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,, 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.

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