BOB GARFIELD: In more struggling radio news, this week, in a long-anticipated move, the nation's only two satellite radio providers announced plans to merge. Sirius and XM Radio, having racked up a cumulative seven-billion-dollar loss over their seven years of existence, have determined that only together can they ever turn a profit.
But agreeing to merger terms is hardly the end of the story. The deal has to be approved by both the Justice Department's Antitrust Division and the Federal Communications Commission, whose license of both companies explicitly forbids their merger.
Blair Levin was FCC Chief of Staff when those licenses were issued and now is an analyst for the Stiefel Financial Corporation. He joins me now. Blair, welcome to terrestrial radio. BLAIR LEVIN: Well, thank you very much, glad to be here. BOB GARFIELD: The rule that prohibits Sirius and XM from merging was written back in 1997. Is it a part of legislation? Is it a regulatory provision, what? BLAIR LEVIN: It's actually a paragraph in the FCC grant of a license to Sirius and XM, which means that it is essentially an FCC rule and, like all FCC rules, it is subject to a future FCC saying, we don't need that rule anymore. So it can be overturned by the votes of three commissioners. BOB GARFIELD: Going back a decade, what was in the commissioners' minds when it inserted that paragraph into the licensing process? BLAIR LEVIN: I was actually at the commission at the time. I was chief of staff. And the way I recall us thinking about it was that nobody knew for certain how this service of satellite radio would develop. The basic thought was that we wanted to send them a message that we [LAUGHS] wanted them to compete with each other. But it was a very different time then, and certainly there are a lot of changes in the marketplace that the companies are going to claim means that that rule is no longer needed. BOB GARFIELD: And, as you say, in the marketplace, the only thing that has changed in the intervening time is-everything. BLAIR LEVIN: [LAUGHS] BOB GARFIELD: We're now living in the Internet age, in the iPod age. And I gather you believe that the competition from non-satellite radio sources of programming content make the original agreement obsolete. Tell me why. BLAIR LEVIN: The question that is kind of on the table today is, will the Department of Justice and the FCC allow this proposed merger to go through. At the end of the day, my view is, even though it's a close call, I think the Department of Justice is more likely than not to approve the deal, largely because of all the different changes in the marketplace. BOB GARFIELD: What about the rest of the content environment would keep a satellite radio monopoly from behaving in a monopolistic way?
BLAIR LEVIN: The companies will claim that the presence of things like iPods, Internet radio, digital radio, which is coming online now, as well as a number of services from wireless companies like Verizon and AT&T, basically put them in a position where, if they raise rates, they will lose more customers than they will gain revenue. BOB GARFIELD: It would seem that the Department of Justice, even under a business-friendly Bush Administration, signaled its tendencies a couple of years ago when it killed a proposed merger between DirectTV and EchoStar, two satellite TV networks. Can we draw any conclusions from the fact that they wouldn't buy that merger? BLAIR LEVIN: I think a lot of antitrust folks think that the current head of the Antitrust Division is more open to allowing certain kinds of mergers that the previous person was not so open to. But, more importantly, that really involved the video market, and the video market is very different from the audio market.
The kinds of things that we were talking about that the companies certainly believe do provide competition today – things like the iPod, things like Verizon's music service – there was no analogy to that in the video context.
The DBS deal, which they turned down, had a pretty simple product market, which was multichannel video distribution. And there basically were just cable companies and satellite companies doing it.
In this case, if you think the product market is really satellite radio then it's pretty clear that you turn the deal down. But if you think the product market is broader, to something like mobile audio services, well then you have to look at all these other elements and see how much competition there is.
And, secondly, in the DBS merger there was a particular problem in rural America where really there were only two providers of the multichannel video service. You don't have that kind of rural problem here. BOB GARFIELD: We on this program and many, many others have been focused for the last five or six years under the Bush administration FCC on the question of media concentration. Is it possible that the technology that is changing the definition of what satellite radio is has also changed the definition of what media concentration is and renders a lot of the debate on the subject more or less moot? BLAIR LEVIN: There are certainly a lot of people, including Chairman Michael Powell, who was the prior chairman of the FCC, who, I think, took the view that, well the Internet changes everything, and therefore we just really don't need that many rules any more.
In some ways, like in the case of satellite radio, it may be that digital media means they can merge. But that doesn't mean that the way people get local news has changed so much that you want to change the newspaper/broadcast ownership rule or some other local news rule. You actually have to look at not just the question of market share but how people get their news.
So it's certainly related, but I don't think the answer, in this particular case, necessarily answers the question in every case. BOB GARFIELD: Well, Blair, thank you so much. BLAIR LEVIN: Thank you, Bob. BOB GARFIELD: Blair Levin is a telecommunications and media analyst at the Stiefel Financial Corporation. [MUSIC UP AND UNDER] BROOKE GLADSTONE: Coming up: what evangelical really means, and the media manipulations of a very bad Belgian. BOB GARFIELD: This is On the Media from NPR.