XM and Sirius: Defining the market: the key antitrust decision
XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc., the two members of the US satellite radio duopoly, have announced their intention to merge. The deal will be for $11.8 billion. And it makes lots of sense for the two companies, as both lose money and adoption of the service has grown more slowly than either expected. As with any merger in a duopoly, the question of antitrust regulation is unusually strong. Monopolies are still the likeliest occasion for (increasingly rare) US antitrust action.
The Wall Street Journal article title (2/21'07) says it al: "Sirius-XM's Fate Hinges on Definitions." If we judge the industry segment to be satellite radio, them the XM-Sirius deal is a monopoly. But if you define it as radio in general -including terrestrial AM and FM radio, along with HD radio - then XM-Sirius is not even the biggest player. And if, as some are saying, you include iPod and other portable music devices, then the deal has even less overall impact.
But the federal government may think otherwise. In 2002, a deal between two satellite-television companies (EchoStar and Hughes Electronics) was shot down by the feds, even though the two were competing against a much large cable TV industry. The motivation, as it often has been, was fear of a rise in prices when competition was removed.
It is in the satellite radio companies' interest to extend the market definition as wide as possible. As the WSJ story points out:
When Coca-Cola Co. sought to buy Dr Pepper in the mid-1980s, its experts argued in court that their market should include not just soft drinks but all potable liquids sold in North America, including water. The approach was dubbed the "Lake Erie defense.
The regulators did not buy that one. But once seemingly-rigid industry definitions have changed quickly in recent years. Just look at the issue of the convergence of the telephone and cable TV industries, and they way in which big deal like the recent "new AT&T" rollup have been given green lights.
