I am going to go off the beaten path a bit but I wanted to pose a question about one of the larger stories going around in the investment world as of late. Earlier this year Sirius Satellite Radio announced that it wanted to acquire rival XM Radio. This initially grabbed my attention because not only do I have multiple Sirius radio subscriptions, but I’m also a shareholder. So the outcome will likely have a few impacts. But, this merger has many hurdles to overcome if it even has a chance.
Would This Really Create a Monopoly?
The main argument against this merger is that the only two satellite radio providers can’t combine because that would create a monopoly. But, would it really? On the surface it would appear that having only one company providing satellite radio would indeed monopolize that market, but a lot of things have changed in the last 10 years.
When the FCC originally granted licenses to both Sirius and XM they were issued with an underlying condition that the two companies could not be able to combine in order to maintain a competitive marketplace. When this was grated in 1997 clearly this was a very new technology and at the time consumers had very little choice. They either could listen to broadcast radio for free or soon be able to purchase a satellite radio. In this context it would seem appropriate to disallow any sort of combination. But fast-forward ten years and the music and radio industry has changed tremendously.
What Has Changed?
Over the course of the last decade the radio industry has undergone many changes. Now consumers have even more options available to them such as internet radio, portable music devices such as iPods, traditional terrestrial radio and increasing in popularity, HD radio. It has even come to a point where people can obtain music (and television) right from their cell phones. With so many options available would it really make a difference if there was only satellite radio provider?
What Do I Think?
Ultimately, I don’t think having only one satellite radio provider would be such a bad thing. From a consumer’s point of view I have many options. If I want free radio I wouldn’t even consider satellite anyway. If I didn’t want commercials then I would load up my portable device and listen to all of the music I wanted with no interruption. If I wanted premium content for a fee then I would consider satellite radio.
The only thing different between the two companies right now is really content (aside from how some of the underlying technology works). So if the two services were to combine I would bet that most of the premium draws for each company would be available, such as Howard Stern, Oprah, various sporting venues, etc. Ultimately that is the only thing that is driving consumers to one provider or the other unless they get a free subscription when they purchase a new vehicle.
The only thing that concerns me as a consumer would be potential pricing. When you have only one provider then there is nothing to compare the price to and in the end that could hurt consumers. They have already addressed this concern with some pricing guidelines. The one thing I have heard that could be an added bonus is a new a la cart form of pricing where consumers could pick and choose what programming they want. As it stands now you basically buy the whole package and you get everything even if you don’t listen to it. This is one thing I really dislike is that I don’t listen to the sports stations so if a sports package was something additional I could purchase and my base package would be cheaper, that would be ideal.
The HBO of Radio
The way I see satellite radio is simply like that of a premium television service. If people want, they don’t have to pay anything to watch TV. Granted their choices are limited and they have to put up with commercials, but it doesn’t cost anything. Users can also get HDTV that can be free as well, all they need is hardware capable of displaying it, just like listening to HD radio. Then, if people simply want to watch certain things whenever they want without interruption they can simply view DVDs or view video available online. This is not really any different than listening to music on a portable device.
And then ultimately if I see a value in paying for cable or satellite service because I want some premium content available on channels such as HBO, that is my choice. It isn’t a technology that everyone needs nor everyone wants, so whether or not there is one provider or two doesn’t really make much of a difference. For example if I saw the need to listen to Howard Stern I would have to pay for that privilege. But guess what, only one provider provides that content anyway so I already don’t have a choice. Sirius already has a monopoly over that content. Same goes for the Sopranos on HBO. If I really wanted to I would have to fork over money to HBO as there are no alternative providers.
To sum everything up I think overall the merger would be a good thing. Both of these companies are bleeding money and it is conceivable that one of them may fail. What happens then? We’d still be stuck with only one provider. If they can come together to provide premium content that is worth the subscription fee then people will pay for it.
The market is efficient and if they get carried away with what they charge for what is provided then they will lose subscribers. Nobody needs satellite radio, so if the cost outweighs the benefits people will simply move to cheaper or free services. This will keep the prices in check even if there is only one real provider. Plus, since both companies are struggling I think the combination of technology and assets will actually help the companies provide better content at an even more affordable price with more pricing options which is good for consumers.
So with that, what are your thoughts?
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Filed Under: Business
About the Author: Jeremy Vohwinkle is a Chartered Retirement Planning Counselor® and spent a few years working as a financial planner. Today, he helps people make the most of their money by writing about personal finance here and elsewhere on the web. Jeremy is also Coach at Adaptu and a regular contributor for other publications such as Intuit, and American Express. Be sure to follow Jeremy on Twitter or Google+.