XM and Sirius Press Merger Plan

The satellite radio companies XM and Sirius face one big obstacle to their proposed merger: they're the only two players in the field. The companies say the notion of what constitutes the satellite market needs to be reconsidered.

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ROBERT SIEGEL, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Robert Siegel.

Within the next few months, the government has to decide whether to allow the nation's two satellite radio companies, XM and Sirius, to merge. Decisions like this are usually pretty straightforward. Regulators determine whether the merger would hurt competition and thus be bad for consumers. But this situation may be different.

As NPR's Jim Zarroli reports, the radio business is changing so fast the firms say it's time to rethink the traditional definition of the media marketplace.

JIM ZARROLI: When Blair Levin was chief of staff for the Federal Communications Commission, a lot of big media mergers landed on his desk. Levin says he usually could sense right away if the mergers deserve to be approved. But Levin says the proposed merger of Sirius and XM is different.

Mr. BLAIR LEVIN (Former Chief of Staff, Federal Communications Commission): All antitrust cases come down to the question of will the deal will tend to diminish competition in a relevant product and geographic market. In this case, there's this very serious question about what the right market definition is.

ZARROLI: XM and Sirius are the Pepsi and Coke of the satellite industry. They offer competing and very similar products. For a monthly fee, subscribers get multiple channels of crystal-clear, largely commercial-free music and information programming. Each of the companies has a roster of big-name stars, like Martha Stewart, Howard Stern, and Oprah Winfrey.

(Soundbite of ad)

Unidentified Woman #1: "Oprah & Friends" on XM Satellite Radio.

Unidentified Woman #2: (Singing) "Oprah & Friends."

ZARROLI: XM and Sirius officials say that if the government lets the companies merge, consumers will get access to a lot more programming. They'll no longer have to choose between the company that offers Howard Stern and the one that offers Opie and Anthony. Mel Karmazin is Sirius's chief executive officer.

Mr. MEL KARMAZIN (Chief Executive Officer, Sirius Satellite Radio): If the Sirius subscriber - obviously they subscribe to our service because they like our content. And now, by us being able to take some of the content from XM makes that service even more desirable.

ZARROLI: But critics - and there are a lot of them - say letting the two companies merge would be nothing short of crazy. Jimmy Schaeffler of the Carmel Group, who prepared a report on the deal for the broadcaster's lobby, says the merger would allow one company to dictate subscription fees, programming content and the pay given to performers.

Mr. JIMMY SCHAEFFLER (The Carmel Group): They are a duopoly. And to make that into a monopoly is exactly why antitrust rules were put in place in the first place. It's not good for the consumer.

ZARROLI: Schaeffler notes that when XM and Sirius were awarded their licenses in 1997, the FCC stipulated that they should never be allowed to merge. But Sirius CEO Karmazin says back then the only real competition they faced was AM and FM radio. Now there's HD radio, and Internet radio, and iPods.

Mr. KARMAZIN: So obviously there is an abundant of competition in the audio entertainment field, and that's the field that Sirius and XM compete in.

ZARROLI: Critics reply that these new audio devices don't really compete directly with satellite, because they don't work the same way. The argument that the iPod and satellite radio compete for customers is somewhat novel, and it would require regulators to expand the definition of the satellite marketplace. Blair Levin, for one, says the argument has some merit.

Mr. LEVIN: Ask yourself the following question: if the iPod didn't exist, how much would you be willing to pay for satellite radio relative to what you're willing to pay today? I think the number is significantly higher.

ZARROLI: If the merger is rejected, the companies say they'll go back to competing as usual. But both companies have lost hundreds of millions of dollars over the years building up their brands. A rejection would delay the day when they finally turn a profit even more.

Jim Zarroli, NPR News, New York.

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