Earlier this January Citigroup held its annual entertainment, media and telecommunications conference in Las Vegas, NV. Among the massive plasma screen televisions, human sized talking robots and Cash Money Millionaire CEOs, there was talk of the Satellite radio market and where it was headed. The duopoly-throne is held by big-tymers Sirius Satellite Radio and XM Satellite Radio. While both companies have grown rapidly and generated strong revenues and subscriber growth, they continue to lose money (See link below for the article).
Looking at struggle between the rival of East Coast and West Coast Hip-Hop industry, obvious comparisons can be made to shed light on the satellite radio industry. Notorious BIG led the East coast and Snoop Dog and Tupac Shakur led the West coast. While both of these groups were widely successful with their music, the competition and rivalry led to the deaths of Tupac, Biggie and many others. Would it not have been better to set aside differences and work together to create music for fans without violence? We think so.
Rather than the two satellite companies fighting it out and losing money (symbolized by the rap artist’s violence), they should merge together and provide a better service to all subscribers. The key here is the high economies of scale associated with high sunk costs (satellites), and low marginal costs as more subscribers are added. The satellite radio industry could also be described as a network economy, as more people purchase this good individual demand will increase. Economies of scale and network economies are two sources of a natural monopoly.
Sirius CEO Mel Karmazin spoke out to investors saying that this merger could be in the best interest of everyone. Given the nature of the industry and satellite radio’s many competitors, it seems the merger makes sense. With a regulated monopoly of satellite radio, the two powerhouses can join forces giving way to an economically sound provision of entertainment. In the words of Snoop, it sounds like this merger, “Ain’t nuthin’ but a G-Thang baby”. And by g-thang, he means good thing.
http://money.cnn.com/2007/01/10/news/companies/sirius/index.htm
Sirius-XM merger makes sense
Looking at struggle between the rival of East Coast and West Coast Hip-Hop industry, obvious comparisons can be made to shed light on the satellite radio industry. Notorious BIG led the East coast and Snoop Dog and Tupac Shakur led the West coast. While both of these groups were widely successful with their music, the competition and rivalry led to the deaths of Tupac, Biggie and many others. Would it not have been better to set aside differences and work together to create music for fans without violence? We think so.
Rather than the two satellite companies fighting it out and losing money (symbolized by the rap artist’s violence), they should merge together and provide a better service to all subscribers. The key here is the high economies of scale associated with high sunk costs (satellites), and low marginal costs as more subscribers are added. The satellite radio industry could also be described as a network economy, as more people purchase this good individual demand will increase. Economies of scale and network economies are two sources of a natural monopoly.
Sirius CEO Mel Karmazin spoke out to investors saying that this merger could be in the best interest of everyone. Given the nature of the industry and satellite radio’s many competitors, it seems the merger makes sense. With a regulated monopoly of satellite radio, the two powerhouses can join forces giving way to an economically sound provision of entertainment. In the words of Snoop, it sounds like this merger, “Ain’t nuthin’ but a G-Thang baby”. And by g-thang, he means good thing.
http://money.cnn.com/2007/01/10/news/companies/sirius/index.htm
Sirius-XM merger makes sense
Posted by Ain't nuthin' but a G-thang baby (not Jura)
2 comments:
A merger between the two major competing satellite radio companies would create a monopoly in the market. Our initial thought was how the FCC and the Department of Justice would allow this to happen? FCC regulations currently prohibit such a merger. To do so, XM and Sirius will need to prove that they have other competition besides themselves. Other technology services like internet radio and mp3 players have diminished their potential clientele, and could show that there are other players in the market. The combination of XM and Sirius will certainly be advantageous for themselves, due to the high sunk costs of satellites and high economies of scale, but what about the consumer? The first thing that comes to mind about a monopoly is that they can control prices and severely affect the consumer. It would certainly be difficult to convince FCC and DOJ to go through with the merger if the consumer will be paying much more for the same service as before.
Posted by: Marie Copoulos, Tiffany Luong, and Vicky Ukritnukun
I like the blindingly similar situation mirrored in the rap/hip-hop music industry of the 90s. Mel Karmazin and Hugh Panero, respective CEO's of the companies, should be packing heat Monday through Friday.
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