Better bankrupt than merged
Opposition to the XM-Sirius merger is focused on the argument that the two firms should not be given a “subsidy”—in the form of antitrust approval—for management’s poor decision-making, particularly the lavish contract Sirius negotiated with former terrestrial radio star Howard Stern. Merger opponents, including the editorial board of the Boston Globe, maintain that forcing the companies to remain separate will prevent management from covering up their mistakes at customer expense:
The satellite radio companies’ woes are akin to those of the airlines, which suffer from high risks, high costs, and competitive pressure to keep prices down. Yet not even these economics doom a company to failure. By packing more people on fewer flights, airlines have annoyed passengers but started making money again. Likewise, Sirius and XM can seek better licensing deals with record companies and avoid paying too much for big-name talent and sports broadcast rights.
The Globe neglected to mention that the airlines have resorted to bankruptcy when government regulators prevented mergers, and in some cases joint ventures. As I noted last year, the Justice Department prevented a US Airways-United merger that, a few months later following the September 11 attacks, forced both airlines into bankruptcy court.
If the XM-Sirius deal is stopped, bankruptcy will also be the likely destination for one or both companies. Merger opponents are not oblivious to this. Indeed, they would likely welcome such an outcome. Bankruptcy, like antitrust, is a “soft” form of central planning, where the bankruptcy court decides which creditors will get paid and how the remaining company must operate going forward. The creditors and shareholders bear the brunt of the damage.
Regulators and their advocates have a very high time-preference. Their primary concern is maintaining the status quo, especially with regard to consumer prices. They consider long-term planning—and thus, capital—to be expendable at best and dangerous to “consumer welfare” at worst. Creditors and shareholders are a threat to consumers, regulators believe, and thus their interests must be restrained by any means necessary.
Ultimately, “consumers”—as represented by regulators, since decentralized consumer decision-making is inefficient—are the owners of all resources. Capitalists, including shareholders and creditors, are simply contract bureaucrats that exist to carry out the objectives set by regulators. If plans go awry, it’s the capitalists who take the blame, since the regulators always act in the public interest and are thus incapable of error.
This thinking is at the core of the XM-Sirius opposition. The regulators, in this case the FCC, decided the public would best be served by two (and only two) satellite radio companies. The market decided otherwise. Merger opponents respond by blaming management and demanding the company’s shareholders and creditors be sacrificed so consumers can maintain the delusion of the status quo—at least until bankruptcy proceedings.
Comments (4)
Oliva does a good job at debunking this argument, but why bother? It is patently absurd. How is can one possible define a market at just satellite radio? Where have I heard this same ridiculous argument before? Aha! Right in the press release from the National Association of Broadcasters, the organization most threatened by satellite radio and who would benefit most if it would just go away.
Of course, even a combined XM-Sirius would have to compete in the marketplace -- in fact with the members of the NAB, whose asses Satellite has been kicking for a few years.
Oh, but here is the good part: the Boston Globe's parent company is a member of the NAB, owning two radio stations and 9 TV stations. So in fact, the Globe was not editorializing in favor of the consumer, but in fact was shilling for its own trade group, working to weaken a dangerous source of new competition for its own broadcast radio and TV stations. And nowhere in the editorial does the Globe disclose this massive conflict of interest. Which makes this closing line a joke:
As any economist will tell you, it is ridiculous to define satellite radio as a "market." At its smallest, the market is reasonably "radio." The delivery mechanism of radio (satellite vs. terrestrial) is meaningless to the definition of a market (the editorial tries to deal with this logical fallacy by creating a straw man that the market does not include iPods, when of course the main issue is that it does include terrestrial radio stations). The Globe, along with the NAB whose talking points the Globe is just repeating in this "editorial", are in fact interested in reducing competition for themselves, not enhancing it.
Oh, and by the way, if approving a merger of broadcast or media companies is a "bail-out," then I invite the Boston Globe to calculate how much of a bail-out the Times corporation has been given, as the government has approved the merger of the NY Times, Boston Globe, IHT, 20 other papers, 9 TV stations, 2 radio stations, and 35 commercial web sites. And by the way, what is the market share of each of their papers in their own local "markets?"
I will leave you with a quote from Milton Friedman vis a vis licensing but entirely appropriate here:
Published: March 25, 2007 10:58 PM
As a customer of Satellite Radio "my" interests are served with Satellite Radio in business not 'out of business'.
Let them merge if the quality goes down people will simply not use Satellite Radio.
Satellite Radio is not going to be a 'monopoly' they have to compete with regular radio, cd's, iPod, etc.
Published: March 26, 2007 1:00 AM
How does anybody get the idea that a merger between the two companies is a "subsidy"? Because the government has to approve it? Bah!
Published: March 26, 2007 11:19 AM
Coyote, from the link you provided, I've been unable to confirm that the New York Times Company is a member of the National Association of Broadcasters. I haven't been able to confirm it either at the NAB's Web site, which seems not to list members.
From your link, however, I learned that the Times Company reached agreement three months go to dispose of all of its broadcast stations. By now, that deal may have been consummated (or its terms fixed, or cancelled, for that matter).
If Times has disposed of its broadcast properties, I would say your claim of a conflict of interest might be incorrect, for all that it fits very neatly with the import of that obnoxious editorial.
Published: March 26, 2007 11:26 AM