If Sirius Satellite Radio CEO Mel Karmazin is to win the hearts and minds of federal regulators in Washington, he may first have to remind them which year it is. Anachronisms abounded Feb. 28 as Karmazin made his argument before the first hearing held by the House Judiciary Committee Antitrust Task Force, considering whether the proposed merger of Sirius and XM Satellite Radio ought be allowed.
Rep. Lamar Smith (R-Texas) spoke wistfully about 1960s rock-n-roll music and Rep. F. James Sensenbrenner Jr. (R-Wisc.) — who until this year headed the House Judiciary Committee — compared the proposed merger to an “old regulated gas company.”
It was Rep. Anthony Weiner (D-N.Y.) who implored the committee “to stop with the ’70s version of this discussion.”
Karmazin argued that a merger is in the consumers’ best interests by offering more choice, lower prices and less confusion about the offerings of the two satellite broadcasters, who often provide similar-but-not-same content such as Major League Baseball or National Football League games, Oprah Winfrey or Martha Stewart or “shock jocks” Howard Stern or Opie & Anthony.
Karmazin also pledged to work with regulators and accept whatever restrictions they might see fit to mandate, saying the “FCC and Justice Department can hold our feet to the fire” to make the merger work. “We should be held accountable for everything I’ve said here and everything I say when I meet with regulators,” he said.
Similarly, two days after the hearing and nearly two weeks after the announced plans for a merger, XM sought to assure its existing subscribers and future customers that its service would not be affected.
In a March 2 letter placed in USA Today and signed by XM Chairman Gary Parsons (who attended the congressional hearing but did not speak), CEO Hugh Panero, and President and COO Nate Davis, XM said existing XM radios will continue to provide programming after the merger.
The pledge was made to more than 7.6 million existing XM subscribers plus consumers putatively looking to purchase the service: “As long as you are an XM subscriber, your XM radio will continue to receive XM’s great programming. Following the merger, XM expects that the existing radios will be able to receive a mix of programming from both services.”
During the hearing, though, House Judiciary Chairman John Conyers (D-Mich.) remained unconvinced by such assertions. “We have a not-too-good history of satellite radio’s making promises,” he said. “’Trust me’ isn’t going to work.”
Pending uncertain approval from federal regulators, a merger would be expected for completion in late 2007. The merger must be sanctioned by the U.S. Federal Communications Conference (FCC) and the Department of Justice, both of which are controlled by Republicans. When the FCC, which now has a 3-2 GOP majority, first licensed the services, it prohibited them from merging.
Mark Cooper, research director for the Consumer Federation of America, also was dubious, warning officials to reject the merger. He questioned the need for any such consideration, citing recent numbers which put their combined subscriptions at more than 14 million.
“What’s the need,” Cooper asked, “after they have demonstrated that satellite radio can gain subscribers?”
Competition is good for consumers, and head-to-head is the best form of competition, he said.
Karmazin countered that competition for listeners is not limited to Sirius versus XM but extends to terrestrial radio and emerging content providers. “Everywhere you have a satellite radio,” he said, “you have free radio,” and increasingly find Internet radio and iPods.
Karmazin also rejected concerns that a merger would result in the combined company’s raising subscription fees from the current $12.95 monthly rate both broadcasters charge. “The thought of raising prices to compete with ‘free’ [competitors] is bizarre.”
David Rehr, president and CEO of the National Association of Broadcasters (NAB), said a “government-sanctioned monopoly” would violate FCC rules and “undermine audio competition, not enhance it.”
The description of a monopoly that would stifle competition was seized upon by Weiner, who fueled perhaps the most dramatic exchange of the hearing.
Weiner pointedly asked Rehr “Do you have music?” before repeating the question to Karmazin. “Do you have news?… Do you have sports?… Do you have talk?”
After both replied to each question in the affirmative, Weiner concluded “it’s hard to describe them as a monopoly.”
Even if one accepted that description, the New York congressman questioned the difference between entertainment and, say, a public utility.
“No one needs to have a radio,” he asserted while pointing out the near ubiquity of audio content where clocks, computers and MP3 players are found.
“Increasingly it’s anachronistic,” he said, noting the trend of contemporary automobiles coming standard with terrestrial radios, MP3 jacks and podcast capabilities along with satellite radio.
Furthermore, he said, “we made a mistake” in not allowing a satellite TV merger between EchoStar and DirecTV. “Content has suffered. Sometimes mergers help to move the industry forward.”
Karmazin seemed relieved to find someone understanding his bottom-line assumptions.
“The only business model that works is to get more subscribers,” Karmazin said. “We’re not going to do anything to ruin the company.