Writing on the implications of the proposed Sirius-XM merger, Marc Fisher engages in a discussion of competition based on dubious assumptions. Consider:
Think about it: Can you name one example of a new consumer technology that was guaranteed to a single provider and still served customers well? (Don’t everyone say “cable TV” at once.)
Fair enough on the surface, but how is it economically any more sane to guarantee two and only two competitors in a new consumer technology, as the FCC did? How might the market have shaped up had the federal government not impeded the natural development of satellite radio? We’ll never know, of course, but that isn’t sufficient to say we’ve achieved the optimal market condition. Only the central planner is so presumptuous as to assume such nonsense.
[Sirius CEO Mel] Karmazin, who would be chief executive of the combined satellite provider and is leading the charge for a merger, counters that listeners would benefit by getting the best of both services without having to pay for two subscriptions. To bolster that claim, the companies propose a menu of pricing options: Subscribers could keep their current service at the same price they pay now; add the “best of” the other service for an extra $4 a month; or choose to get fewer channels at a lower price. But while the companies tout these choices as the a la carte offering that cable TV has never consented to, the fact remains that if you want more channels under a combined XM-Sirius operation, you will have to pay more.
I think that last argument is supposed to be a zinger. If you want more, you must pay more. Holy Batman, the injustice! It’s good to clear that up, since under the current dictate from the FCC, if I want more channels, I have to pay… more? Oh, wait.
The danger in offering packages with fewer channels is the same risk cable TV companies have warned against for years: If consumers can pick and choose channels, that undermines the whole business, because inevitably, the bulk of the audience will spend most of their time listening to a relative handful of channels. Less popular channels, now subsidized by a flat subscription fee, would wither away.
We must have competition, except when it interferes with anyone’s preference for what should be offered.
How long would more obscure, low-rated satellite programming such as Sirius’s Underground Garage rock or NPR Talk channels or XM’s Cinemagic movie music or choral classical outlets survive in a monopoly, a la carte system? And if the range of programming narrows, what is satellite offering that AM and FM do not?
And if a merged Sirius-XM stopped offering content compelling enough to “force” people to pay, wouldn’t the departure of subscribers to free radio be a fairly important incentive to offer more content? How does this competition thing work again?
Virtually anyone can start an Internet radio station these days [ed. note: if you can afford the exorbitant royalty fees for a format that generates little revenue.] and play an intriguing mix of music. But only XM and Sirius — and National Public Radio, perhaps — have the resources to produce a great range of creative, professionally produced programming: Bob Dylan’s explorations in music and storytelling on XM; original radio dramas; XM’s Artist Confidential series of sessions with big-name performers; and specialized programs for truckers, gays, Latinos, NASCAR fans, Broadway lovers, opera buffs, movie-music mavens, presidential campaign addicts and on and on.
That programming diversity is what justifies giving XM and Sirius a chunk of the government-licensed radio spectrum. …
No, the central planner’s belief that such programming diversity is the correct mix for customers, whether customers want it in sufficient quantity to justify its cost, is the excuse offered to perpetuate a two – and only two – competitor market. This, despite the evidence cited earlier in the essay that most subscribers to either service listen to a small subset of the offered channels.
… Reducing the two services to a satellite monopoly will inevitably bring about a diminution of choices, along with higher prices. …
This is a blanket statement unsupported by the case made in the essay. Prices only rise if the subscriber wants more content. I know I’m supposed to be outraged by that, but I’m not. And if the merged company dumps the niche programming he likes, he cancels his subscription. That’s a useful signal to the company. If it happens enough, imagine how the company might respond with some combination of more content and lower prices. But that only occurs if there are two – and only two – competitors. Because that’s the free market.
… At XM’s Washington headquarters, the number of producers and DJs would decline, meaning more formulaic programming — if XM even remained here. How long would Karmazin keep production facilities in both the District and New York, where Sirius is based?
An individual how lives in Butte and wants to hear both Howard Stern and her beloved Pittsburgh Pirates should care about the employment prospects of producers and DJs in the Washington, DC area, why? Based on what Sirius and XM have said, she could get both for less money than she would have to pay now, but only if the companies merge. How is she harmed?
Aside from the gain I’d likely receive as a Sirius investor and the definitive gain I’d receive if my Sirius subscription included Major League Baseball, this merger should occur because the government has no legitimate basis to be involved, much less deny a free market outcome based on some subjective criteria of consumer benefit.