Sirius XM Bankruptcy: Thank Washington for the Delay

by on February 10, 2009 · 34 comments

Sirius XM Satellite Radio—the company born from the merger of Sirius Satelllite Radio and XM Satellite Radio—has “been working with advisers to prepare for a possible bankruptcy filing,” according to the New York Times.

Some may say that Sirius XM was never a fit business to begin with—many of their new subscribers came from the bundling of  subscriptions into the sale of new automobiles—but it’s hard to say what might have been had federal regulators not delayed the merger for 18 months and then added insult to injury by subjecting them to seemingly arbitrary restrictions.

My colleagues Wayne Crews and Ryan Young wrote about this last year at Real Clear Markets noting the conditions that the merged company had to adhere to:

One condition of appeasement for the Sirius-XM merger is that they hand over 8 percent of their channels to noncommercial and “public service” programming. Internet radio does not face this requirement.

Another condition is that they freeze their prices for three years. Meanwhile, their competitors are still free to set their own prices to reflect changing market conditions.

A third condition is that XM-Sirius must introduce á-la-carte subscription models. If this were economical, they would have done this already.

The motivation for these conditions was just as absurd as the conditions themselves—regulators worried that the combined company might overcharge and otherwise abuse consumers.  That’s right, regulators actually believed that consumers would just pay and pay for satellite radio if the prices were raised, rather than abandon the fledgling technology for competing technologies.  Regulators thought this despite the fact that we have no shortage of alternatives.  Traditional radio, iPods, streaming music on our cell phones, Pandora, Last.fm, CDs, MP3s, and the hundreds of other ways that music and talk entertainment can enter our ears.

So why did regulators do it?  Simple, they do what it takes to protect their fiefdoms.  As Crews and Young put it:

FCC commissioners and DOJ appointees are political actors. Their decisions are thoroughly politicized. They have no real incentives to ensure an open, competitive market. Their goals are to keep bad press to a minimum, and to increase their budgets by appearing to be “doing something.”

Too bad this case of “doing something” has threatened a frontier industry before it ever had the chance to settle its new terrain.

  • Andrew

    While regulation hastened its demise, satellite radio was doomed from the start, for the same reasons you list: other options for getting good music. I was a big proponent and an original XM subscriber, but even before the merger–before Sirius-XM saved money by watering down their programming by laying off DJs and automating their playlists–it was clear better music could be had elsewhere…not least, ironically, from traditional terrestrial stations finding a large audience online.

  • http://www.cordblomquist.com cordblomquist

    I think the problem with satellite radio is much deeper than just the antitrust issue I’ve spoken on here, but the antitrust issue is still reason to be angry with regulators.

    The bigger problem is how we allocate spectrum in America. Imagine that we had a market where spectrum rights could be bought and sold. In that scenario, TV and radio would have slowly sold-off their rights to ISPs and other providers of two-way communications. Terrestrial spectrum has a decent capacity and low latency, at least compared to satellites, so the market would eventually come to value it for Internet traffic, not one-way broadcasts.

    Meanwhile, satellites would have stepped-in to provide broadcasts to consumers—the kind of one-way push communications we now get over the air. Had the market been free, satellites wouldn’t be a pathetic also-ran technology, but a much needed way to free-up our terrestrial spectrum.

    But, we don’t live in a free market, especially when it comes to spectrum. You can thank the FCC for that and the Congress that refuses to acknowledge how outmoded the commission really is.

  • johnnny d

    anyone like to tell me what the hell am i to do if xm sirus goes bk? i drive a truck.
    in places that cant recieve a good signal let alone any signal….

  • steve

    18 months for the government to make up there mind about the merger. what did people think the outcome would be. the delay cost sirius xm 900million. there should be a class action lawsuit against the government from the share holders. how in the world does it take 18 months to decide.

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  • http://srynas.blogspot.com/ Steve R.

    Cord, regretfully this is only half the story. The role of private industry in frustrating this merger is being “overlooked”. Techdirt writes” “The NAB, representing terrestrial radio stations argued vehemently that if XM and Sirius merged, it would create a “monopoly.””.

    Ultimately, the FCC can be “blamed” as the final decision maker. I am also sure that the regulators may have, on their own volition, imposed some absurd regulations. However, the role of private industry in subverting the regulatory process should not be “overlooked”. As Jim Harper has done, when private industry acts badly they need to be exposed. Let's not mindlessly follow the script that all blame belongs to government. Private industry uses its economic power to debase the free-market too!

  • http://www.cordblomquist.com cordblomquist

    Yes, I should have talked about this more in my post–Ryan and Wayne spoke about it in their article. The NAB's argument was, of course, absurd. For the reasons I talk about above, it just doesn't make any sense.

    Sure, industry acts badly, but without the FCC they'd have to no means to hurt Sirius XM. We need to take away the tools of bad action, not hope for better motivations, because those won't change.

  • Ethan

    Dumb old me! Paid up for a year. No more Grateful Dead driving through the narrow canyon of The Black Range. Wait! I've still got my CD's.

  • JR

    $2,000,000,000 a year in revenue ……. what a joke to say this company couldn't survive . FCC 1 HOWARD STERN 0 . PAYBACKS ARE A BITCH . PERFECT STORM IN CREDIT MARKET ISN'T HELPING. SIRIUS IS 2ND LARGEST COMPANY BY ASSETS THAT MY FILE BK.
    US GOVERNMENT HATES CONSERVATIVE TALK SHOWS AND THIS GAVE THEM NATIONAL COVERAGE .

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  • bmwmedic

    I really disagree with those who say Sat had too many competitors/alternatives. I Loved Sat for my car. Nothing comes close. I could hear talk, french,country, pop, anything. I have ipod hookup but it's different, I have to choose the music first, nothing new or as varied.Plus, try tuning a new station THAT YOU LIKE every hour as you drive, its impossible.
    I am really pissed, I recently added it to two cars. Just last week I received an offer from them to pay ahead to lock in lower rate!
    Any chance they will survive?

  • Matt Buguy

    I'm with you, bmwmedic. i've had XM for five years, and just turned in my LS430 for a new lease with an LS460. As part of this new lease, I've been given a three month trial subscription to Sirius XM that also includes live traffic info on my navigation map. This is a very cool feature and there is NOTHING that can compete with that level of service. Someone needs to save this company!! Any one of you seen this feature? You would not want to give it up once you have it. I've averted many traffic headaches while listening to great music – great feeling – all courtesy of Sirius XM. Right now, I'm very frustrated and only have until March 15th to select a subscription plan, or I'll have to pay additional $$ to reconnect at a later date. I'm just worried that if I go with a money-saving multi-year plan, that the company will go belly up and I will have lost out on hundreds of dollars. Can anyone put my mind to rest so I can get on with this??

  • NesACURA

    I told you XM Costumer Service. You should have more spanish channels as before. There are to many latinos, and the population is growing, that dont get Sirius XM because there is only ONE Spanish Channel

    HAHAHAHA

  • NesACURA

    I told you XM Costumer Service. You should have more spanish channels as before. There are to many latinos, and the population is growing, that dont get Sirius XM because there is only ONE Spanish Channel

    HAHAHAHA

  • NesACURA

    I told you XM Costumer Service. You should have more spanish channels as before. There are to many latinos, and the population is growing, that dont get Sirius XM because there is only ONE Spanish Channel

    HAHAHAHA

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