Should Sirius & XM Merge?

Should satellite radio providers Sirius and XM merge in the U.S.? This has been the question on many minds over the past few months, as the companies, their investors, and the Federal Communications Commission (FCC), go back and forth on the issue.

On the one hand, a merger would unify the two competing brands, allowing them to more effectively compete against other forms of music entertainment, which range from standard, terrestrial radio, to streaming Internet radio, digitally downloaded tunes, store-bought CDs, and even the relatively new HD Radio format. On the other hand, Sirius and XM are technically the only two providers of satellite radio technology in the U.S. (not to mention Canada), so a merger would see them effectively competing against, well, no one. Without competition, one really has zero incentive for providing attractive promotions and pricing.

According to SkyREPORT, several groups, including the Consumer Federation of America, Consumers Union, and Free Press, are urging the FCC to reject the proposed merger. I often find myself in opposition of large lobbying groups (like those that wish to impose a levy on hard drive-based music players or pretty much those in favour of stifling technological innovation in any way), but I'm actually on the side of these groups this time. Competition is good for the consumer and good for business. The satellite radio arena needs it in order to remain fresh, and work toward giving consumers a valuable reason to switch from standard radio to a paid, commercial-free service.

I do understand that, although Sirius and XM are the only two satellite radio providers in the race, they are technically competing with other services: terrestrial radio in the car, streaming Internet radio in the home, for example. In that case, they would indeed have to offer some sort of incentive in order to get customers to pay for their radio service, whether there was only one provider, two, or 20. But then we can take it one step further and say they're also competing with iPods, because these nifty players can easily dock in a car to playback tunes through the vehicle's audio system; and manufacturers like Sonos and Squeezebox, which provide hardware that makes streaming tunes throughout the home just as easy as docking your satellite radio receive with your stereo system. Where do we draw the line? More important, if a significant chunk of consumers get hooked on satellite radio, where, then, is the incentive to offer better deals that go beyond "commercial-free music"? Even though the companies would likely operate independently from one another, the bottom line is that, if there's only one provider, why bother with great promos that we might have otherwise seen in the market?

The situation can be likened to GSM phones in Ontario, which I've mentioned before in previous blog entries. If a customer wants to move to a new GSM carrier, his choice is limited to Rogers or Fido, the latter of which is owned by the former. Sure, a customer could always just opt for CDMA and go with another carrier altogether; but if he wants GSM for its world-roaming capability, or perceived better reliability, he has one option.

The groups cited above claim that a merger would "reduce the number of channels and formats available, and result in fewer cost-saving incentives." They add that without competition, the industry would see a "dramatic drop in spending on talent and retail". Here, here.