Will the merger of XM and SIRIUS really enhance consumer welfare

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  The paper, "The Economics of the Satellite Radio Merger," explores the financial   and strategic rationale behind the SIRIUS-XM merger and concludes that the   merger offers the potential to yield substantial efficiencies, benefit consumers   and enhance the dynamics of competition within the audio entertainment   marketplace. The paper was prepared for XM and SIRIUS and was filed today at the   Federal Communications Commission (FCC) as part of the companies' merger   application.
 
  Commenting on the merger, Professor Hazlett stated, "After   a thorough analysis, it is my opinion that the merger of XM and SIRIUS will   predictably enhance consumer welfare. The National Association of Broadcasters'   (NAB) staunch opposition to the merger illustrates their similar expectation.   The improved economic vitality of a combined satellite radio company would drive   industry innovation, promote competition and enhance programming and pricing   options for customers."
 
  The   proposed XM-SIRIUS merger will increase competition among providers of audio   entertainment.
 
  *AM/FM radio *"free radio" *competes with satellite   radio, as evidenced by long-standing opposition by terrestrial stations to   satellite rivalry and to the proposed merger.
 
  *If the terrestrial   broadcasters genuinely believed that the merger would substantially increase   price, they would support *not oppose *the merger, given that higher prices   for satellite radio would translate into larger audiences and ad revenues for   them.
 
  *Since satellite radio first appeared on the scene, broadcasters   have consistently attempted to restrain this new service to protect their   interests at the expense of market competition.
 
  Numerous independent   investment analysts have concluded that the proposed merger will yield   substantial efficiencies.
 
  *The merger is expected to lift the   financial prospects of satellite radio, lower capital financing costs, and   foster economies of scale. Consensus estimates identify cost synergies of   between $3 billion and $7 billion in net present value.
 
  *These   efficiencies will permit more aggressive investment in satellite systems and   products and prompt competitive responses from terrestrial broadcasters and   other rivals.
 
  By any measure, satellite radio is dwarfed by terrestrial   radio.
 
  *The most common measure of economic size is revenue.   Terrestrial broadcasters accounted for over $21 billion in sales in 2006, as   compared to just $1.6 billion for satellite *less than 7% of overall radio   broadcasting revenues.
 
  *In market value, terrestrial stations have an   estimated enterprise value, in aggregate, of about $82 billion as compared to   about $9 billion for XM and SIRIUS combined.
 
  *XM and SIRIUS compete in   a complex and dynamic market. When iPods and other digital audio media are   considered in addition to terrestrial broadcasting, satellite's revenue share   falls to 4%.
 
  Consumers will benefit from the proposed merger.
 
  *By combining two small players in the audio entertainment market, the   transaction will bring economic vitality to satellite radio. This, in turn, will   sustain a wide range of valuable consumer options and spawn new services and   products.
 
  *Consumers benefit from lower-cost products and services, as   well as wider program choice. By combining operations, satellite operators seek   to create greater scale economies in radio receivers, and to supply a wider   array of popular programming to subscribers.
 
  There is intense   inter-modal competition among providers of audio entertainment.
 
  *Consumers have a wide range of audio entertainment choices, including   advertising-supported terrestrial broadcasting, subscription satellite radio,   MP3 devices, and other emerging digital media. The fact that there are widely   disparate pricing models among these platforms demonstrates that the competitive   frontier is largely defined in terms of quality and convenience of service,   rather than price.
 
  *Taking the fluid nature of the market into   account, it is clear that satellite radio broadcasters are not dominant players   but compete with a host of other products and services.
 
  Investment   analysts see the merger as an attempt by satellite radio providers to drive   costs down and to offer a more competitive product.
 
  *Independent   projections show an increase in subscriber growth and more programming choices   *a strongly pro-consumer outcome.
 
  *A merger that reduces effective   prices to subscribers and delivers billions of dollars worth of cost saving   efficiencies is in the public interest under either a "consumer welfare" or a   "total welfare" standard.
 
  Hazlett concludes that it is for these reasons   that Wall Street analysts have argued in favor of this transaction since long   before the parties negotiated a merger agreement. Likewise, these same reasons   serve as the basis for incumbent broadcasters' opposition.
 
  The analysis   and views expressed in this study are solely those of Professor Hazlett, whose   research on both high-tech markets and economic regulation has been published in   leading economics journals and law reviews. Professor Hazlett received financial   compensation for his time in assembling this paper.
 
  To view the full   paper or to learn more about the SIRIUS-XM merger, please visit   http://www.XMmerger.com or http://www.SIRIUSmerger.com.
 
  About SIRIUS
 
  SIRIUS, "The Best Radio on Radio," delivers more than 130 channels of   the best programming in all of radio. SIRIUS is the original and only home of   100% commercial free music channels in satellite radio, offering 69 music   channels. SIRIUS also delivers 65 channels of sports, news, talk, entertainment,   traffic, weather and data. SIRIUS is the Official Satellite Radio Partner of the   NFL, NASCAR, NBA and NHL, and broadcasts live play-by- play games of the NFL,   NBA and NHL, as well as live NASCAR races. All SIRIUS programming is available   for a monthly subscription fee of only $12.95.
 
  SIRIUS Internet Radio   (SIR) is a CD-quality, Internet-only version of the SIRIUS radio service,   without the use of a radio, for the monthly subscription fee of $12.95. SIR   delivers more than 75 channels of talk, entertainment, sports, and 100%   commercial free music.
 
  SIRIUS products for the car, truck, home, RV and   boat are available in more than 25,000 retail locations, including Best Buy,   Circuit City, Crutchfield, Costco, Target, Wal-Mart, Sam's Club, RadioShack and   at http://www.shop.sirius.com.
 
  SIRIUS radios are offered in vehicles   from Audi, Bentley, BMW, Chrysler, Dodge, Ford, Infiniti, Jaguar, Jeep , Land   Rover, Lexus, Lincoln, Mercury, Maybach, Mazda, Mercedes-Benz, MINI, Mitsubishi,   Nissan, Rolls Royce, Scion, Toyota, Volkswagen, and Volvo. Hertz also offers   SIRIUS in its rental cars at major locations around the country.
 
  Click   on http://www.sirius.com to listen to SIRIUS live, or to purchase a SIRIUS radio   and subscription.
 
  About XM
 
  XM is America's number one satellite   radio company with more than 8 million subscribers. Broadcasting live daily from   studios in Washington, DC, New York City, Chicago, the Country Music Hall of   Fame in Nashville, Toronto and Montreal, XM's 2007 lineup includes more than 170   digital channels of choice from coast to coast: commercial-free music, premier   sports, news, talk radio, comedy, children's and entertainment programming; and   the most advanced traffic and weather information.
 
  XM, the leader in   satellite-delivered entertainment and data services for the automobile market   through partnerships with General Motors, Honda, Hyundai, Nissan, Porsche,   Subaru, Suzuki and Toyota is available in 140 different vehicle models for 2007.   XM's industry-leading products are available at consumer electronics retailers   nationwide. For more information about XM hardware, programming and   partnerships, please visit http://www.xmradio.com.
 
  As the saying goes...follow the money!

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