Satellite Radio, Monopolies, And Legislative Stupidity

Doug’s been doing a good job of keeping up with the news on the proposed XM/Sirius merger. As he’s pointed out, having one monopoly satellite radio is better than having two that go out of business. But something has been left out of the equation.

What’s wrong with a monopoly in satellite radio? After all, look back a mere 6 years, when there was no such thing as satellite radio. At the time, people functioned. The world wasn’t falling apart because there were no blues stations in BFE. People lived without satellite radio, and yet people didn’t even know they were missing it.

So what happens if XM and Sirius merge, and they change their rates to $30/month because they’ve become a monopoly? It’s simple. Only people who think that satellite radio is worth $30/month will subscribe. For example, I am an XM subscriber. Yet I live in Atlanta, one of the major radio markets in the United States. At $13/month, the current price, I find XM to be worthwhile. After all, XM gives me access to Big Ten football games that aren’t televised down here, and considering how much I hate local radio, I’ll gladly pay for commercial-free tunes and the wider programming allowed. In addition, when I’m making a long drive, it’s nice to have the knowledge that I’ll always get crystal-clear reception, without having to search for new stations every 50 miles.

But at $30/month, I most certainly would cancel my subscription. After all, I have an iPod and a car setup, so I can load it up with songs and podcasts for long drives. On the weekends when Purdue football isn’t televised, I have free internet streams I can access if necessary. And here in Atlanta, I can go back to the old habit of listening to local radio. All in all, it’s my choice to change my behavior due to a rise in price. Yet if XM and Sirius both go out of business because of government regulation, I no longer have that choice.

The problem, then, gets tougher for some people, who do value the services more highly. For example, truckers and other long-distance drivers absolutely love satellite radio, because they have access to clear reception and consistent stations all over the country. People in non-major markets, like my sister in rural Missouri and my brother in Corpus Christi, have access to a much wider range of programming than they could ever have on local radio. For truckers and people outside the major markets, a $30/month bill just might be worth it. But again, if XM and Sirius both go out of business due to government regulation, they no longer have that choice.

Now, often the argument for breaking up monopolies carries weight when it refers to necessities. After all, if you are talking about something like oil, or you’re talking about food, or you’re talking about public education, there is always a worry that people will have consumers over the barrel because they legitimately need these items. In these cases, monopoly power leads to a lack of innovation and rise in costs. But in the entertainment market, this is not an easy thing to prove, as satellite radio is not a necessity to anyone.

Thus, for a satellite radio provider, they cannot be a true monopoly. First, they’re offering a product that didn’t even exist 6 years ago, and currently has such a tiny number of subscribers that it’s not in any way a necessity. Second, they’re competing not only against other satellite radio companies, but against terrestrial radio, internet radio, CD’s, and portable music players. If they don’t offer a product worth paying for, people won’t pay for it.

Monopolies can be a problem, particularly when (as is the case with satellite radio, or phone companies, or cable companies) they are granted monopoly power by government. However, I don’t think those rules apply in this case. Satellite radio is a luxury item which competes with entirely free alternatives. It’s a nice item, to be sure, but it’s something that we lived just fine without until 6 years ago. I simply don’t see the harm in allowing this merger, and as a paying customer of XM, I have a vested interest in the future cost and quality of this service.

PS — I use the example of $30/month service. I don’t think it would be possible for them to sustain their business charging such a high rate, because they’d lose subscribers faster than the subscription costs would gain revenue. I could see them raising their rates slightly, but I doubt it would head above a $20/month level.