Mergers... In... Space....
You may have heard that Sirius and XM, the only satellite radio companies in existence, want to merge together to form one (supposedly) stronger company. I support it, and I'll use this post to explain why, but if it doesn't happen, I won't lose any sleep over it.
For the record, I own 20 shares of Sirius stock. But if you think that's the reason why, you're seriously overestimating the value of 20 shares. It's not like it's Berkshire Hathaway. I bought it for my speculative portfolio in January 2005 when the stock was at $7.54/share. With all of the buzz going on at the time, I thought that it was the next Taser (TASR). For those of you unfamiliar with that stock, it went from nothing to Wall Street juggernaut overnight. The values on the curve don't look all that impressive now, but you have to realize that it went through a 3 for 1 and two 2 for 1 splits all in 2004! Carry those multiples across and you'll see what I mean. That's what I thought was going to happen with Sirius. But it never did.
Why did I think Sirius was going to pull a Taser? Well, besides the hype, I believed in the product. All those commercial free music channels that catered to everyone's tastes was something that was clearly needed in the marketplace. Let's face it. Unless your music tastes match whatever local radio format is in your area, you're screwed. I can't listen to classic rock 24/7. Not only because there's other stuff I like but because it's always the same 80 songs over and over again, with little variation. College radio offered some refuge, but for every song I liked there were probably 10 songs I didn't like. So here's a product that'll meet my needs, without commercials. It's like a hundred stations in one. The drawback? A monthly subscription whereas commercial laden terrestial radio is free.
What went wrong? XM and Sirius got locked into an arms race. Each scrambled to do outdo the other, signing "talent" and locking in content to insanely lucrative deals. The expectation was that listeners would sign up in droves, unable to resist what these guys offered. While many people have signed up, not nearly enough took the plunge. Wall Street couldn't help but notice. Every other week there was a press release proclaiming the latest signing and the huge outflow of cash awarded to the recipient. Wall Street walked away and the stock prices for these two plummeted. XM is at $13/share after hitting $40 while Sirius never got off the ground. They're at three and a quarter.
So now the companies want to merge and everyone is crying monopoly. Former AG John Ashcroft has been hired by the National Association of Broadcasters to lobby against the merger. He fired off a scathing letter to his successor, screaming about how unholy this alliance would be. He neglected to mention that he solicited XM to represent them prior to his NAB hiring. What a piece of shit.
Other, presumably less hypocritical, people are complaining that consumers will suffer without a choice in the satellite radio market. But I think that they're not seeing the big picture. While XM and Sirius are competing against each other, their biggest competition isn't themselves, it's terrestrial radio. Neither company can withstand the onslaught of Infinity Broadcasting, Viacom, or ClearChannel. If people don't like what a Sirius-XM merger becomes, they can always go back to regular FREE radio. The real market isn't satellite radio, it's ALL radio.
For comparision, let's look at the cable TV market. I can't get any other cable TV supplier besides Comcast. Cablevision is available in other towns, but not mine. Why? I don't know, but I suspect collusion. So does Comcast have a monopoly? If we apply the anti-satellite merger argument, it certainly does. But I'm not forced to accept Comcast. I can opt for satellite TV (assuming that I can get a signal) or rely on an antenna. Hell, I could just rent DVD's for entertainment and rely on newspapers and the internet for news. So Comcast, while having a cable TV monopoly, doesn't have a TV monopoly.
Its my opinion that this logic be applied to the satellite radio market. Note that I'm saying that they should be allowed to merge. I don't know that it'll do any good. A merger means that employees performing duplicate work will get canned. Somehow, I don't think that'll cover Howard Stern's paycheck.
\_/
DED
For the record, I own 20 shares of Sirius stock. But if you think that's the reason why, you're seriously overestimating the value of 20 shares. It's not like it's Berkshire Hathaway. I bought it for my speculative portfolio in January 2005 when the stock was at $7.54/share. With all of the buzz going on at the time, I thought that it was the next Taser (TASR). For those of you unfamiliar with that stock, it went from nothing to Wall Street juggernaut overnight. The values on the curve don't look all that impressive now, but you have to realize that it went through a 3 for 1 and two 2 for 1 splits all in 2004! Carry those multiples across and you'll see what I mean. That's what I thought was going to happen with Sirius. But it never did.
Why did I think Sirius was going to pull a Taser? Well, besides the hype, I believed in the product. All those commercial free music channels that catered to everyone's tastes was something that was clearly needed in the marketplace. Let's face it. Unless your music tastes match whatever local radio format is in your area, you're screwed. I can't listen to classic rock 24/7. Not only because there's other stuff I like but because it's always the same 80 songs over and over again, with little variation. College radio offered some refuge, but for every song I liked there were probably 10 songs I didn't like. So here's a product that'll meet my needs, without commercials. It's like a hundred stations in one. The drawback? A monthly subscription whereas commercial laden terrestial radio is free.
What went wrong? XM and Sirius got locked into an arms race. Each scrambled to do outdo the other, signing "talent" and locking in content to insanely lucrative deals. The expectation was that listeners would sign up in droves, unable to resist what these guys offered. While many people have signed up, not nearly enough took the plunge. Wall Street couldn't help but notice. Every other week there was a press release proclaiming the latest signing and the huge outflow of cash awarded to the recipient. Wall Street walked away and the stock prices for these two plummeted. XM is at $13/share after hitting $40 while Sirius never got off the ground. They're at three and a quarter.
So now the companies want to merge and everyone is crying monopoly. Former AG John Ashcroft has been hired by the National Association of Broadcasters to lobby against the merger. He fired off a scathing letter to his successor, screaming about how unholy this alliance would be. He neglected to mention that he solicited XM to represent them prior to his NAB hiring. What a piece of shit.
Other, presumably less hypocritical, people are complaining that consumers will suffer without a choice in the satellite radio market. But I think that they're not seeing the big picture. While XM and Sirius are competing against each other, their biggest competition isn't themselves, it's terrestrial radio. Neither company can withstand the onslaught of Infinity Broadcasting, Viacom, or ClearChannel. If people don't like what a Sirius-XM merger becomes, they can always go back to regular FREE radio. The real market isn't satellite radio, it's ALL radio.
For comparision, let's look at the cable TV market. I can't get any other cable TV supplier besides Comcast. Cablevision is available in other towns, but not mine. Why? I don't know, but I suspect collusion. So does Comcast have a monopoly? If we apply the anti-satellite merger argument, it certainly does. But I'm not forced to accept Comcast. I can opt for satellite TV (assuming that I can get a signal) or rely on an antenna. Hell, I could just rent DVD's for entertainment and rely on newspapers and the internet for news. So Comcast, while having a cable TV monopoly, doesn't have a TV monopoly.
Its my opinion that this logic be applied to the satellite radio market. Note that I'm saying that they should be allowed to merge. I don't know that it'll do any good. A merger means that employees performing duplicate work will get canned. Somehow, I don't think that'll cover Howard Stern's paycheck.
\_/
DED
posted by DED at 11:27 AM
5 Comments:
Good post. The key to any "monopolization" case is the definition of market. Defining the market in this instance as "satellite radio" is ludicrous, and I don't see how any court could go along with that.
That would be like defining your market" as "blogs about space, environment, and beer" and declaring you a monopolist, DED.
Good post.
Thanks. Glad to see my argument made sense to someone besides me. :)
I don't see how any court could go along with that.
That depends on whether or not the judge recognizes the true market in this case.
In the Microsoft OS monopoly case, the first judge correctly saw through Microsoft's argument that the OS was "just software." MS did indeed have a monopoly because an OS is more than just software. Without it, nothing works. But because the judge went postal, MS won on appeal. The second judge didn't get it and so Microsoft was left alone.
The second judge got it just fine, DED.
I know alot about that second MS case (I know A LOT, hint, hint). Believe me, Judge Kotter-Cotelly misunderstood nothing in that case.
hint, hint
Hint taken. Matter dropped.
We have T-Mobile cell phone towers all over the place, they are ugly as hell. Why do we need T-Mobile when satellites give better service? T-Mobile sux, I think they are giving me brain cancer or something. I wear my tinfoil hat mostly, but it makes my head sweat. Why does T-Mobile want to fry my brain? I hope all their investors lose all their money.
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