XM-Sirius argument contradicts marketing

Recent news of a proposed merger between XM Satellite Radio and Sirius Satellite Radio was not entirely unexpected to those who have been monitoring the space.

Recent news of a proposed merger between XM Satellite Radio and Sirius Satellite Radio was not entirely unexpected to those who have been monitoring the space.

Merger rumors have swirled for a number of years, mainly because of the state of the burgeoning satellite radio industry. Once touted as the next big things in entertainment, XM and Sirius have yet to turn a profit, and neither has been able to escape billions of dollars in operating losses.

A merger would certainly help that situation, but, almost immediately, issues of anti-trust arose. In what is likely an attempt to skirt the issue, both companies have argued that a merger would not create an anti-competitive market because the companies currently face competition from not only each other, but also from other "audio entertainment" sources like terrestrial radio, Internet radio, and the iPod.

If that argument sounds familiar, it's because it has been used countless times before.

"It's kind of the same old argument we've been hearing for the past 10 years or so from the terrestrial broadcasters as they argue for looser ownership restrictions," says Michael Saffran, a radio industry veteran and director of new media at the Rochester Institute of Technology. "I think it's more of a political strategy."

To be fair, the argument does carry a bit of weight. Certainly, 10 years ago when the Federal Communications Commission (FCC) first granted XM its license, the competition posed by the Internet and the now-ubiquitous iPod did not exist. But Saffran says the argument doesn't take into account that the public owns the airwaves.

"I think we do have to look at things differently when we're talking about public assets," he says. "They're making [the argument] for the wrong reasons."

And Mel Karmazin, CEO of Sirius and the proposed merged entity, has taken it one step further by arguing that the satellite market doesn't even exist.

"It is very hard for someone to be talking about a monopoly of satellite radio," he told Broadcasting & Cable. "There is no satellite market; there is an audio entertainment market."

That strategy may help the case for an XM/Sirius merger in Washington, but it seems to contradict every move XM and Sirius have made up until now. Setting themselves apart from terrestrial radio has been an integral part of both companies' marketing plans.

Both have touted the fact that they provide commercial-free, niche programming that can't be found anywhere else, establishing the satellite radio "industry" as something different and unique. When Sirius signed Howard Stern to his blockbuster deal a few years ago, the shock jock praised the satellite radio medium as one where he could finally be free from the pressure of the FCC.

But if there isn't, in fact, a satellite radio industry, as Karmazin attests, then there would be no reason for direct competition between XM and Sirius up until now. Yet every move each company has made over the course of its existence has appeared to be a game of one-upping the other.

When XM signed "Opie and Anthony," the duo that infamously got booted off terrestrial radio for broadcasting a sex act from inside St. Patrick's Cathedral in New York, Sirius countered by hiring Stern. Sirius gave Martha Stewart her own 24-hour radio channel, and soon after, XM established an "Oprah & Friends" channel.

Saffran says the companies' strategy to get the merger approved should not impact their overall marketing plans.

"Whether this merger goes through or not, satellite radio will tout its commercial-free programming and the niche format, which are two of the big things it has going for it," he says. "I don't see it changing their marketing."

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