The Merger of Satellite Radio & What's Wrong with Business in America

Once again the spectre of the two satellite radio companies merging into one business unit that would theoretically enjoy the fruits of 'consolidation' is gaining attention. Both companies are bleeding red ink so why not merge?

Because it is not in the public interest. A new group calling itself the Consumer Coalition for Competition in Satellite Radio was founded by a group of George Washington University law students whose take is "if the only two satellite radio companies are permitted to combine, consumers will be totally at the mercy of a monopoly provider." Yet, once again it doesn't seem to matter where the public interest lies; Wall Street's mouth is beginning to water over the implications of these two behemoths combining to form what they think is a viable business model.

The proposed merger of satellite television's Echo Star Communications and Hughes Electronics was grounded by the FCC on the basis that the companies did not "demonstrate that the merger would serve the public interest." Critics of the proposed deal said the merger would create a satellite television monopoly by combining the nation's number one and two DBS operators. Sound familiar?

The FCC Chairman at the time, Michael Powell stated "If economic history has taught us anything, it is that healthy competitive markets not regulated monopolies, maximize consumer welfare."

Proponents of an XM-Sirius merger claim that a single satellite radio entity would be optimal for both parties. The combined firm would have more pricing power, lower operating expenses and would no longer face the risk of bidding up the cost of exclusive content and distribution agreements.

It seems to this writer that the reasons for the merger don't consider the interest, use or preference of the consumer. The reasons seem to offer an exit strategy for two companies that have mismanaged and miscalculated the sector's potential.

During the holiday season of 2006, Bridge Ratings' satellite radio study revealed that during the course of 2006 despite all of the hype, marketing and special promotions, consumer interest in satellite radio was slipping. Satellite Radio's "Brand stimulation" diminished after Howard Stern's blockbuster 2005 holiday season introduction; consumers were finding it more difficult to find reasons to subscribe. We discovered that satellite radio's product lifectyle became stunted during the critical "Introduction" and "Growth" phases; the sector's growth stage fell victim to consumer apathy which has caused both satellite radio companies to reconsider their marketing plans for 2007 and beyond.

Yet despite the increasing costs of subscriber acquisition, spending more to keep the satellite radio boat afloat is really their only option. The boards of both companies will likely approve multi-million dollar increases in these budgets plunging both further into the net loss abyss creating louder cries from Wall Street for a merger to save the sector. And it goes 'round and round.

But aside from the financial and consumer apathy side of the equation, there is the distressing thought that a potential merger would likely swallow the culture and essence of XM. Its better programming and image I believe is founded in an in-house culture rich in music appreciation and a desire to push the envelope of radio programming. The product is clearly king at XM, spilling out of the creative mind of Senior Programming Officer Lee Abrams. The hallway culture of the Mel Karmazin-run Sirius reeks of corporate oversight. If you ever want to discover for yourself the difference in these two companies, go for a tour.

For whatever reason, somewhere along the way, in many business sectors, the consumer's interest is no longer the focus of business. As consumers we have lost something integral to our enjoyment of products and services in America. There are exceptions (Starbucks), but we have entered an age where investors and Wall Street have overwhelmed the importance of consumer satisfaction (traditional radio), and I wonder if we will ever find our way out of the woods.