, a merged XM-Sirius would resist giving up half its spectrum, since that would reduce its programming capacity, so it seems like there could be a catch-22 for the companies. Merge, and lose half their spectrum, or keep the spectrum and remain independent. The fact that Primosphere's popped back up after requesting its license application be withdrawn in 2004 has led some to speculate that another player could be motivating it. Given the way the debate over this merger has played out so far, that wouldn't too surprising.

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Will 'Women Involved In Farm Economics' Tip The Balance In XM/Sirius Debate?

from the or-maybe-the-hispanic-chamber-of-commerce dept

Reasonable people could disagree about when it's best to disallow a given merger on antitrust grounds, but our current system seems both arbitrary and open to manipulation by interested parties. Standing athwart XM and Sirius' attempt to merge is the National Association of Broadcasters, which has tried to make the claim that the merger would eliminate any competition for the companies, a point which is undermined by the NAB's own interest in the outcome. It's obvious why the NAB is interested: It's not that it has some lofty ideals about competition, but rather it fears for the future of its own members, should the companies be allowed to merge. In addition to making its arguments directly, the NAB has also turned to the practice of astoturfing, the establishment of phony grassroots organizations that are in fact nothing more than shill groups. Blatantly self-interested lobbying isn't just limited to the NAB, however. Lobbyists representing the satellite radio firms have cobbled together an odd coalition of supporters, including Southern Baptists, businesswomen, rural voters and Hispanic chambers of commerce. A representative of one group, Women Involved in Farm Economics (WIFE), tells The Wall Street Journal that her group supports the merger because it could allow for expanded radio coverage in rural areas. She also makes the good point that the government seems to have multiple standards depending on the industry, noting that little has been done to prevent consolidation in the meatpacking market (which directly affects WIFE's constituents). Her points are valid, but it's still disturbing that these issues are decided, in large part, by which side can marshal the necessary lobbying firepower, rather than some standard for what's a legitimate level of consolidation within an industry.

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