Sirius-XM merger is bad idea

Here’s what to expect if the Justice Department and the Federal Communications Commission allow Sirius and XM to merge, creating a monopoly in the satellite radio business:

Clear Channel will start buying every radio station in America that it doesn’t already own.

Apple will be able to buy any company that begins to challenge its dominance in the market for portable music players.

Comcast will begin merger talks with Time Warner cable.

And there will be nothing standing in the way of a marriage of NBC and CBS.

All that will be possible because the government will have declared that there is so much competition between the different technologies in the market for digital material — and the outcome of that competition is so uncertain — that there is no reason to worry about consolidation of companies.

This is the Powell Doctrine, promulgated by Michael Powell while he was chairman of the FCC.

There is something to the idea that antitrust regulators should use a lighter touch. But even discounting for that, there are plenty of reasons for the government to block an XM-Sirius merger.

Let’s start with the obvious, which is that while there are now multiple sources for digital music, they aren’t perfect substitutes for each other.

The different technologies also have different business models, complicating the terms of competition. Old-fashioned radio makes its money from advertising, so it is hard to see how it could discipline the XM-Sirius monopoly for raising prices. Nor could Apple, which makes its money selling devices and downloaded songs.

In fact, XM and Sirius really offer two services. One is music programming. The other is the delivery of that programming via satellites and ground stations. Most of their customers buy the package, but not all. I get limited XM service as part of my DirecTV subscription, and in the future one can imagine cell phone operators and cable companies and maybe even old-fashioned radio stations contracting with XM or Sirius for programming. A merger would reduce their choice of suppliers.

As for consumer choice, the companies argue that by eliminating duplicative folk channels and ’80s rock channels, the merger will give them the money and bandwidth to launch even more specialty channels. Of course, we have no assurances of that.

XM and Sirius are correct when they argue that we are about to enjoy a competitive free-for-all among various companies and technologies to determine which is the most effective in bringing digital music to consumers. It is a process that will foster innovation and greatly benefit consumers. But for precisely that reason, this is the wrong time to give one technology a leg up in that competition by allowing it to become a monopoly, while other companies are forced to compete on two fronts — against other companies using the same technology, and against companies using different technologies. By approving the XM-Sirius merger, the government would be stacking the deck in favor of satellite radio.

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