Shift on Antitrust Issues May Aid Sirius-XM Deal

While XM Satellite Radio’s merger deal with rival Sirius Satellite Radio has drawn numerous comparisons with EchoStar Communications’ failed effort to merge with DirecTV four years ago, the regulatory climate that led the Federal Communications Commission to block the deal has changed, The New York Times reports.
The Justice Department’s surprising approval of Whirlpool’s acquisition of Maytag — a deal that created the nation’s largest manufacturer of appliances with more than 50 percent market share — has encouraged others to proceed with deals that might have seemed to pose regulatory problems.
Indeed, Sirius and XM executives are positively bullish on their prospects. In a conference call with analysts yesterday, Mel Karmazin, the chief of XM, said that “I would not have gone to our board,” if he “didn’t think there was greater than a 50-50 chance of approval.” In fact, the deal’s timing was driven in part by a feeling that the current administration was more likely to let the deal through and that it needed to be done before that window closed.
The New York Post points out that Mr. Karmazin has a good track record when it comes to getting media deals past regulators, noting that he combined Infinity Broadcasting together with CBS and CBS with Viacom.
Much will depend on how the F.C.C. chooses to define the relevant market. Does it include non-satellite radio services such as AM and FM radio as well as iPods and mobile phone streaming? If not, an antitrust lawyer for XM concedes that the deal is essentially doomed. “If the market is satellite radio, we’re dead,” he told TheDeal.com. “But that’s not going to happen.”
Michael K. Powell, the former chairman of the Federal Communications Commission who blocked the EchoStar-DirecTV deal, said the deal is by no means a sure thing. “I do think it could get through, but I don’t think it’s going to be an easy one,” he told The Times. “It’s going to be incumbent on the companies to demonstrate that the analysis in EchoStar-DirecTV is different.”
In opposing that deal, regulators — both from the F.C.C. and the Justice Department — argued the merger would create a monopoly. EchoStar and DirecTV, on the other hand, argued that the market should be defined more broadly than simply satellite television and should encompass cable television operators and telephone companies providing video over phone lines.
When Sirius and XM announced their merger on Monday, they made a similar argument — that their market is much bigger than just satellite radio. “In addition to existing competition from free ‘over-the-air’ AM and FM radio as well as iPods and mobile phone streaming, satellite radio will face new challenges from the rapid growth of HD Radio, Internet radio and next generation wireless technologies,” the companies said.
Still, there is no question that times have clearly changed: a decade ago, the argument for a Sirius-XM merger would have never had a chance.
Joel I. Klein, then the acting assistant attorney general in charge of the antitrust division, gave a speech to the radio industry 10 years ago this week, suggesting that merging terrestrial radio stations in the same market was “no different from a situation where all soft drink manufacturers would seek to merge and control 100 percent of that market. We wouldn’t walk away from such a merger — and if you like soft drinks I should think you wouldn’t want us to walk away — merely because there are lots of other beverages out there, such as milk, juice, beer, wine, et cetera.”
Mr. Powell said that in the end, the deal’s fate would lie in the evidence that both companies produce during the government’s review. He said that while EchoStar and DirecTV publicly talked up an assortment of competitors like cable and telephone, when the government got its hands on the companies’ documents about the way they internally defined their rivals, “it seemed that the only competitors who mattered were each other.”
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