Saturday, February 24, 2007

Match made in radio heaven

The announcement of the merger between XM and Sirius satellite radio systems sent shock waves through the media and Capital Hill this week. I think the evolution of this newer form of radio is fascinating. It has gone from a threat to terrestrial radio, to being threatened by newer ways to listen to music.

Some see this merger as dangerous to society. Click the link above to read the article. This columnist believes the satellite radio merger will have serious repercussions to the heavily consolidated media industry. He says it will make Clear Channel (as a former employee I prefer to say Cheap Channel) buy more radio stations.

I think the writer is being a bit of a drama queen. Clear Channel has way too much debt to think about buying more stations, but that's not the point. This merger was simply good business to the radio industry, the subscribers and for the companies.

The author says this merger will make a monopoly of the satellite radio business. Now I'm not a lawyer, but I think monopolies are only dangerous when the company chooses to take advantage of the public. Like the phone companies did before they were deregulated. I don't think the merged satellite radio company will be a threat to consumers since these consumers have so many choices in how to obtain their music.

The two struggling satellite radio companies barely brought in 2.5 million subscribers, roughly 1 percent of the "terrestrial" radio audience. In the past few years, the popularity of MP3 players, especially to those under the age of 25, was too much of a threat to the business of satellite radio, and terrestrial radio. Digital radio was also becoming a strong competitor, especially since new cars are coming equipped with this technology. Satellite radio in new luxury cars was the biggest component in obtaining new subscribers, which explains why most listeners to the technology are wealthy and above the age of 35. Having a new car buyer choose between the two technologies is a serious threat to satellite radio.

This merger is good for the radio industry. When satellite radio arrived on the scene terrestrial radio outlets panicked. Radio programmers across the country asked themselves what this new technology meant for their audiences. Well, the audience shrunk, and the industry was forced to reinvent itself. It started creating formats that have more variety and invested in new technology like digital radio and podcasting. So good ole' radio started holding its own and the audience began to realize that there is no sense in paying for something you get for free.

Subscribers of these companies must be ecstatic. They now will have the best of both satellite radio worlds. Martha Stewart, MLB, NFL and Howard Stern! Yippee!!! There's going to be a lot more to offer to subscribers and potential customers.

Furthermore, the columnist says at the end of his piece that it would have been better for society to let the two companies duke it out. I don't see this being true to the stockholders, the employees or the subscribers.

So I think this merger is OK for media business. The only risk is if the newly merged company raises rates. But if they want to continue taking audiences away from old fashioned radio, and MP3 players, I don't think this will happen.

peace out,


At Sunday, February 25, 2007, Anonymous LA said...

After all of the cases in class, where after a merger or with the creation of a new program by 2 entities, I think it'll be interesting to watch and see if any ethical issues crop up.

I do agree this makes good business sense for the two companies, but I also worry about Clear Channel - remember the one instance where local authorities couldn't get Clear Channel to broadcast info about the huge accident, because the programming was all set out of a different state? I know that's not an issue with satellite radio, but the Clear Channel thing is messy.

But, this is what we see with new technology on all levels - consolidation - from beta to VCRs to the DVDs and different types of HD. The companies that survive are those that adapt and merge.

At Sunday, February 25, 2007, Anonymous VLD said...

I'm meh about it too, JK. There are many forces outside of government regulation to keep companies honest.

Although I have to admit ... when I heard about the merger, my first thought was how easy it would have been for XM and Sirius to have planned the whole thing from the beginning. And how profitable!

Now that the satellite radio rage has died down a bit, this is the perfect way to re-boost sales for both former competitors. And the non-consumers now get to feel super-smart for waiting it out -- THEY can be the first to buy the coolest new hybrid equipment and immediately be plugged in to everything satellite radio has to offer.


At Sunday, February 25, 2007, Anonymous Anonymous said...

"Now I'm not a lawyer, but I think monopolies are only dangerous when the company chooses to take advantage of the public."

It's a quaint idea, but monopolies are dangerous because they will take advantage of the public. For one company to have pricing power is inherently bad for consumers. That said, satellite radio constitutes such a small percentage of the radio universe - the real question for regulators will be whether Sirius/Xm is considered within the context of "satellite radio" or "all radio"

I'd have to assume that if satellite really catches on, other competitors will throw their hats into orbit.



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