XM-Sirius merger: Higher cost, less choice?

March 25, 2008 12:10:28 PM PDT
As the merger of the satellite radio stations XM and Sirius creeps closer to becoming a reality, experts, as well as the companies themselves, disagree on how the potential union will affect millions of current customers of both services, as well consumers at large. XM and Sirius argue that the merger will give consumers more choice, but consumer groups say that the math just doesn't add up.

The Justice Department announced Monday that it will allow the proposed merger to proceed, ruling that it is not likely to lessen competition or to harm consumers. The department argued that the companies aren't really competing and that there are alternative services such as the use of MP3 players in cars.

Consumer groups were outraged, citing a likely increase in prices down the line and a lack of choice for consumers. Of course, XM, with more than 9 million subscribers, and Sirius, with about 8.3 million, see it differently. They argue that the merger will give consumers the best of both worlds ? Howard Stern and Oprah, football and baseball.

"XM customers would continue to receive their existing XM service, and be able to obtain certain Sirius programming," the companies said in a joint statement. "Sirius customers would continue to receive their existing Sirius service, and be able to obtain certain XM programming."

The company announced last year that it will offer eight different packages to customers; two of them are a la carte packages.

"These will be the first-ever a la carte options in subscription media," the companies' statement said. "A la carte programming will only be available for subscribers using new radios, which are in development and will be brought to market following approval of the merger."

The first, lower-priced program allows users to pick 50 channels for $6.99 a month from either Sirius or XM. The second, higher-priced program at $14.99 per month allows customers to choose a mix of up to 100 channels from both companies' offerings.

The six remaining subscriptions are tiered offerings of a mix of XM and Sirius' content. These can be accessed through equipment that existing customers already have.

In contrast, $12.95 a month already buys current customers access to 170 channels at XM and 130 channels at Sirius.

The Consumers Union, a non-profit consumer advocacy group and the publisher of Consumer Reports, was among the angered groups.

"We think that approval of the deal is plainly absurd. ? I would defy anyone to find a situation where consumers have benefited from monopolies in the past," Consumers Union spokesman Bob Williams told ABCNews.com. "That sort of talk needs to be taken with a huge dose of skepticism by consumers."

Without competition, Williams argues, consumers can only be negatively affected.

"There's no competitive pressure to keep prices down," he said. "Prices are likely to go up."

With or without the a la carte programming, however, Williams remains skeptical.

"The tiers would no doubt be a way to get folks to buy something they might not buy anyways, which is what happens now," he said. "Even in the best-case scenario, having tier [subscriptions], you're talking about having a few take-it-or-leave-it packages created by companies, not consumers."

Other groups were similarly disgruntled.

"Overall this merger is a reward to the companies for managing to squelch competition between them," said Albert Fore, of the American Antitrust Institute. "We hope the FCC will stick by its original guns when they wanted competition in this industry."

Satellite Radio Alternatives: For Now and Beyond

Existing and future technologies played centrally into the Justice Department's decision. It cited competition created by alternatives to satellite radio, such as MP3 players, as well as the development of future technologies as part of the reasoning behind its decision.

MP3 players made the move long ago from the home to the car.

"Certainly there are more sources of music available than satellite radio," Ross Rubin, director of industry analysis for consumer electronics at NPD Group, said Tuesday. "We've seen all kinds of products that enable consumers to keep iPods in their cars. But by and large, that MP3 experience today still requires managing a music library and transferring tracks manually to the player. It's not the lean-back experience that satellite radio [is]."

"The likely evolution of technology in the future, including the expected introduction in the next several years of mobile broadband Internet devices, made it even more unlikely that the transaction would harm consumers in the longer term," the Justice Department said in a statement.

That future is now, NPD Group's Rubin said.

"[Mobile broadband] technologies have a great deal of potential to offer competition for satellite radio," he said. "They could be the bridge between services such as Napster and Rhapsody or even Internet radio offerings to get in to the vehicle."

Similarly, WiMax, a Sprint-supported technology, will offer in-vehicle high-speed broadband access. The company has said it will be up and running in select cities by April.

Another company is already launching a satellite-based assault on the in-car music market, Rubin said.

Slacker is a portable player that you can place in your car that beams fresh tracks down via satellite. The player also allows users to download songs to cover the player if it is ever out of range.

"Then you have hours of music where you don't need satellite or wireless coverage," Rubin said.

After users have paid for the hardware, the service is free and ad-supported. Those who want the ad-free version can pay $7 a month for it.

As for the XM-Sirius merger, the companies still have one hoop left to jump through: the FCC's. Both companies got stockholder approval for the proposal in November. The FCC initially granted the radio stations operating licenses with the provision against a merger between the two companies.