House Task Force Skeptical of XM-Sirius Merger
Broadcasters and consumer groups complained that an XM- Sirius merger would harm consumers, but Sirius said a combined company would increase competition, at a hearing Wed. of the House Judiciary Committee’s new Antitrust Task Force. The deal “should raise a red flag for the Department of Justice and the Federal Communications Commission whose job is to promote competition and consumer choice in the marketplace,” said Gene Kimmelman, vp-Consumers Union.
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“The burden of proof lies with these companies,” said House Judiciary Committee Chmn. Conyers (D-Mich.). The question is whether different ways of listening to music are interchangeable, he said. Another consideration, Conyers said, is the suggestion offered by several commentators that the companies want the Bush Administration to approve the deal before leaving office, Conyers said: “I assume the purest of motives by all parties, but it does sit in the back of my mind.” An additional concern is the conflict among competing technologies and the effect on consumers.
“We're at the beginning of a very long process,” said Rep. Smith (R-Tex.), calling it important that “we not prejudge the proposed merger.” Hundreds of interviews and document review will take place before a decision is made, and he said he trusts that the FCC and DoJ will do a “thorough job.”
“We remain unconvinced by the excuses we have heard offered to justify the merger,” said Mark Cooper, Consumers Union research dir.: “Experience and careful analysis suggests that the effort to position satellite radio as merely one product option in a broader product market should be rejected.” He said traditional conventional radio, digital Internet distribution and devices such as iPods haven’t disciplined prices because there are broad differences in product quality, listener experiences and mode of delivery.
The deal “should be a dead on arrival at the Department of Justice and the FCC,” said NAB Pres. David Rehr: “Congress should clearly and expeditiously express its opposition to this merger to both the Administration and the FCC.” NAB said the companies can’t demonstrate that the merger would produce efficiencies, and it will “cause cognizable harms to consumers.”
Public Knowledge said the deal could be approved subject to conditions. Pres. Gigi Sohn said the new company should provide a la carte or tiered pricing, give 5% of its capacity to noncommercial educational programming and promise to freeze prices the first 3 years after the merger is approved. Congress also should take steps to protect the rights of consumers to record and store music from satellite services, she said. Public Knowledge would oppose the merger if it included “any limitations on the ability of consumers to record these satellite radio services,” Sohn said in her prepared testimony, saying such a condition would amount to a repeal of the Audio Home Recording Act, which protects a consumer’s ability to record digital music.
Sirius CEO Mel Karmazin, who also spoke for XM, said the companies had 2 obligations: To demonstrate that the merger isn’t anticompetitive and that it would be in consumers’ best interest. “We're absolutely convinced that this merger is in consumers’ best interest,” Karmazin said, adding that no receivers would become obsolete: “We are committed to not raising prices and in fact to lowering prices.” Consumers will have more choice as a result of the merger, he said.
But those statements didn’t reassure Conyers or other members of the committee. “'Trust me’ isn’t going to work here,” Conyers said: “You've got some high hurdles here.” He asked Karmazin why he wouldn’t be open to considering Sohn’s suggestion for adding local content to the satellite service. “Providing local content is not our business model,” Karmazin said. Duplicating what terrestrial radio does well isn’t part of the plan, he said: “We want to get the deal done,” but would consider concessions.
Congress and the FCC should allow satellite radio broadcasters to offer more local programming than they can now, Sohn said. Restrictions result largely from opposition by local broadcasters. Sohn criticized broadcasters for opposing the merger while broadcasting seeks further consolidation. Rep. Boucher (D-Va.) suggested that Sohn’s conditions were reasonable and asked Karmazin if he could live with them to get merger approval.
“I don’t like idea of saying just anything to get merger approved,” Karmazin said, adding that “his people” cautioned him before coming to Washington not to get too worked up when he testified. He said he would be willing to consider some conditions but didn’t think XM and Sirius have a duopoly, much less a monopoly.
But as the hearing wore on, Karmazin’s temper clearly was taxed. When former Judiciary Chmn. Sensenbrenner (R- Wis.) questioned Karmazin about the proposed deal, the 2 got into an argument. “You are a monopoly,” Sensenbrenner. “We're not a monopoly,” Karmazin said. The tension ended only with Sensenbrenner’s speaking time.
Rep. Weiner (D-N.Y.) leapt to Sirius’s defense. “It’s hard to imagine how you can describe satellite as being a monopoly,” he said. It gets tougher and tougher for any radio service to compete, and sometimes mergers can help industries move forward, Weiner said: “This is a new world we live in.” A unified player that can offer more services would benefit consumers, he said. “We have to stop with the 1970s version of this discussion.”
Earlier Wed., the committee unanimously authorized for 6 months the 19-member antitrust task force to oversee antitrust and competition matters. It’s expected to consider a broad range of issues, Conyers said: “This is not another subcommittee.” Ranking Member Smith (R-Tex.) said he was pleased that Conyers plans to convene another task force after the 6 months are up: “We want to make sure competition remains healthy.”