After a year of review, The Department of Justice has approved the merger of satellite radio companies Sirius Satellite Radio and XM Satellite Radio Holdings.
The deal also requires the approval of the Federal Communications Commission. But the ruling is sure to be controversial and is likely be a sign of things to come for other industries.
The deal raised antitrust concerns because it combined the only two major players in satellite radio. But the two sides made some interesting arguments that allowed the deal to get the approval. The DOJ’s rationale is here.
They argued, for instance, that both were losing money. Despite heavy investments, mostly for putting up satellites in the sky to enable subscription radio, neither has turned a profit.
They also argued that, outside of satellite radio, they had a lot of competition. They noted that the free AM/FM radio stations supported by advertising are competitors. There are also HD radio competitors. And there are other sources of music/talk show competition, such as downloading podcasts onto iPods or mobile phones.
Lastly, they had argued that consumers wouldn’t suffer because of the combination. They said, for instance, that they wouldn’t raise prices or get rid of channels. Rather, they said they would offer a la carte pricing plans for cheaper rates than the $12.99 per month rates that are now currently available. That would enable consumers to mix and match offerings from XM and Sirius. Some of those offerings would not require consumers to buy a new combo radio.
In its own statement, the DOJ said that next-generation wireless networks would likely provide alternatives to satellite radio. It also said that the parties are likely to achieve significant cost savings through a merger and those would be passed on to consumers.
Other companies have been watching this case closely. It could be relevant, for instance, to Electronic Arts as it makes a hostile $2 billion bid for Take-Two Interactive. That merger would create a giant in sports video games, combining the Take-Two 2K Sports brands with EA’s EA Sports brands. In sports, EA would have a virtual monopoly. But it could argue that it doesn’t have a monopoly on the overall video game space, where it has just a 20 percent market share or so. (Note, EA’s chief financial officer resigned today. Our coverage).
Apple itself could also argue that its iPod business isn’t a monopoly because iPods compete with satellite radios, mobile phones, and other sources of mobile entertainment.
It’s not wise to go without a consigliere in a mob war. That’s why Electronic Arts appointed Eric Brown as chief financial officer today. The Godfather himself, EA CEO John Riccitiello, needs Brown to run the numbers on taking over Take-Two Interactive. Yesterday, Take-Two’s board rejected EA’s $2 billion hostile tender offer as inadequate.
