Since the creation of the satellite radio industry, Sirius and XM Radio have dominated the market. So much so, that in analyzing and regulating the relatively new satellite radio market, the FCC classified the industry as a duopoly, with the two media giants as the only competitors in the business.
According to CNNMoney’s Paul La Monica, in the past few weeks, Wall Street analysts have been speculating about the possibility of a merge between Sirius and XM Radio. Sirius CEO Mel Karmazin, speaking at a Citigroup event in Las Vegas, said that a merger between the two companies could result in benefits across the board. Many analysts agree with this statement, speculating that if such a merge took place, the companies could redirect their huge marketing and advertising budgets into other areas and reduce the subscription cost to customers.
All of this speculation leaves out an important part of the merger equation. According to MediaWeek’s Jeffrey Yorke, the FCC already rejected a proposal for the two media companies to join forces in the summer of 2004. Since the duopoly that the two firms currently enjoy leaves them in a great position to make large profits, the FCC is not going to jump at the chance to allow them to consolidate into a single-firm monopoly. FCC Chairman, Kevin Martin, has said that the current regulations on the market are clear on the point that the industry must have two competing firms. The FCC is currently reviewing data on the ownership trends of 10 different media companies. This report, due sometime this spring, could influence the FCC’s ruling on a possible merger between Sirius and XM Radio.
This situation illustrates what can happen when the market and its regulating bodies are at odds. While the two companies may want merge, the FCC may decide that a merger is not in the best interest of consumers and the industry itself. It will be interesting to see what course of action Sirius and XM Radio decide to pursue and what regulatory action the FCC will take in response.
By Charles Thomas, Brian Rock, Zoey Wang, and Lian Ye
Works Cited:
CNNMoney - Sirius-XM Merger Makes Sense
MediaWeek - FCC Nixes Prospect of Sirius-XM Merger
3 comments:
Comment on “Wall Street vs. the FCC: Sirius-XM Merger?”
The talk of a future merger between Sirius Satellite Radio and XM Satellite Radio, a proposal which has previously been rejected (Summer of 2004), brings to mind a number of questions. First, if Sirius and XM are actually serious about joining forces, how will they change the FCC’s mind from the previous ruling? FCC Chairman Kevin Martin has made it clear that FCC regulations clearly state that “two satellite radio operators [must] remain in place.” Yes, Sirius and XM are already arguing that you can create shareholder value through consolidation, particularly in a fragmented industry like radio. However, can they come up with a full proof plan to defend what will more than likely turn into a satellite radio monopoly? A second question raised deals with the issue of whether or not the two dominant companies are simply throwing around the idea of a merger proposal in an attempt to lift their stock prices. Both know the situation and know that there is “a prohibition on one entity owning both of those licenses” already in place. With no merger plan filed, as of now, are the companies simply tossing around the idea to build speculation, which would in turn lift stock prices? Just look at the 7% gain experienced by Sirius and the 10% rise in XM stock shares. Whatever the motive, it will be interesting to see the outcome of the situation.
I agree with the FCC in regards to the merge, although you are claiming that the subscription for costumers in average will go down, what will happen to the monthly premium if both firms merged? wouldn't it be possible or assummed that they at some point will increase the premium since the competition is not there anymore. I think that leaving this market as it is, is the best option.It will allow customers to choose and the companies to try to be as efficient as possible to maximize profits and minimize their costs
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