Napoli counters Furchgott-Roth report (or Hired Gun vs Hired Gun)

Ryan,

After reading this board for a few months and reading your posts particularly, I'm going to make a guess and say you're a big pro-merger fan.

Are you pro-merger because you have a financial stake attached to it, or do you believe it will, as Uncle Mel says, provide more choice and lower costs, which we all know is a joke because he has hinted at the tier system of programming, much like cable TV. Prices will go up and the union of these two companies will be a monopoly.

I'll be flat out honest with you. I am an XM subscriber and an O and A fan. I want absolutely nothing to do with Mel Karmazin or Howard Stern and I don't want to have to worry with them screwing with O and A ever again, which will happen if the merger goes through.

Mel's not out to save satellite radio...he's out to line his wallet. Mel’s stock has tanked since he came on board and he’ll do anything to make his money back.

At this point in the game, I feel like there is not enough support for this merger by the FCC and I don't think it will happen, no matter how many special interest groups back it.

Thanks.....

the greatest flaw of the "narrow market" argument is the assumption that the consumer is willing to pay whatever price necessary to recieve their content...which couldn't be farther from reality.

the second greatest flaw is the contention of "substitutability", of which it is assumed (quite flatteringly true, btw) that nether terrestrial radio, HDrad, CD, or the iPod is a subtitute for SatRad programming...which also couldn't be farther from reality.

if XiriuM were to jack their monthies up to $20 or more for the same amount of content as you have now, would anyone here honestly not cancel their sub and return to listening to Ter(rible)Rad, or keep their 70gig of iPod on shuffle 10+ hrs a day at work? of course.

the NAB's position here is both incredibly naive and incredibly over-complicating...at the same time (imagine that). here's what they fail to realize or accept, at least publicly:

WE, THE CONSUMER, JUST WANT TO BE ENTERTAINED!!!!!

we are looking for the best content that we can get ahold of for a reasonable price, and we are willing to go absolutely anywhere to get that content, be it Ter(rible)Rad, CD's, iPods, or even 8 track

that, my fellow SatRad fans, is why SatRad has Ter(rible)Rad all pissed; we would rather pay cash-money out of our own pockets to someone else for the privledge of NOT having to listen to their aweful, monopoly-controlled content and gratuitiously offensive on-air advertising.

the NAB wishes for this merger to fail for one simple reason: once is does, XM and Sirius will be up for sale...and you can bet your bandwidth that the NAB (read: QueerChannel) will jump on that at the first opportunity. if this merger fails, SatRad will be taken over by the very monopoly its trying to fight, and it will be ruined forever.

Hired gun or not, this report makes a lot more sense than the previous one.

>>> the greatest flaw of the "narrow market" argument is the assumption that the consumer is willing to pay whatever price necessary to recieve their content...which couldn't be farther from reality.

It isn't a flaw at all; this doesn't enter in, in any way, to the definition of a "monopoly". The question is one of whether a substantially identical service is available elsewhere, and if it isn't, the monopoly will have the ability to control pricing to those who WANT the service. It is inarguable that this is the case for the merged entity (although, a lot of people are sure TRYING to argue it).

If there is an oil monopoly, for example, consumers still have the choice of using alternative means of transportation, etc. -- but a horse & buggy may not be as convenient as an automobile. The fact that a horse & buggy exists as an alternative does not imply a single supplier of oil doesn't constitute a monopoly.

>>> the second greatest flaw is the contention of "substitutability", of which it is assumed (quite flatteringly true, btw) that nether terrestrial radio, HDrad, CD, or the iPod is a subtitute for SatRad programming...which also couldn't be farther from reality.

It certainly does mean this, on many fronts. None of the media you mentioned can, for a single monthly fee, provide 150 channels of content, some of which are real time in nature (news, sports, some talk); and none of which can provide nationwide coverage or real time events. Furthermore, it may not be economically feasible for such alternatives EVER to possess rights for all MLB, NFL, NBA, NCAA games, etc.

Consider the biggest talk program currently available on terrestrial (Limbaugh) -- there are vast areas of the US today where Limbaugh cannot be heard, even though the program is widely syndicated.

The argument that these provide suitable "substitutes" for satellite radio flies in the face of what has caused 15 Million subscribers to pay a monthly fee for the service already.

XM and Sirius are playing the middle against both ends to try and make this merger happen, and DOJ absolutely must step in and stop it from happening -- IF, that is, DOJ is to serve any purpose WRT anti-trust at all.

Dumpus wrote...
"the greatest flaw of the "narrow market" argument is the assumption that the consumer is willing to pay whatever price necessary to recieve their content...which couldn't be farther from reality.

the second greatest flaw is the contention of "substitutability", of which it is assumed (quite flatteringly true, btw) that nether terrestrial radio, HDrad, CD, or the iPod is a subtitute for SatRad programming...which also couldn't be farther from reality."

There is a fallacy in your reasoning if I understand it correctly. Issue one - look at cable TV - everyone bitches about the prices of it going up but they keep gaining more subscribers. One report out recently said that prices increased 50% over the past 5 years. Yet they don't have a declining subscriber base. So, yes, the consumer is willing to pay whatever the market charges for premium content.

Issue 2 - I do not find CDs or an iPod to be a substitution to satellite radio. The only substitution I see is internet radio. Satellite radio is a "push" medium where you are pushed the content you are listening to. You don't have a choice in what is selected, you absorb what is played. With CDs or iPods, you select what you want to listen to. It's a different concept and not at all comparable in my opinion.

I enjoy the commerical free aspect of Satellite radio and the diverse programming it offers. The ability to hear new music and experience new artists is unmatched in ANY media other than internet radio.

That is why I find the entire argument about the marketplace absurd since the content they offer is not offered elsewhere. They are really only in competition with themselves and internet radio.

Just my opinion, though...

StackPointer, Robert, etc.

Please stop insulting the intelligence of the consumer. Satellite radio is NOT the oil industry. Satellite radio is NOT even cable TV. They do NOT have that kind of power. No matter how many channels they choose to offer, it will never give them monopoly power because satellite radio is a hard sell for most people in the world. Yes, some hardcore (perhaps even brainwashed) fans of one personality or the other feel like they could never go back to the alternatives, but you are the minority. Seriously, we are talking about two companies that combine for less than 5% of the audio entertainment market in terms of listeners. By contrast, 60% of US households subscribe to cable. Does that shine a little light on the situation?

The fact that satellite radio offers more channels makes them a LUXURY, not a monopoly. And this is a luxury service that will need to almost double the subscriber base to sniff at a profit. Do you honestly think they'll be able to sell the service to that many customers if they raise prices and cut quality? If satellite radio is such a vital service to the nation, why aren't those subscribers already here? The bottom line is that most people actually PREFER the free alternatives over satellite radio, and Mel will have to create a stronger company and a more valuable service in order for satellite radio to survive.

JB - would you say that cable is a luxury or a necessity? I could never go back to watching regular TV much the same way as I can't stand going back to regular radio.

Saying that the market is only 5% for satellite radio is ignoring any growth of the medium. Cable has been around 20+ years to reach their 60% market share, spread out amongst many providers with a satellite company as another competitor.

I would be more open to this merger if they spelled out their plans for the consumer. Tell us exactly what they have in mind for tiered pricing. Tell us exactly what the discount would be for channels we don't want. Tell us exactly what the channel lineups would be. I'd prefer that than the vague details we've been given and an unstated belief to trust them with this.

with regards to the suitability/substitutability argument, especially given the arguments above, just because an item is unique, that doesn't mean that there isn't/can't be a substitutable alternative.

SatRad is unique...very unique. by specific design. but to say that there aren't alternatives (as distasteful as they may be) is simply closed-minded.

if fuel prices skyrocket, you keep buying it because you need it and there aren't any other real alternatives to rely on to get to work because its too far to walk and theres no public trans. when tv prices (both dish and/or cable) skyrocket, you ante up because you don't get over-the-air signals where you live and because you can't read "Lost". same thing with computer operating systems, to an extent.

one could venture to say that monopolies on such commodities as these would be considered harmful...and i'd whole-heartedly agree.

however, if you plug apples into the equation, it blows up. you strongly prefer apples over oranges, bananas, and baby ruth bars...however, if the price of apples gets high enough, you're going to substitute apples for oranges or bananas or baby ruth bars, even though none are "suitable substitutes"...because after all, apples are apples, damnit...they're unique. but you substitute because you're hungry.

now, lets play a word-substitution game! instead of APPLE, use SATRAD. Instead of ORANGES, use CDs. Instead of BANANAS use MP3 MEDIA. Instead of BABY RUTH BARS, use TER-RAD (both resemble lumpy turds). after the substitution, the model is still highly valid...

...subing Baby Ruth Bars for Apples might not be anywhere near optimal, but you're still fulilling your hunger needs. if you walk into the grocery store hungry and they have no apples, you're not leaving empty handed...and hungry.

when the XM uplink shat the bed a few months ago...who here *substituted* their iPod or TerRad or a CD or two...even though such *alternative* forms of entertainment aren't *suitably substitutable*?

somehow, i'm doubting that anyone really sat in their car in silence...they suitably substituted something else, if only for the time being.

Cable TV isn't a "luxury" but satellite radio IS? Is this what the "intelligent" satellite radio consumer believes? Your remark is absurd. Cable TV is no more a "luxury" than is satellite radio. And frankly, neither is.

Perhaps you're confusing the concept of "necessity" with that of characterizing some items as "luxuries". As far as I'm aware, the antitrust laws apply equally to necessities and non-necessities. Just because I'm selling something that is not "necessary" does not give me the right to accumulated monopolistic pricing power.

>>>> Seriously, we are talking about two companies that combine for less than 5% of the audio entertainment market in terms of listeners. By contrast, 60% of US households subscribe to cable. Does that shine a little light on the situation?

So, when cable was available in only 5% of US households (not so long ago), it would have been okay for them to band together so as to have monopoly pricing power? I think you're insulting your OWN intelligence. Who are we to say whether XM and Sirius will eventually have markets approaching that of Cable TV?

>>> And this is a luxury service that will need to almost double the subscriber base to sniff at a profit.

Can you explain to me what this has to do with anything? Both companies are denying the merger is one of "necessity" and that they will do fine without it, and both claim (in XM's case, correctly, in SIRI's case, maybe someday) they will eventually be profitable without the merger. If they will not back off of this claim, they should not be afforded a "break" on the merger on this basis.

>>> Do you honestly think they'll be able to sell the service to that many customers if they raise prices and cut quality?

Obviously, if they increase prices, they don't NEED to sell the service to as many customers. But it is clear from Mel's interview with TWICE that Sirius WILL be cutting quality if the merger is approved.

>>> If satellite radio is such a vital service to the nation, why aren't those subscribers already here?

They have 15M subs between them -- that isn't too bad for 6 years growth without any significant marketing effort.

>>> The bottom line is that most people actually PREFER the free alternatives over satellite radio

Oh, bullshit. Can you PROVE this statement? "Most people" STILL don't have a clue what satellite radio is, and cannot in their wildest dreams conceive of how it is any different from their local FM broadcasts.

>>> and Mel will have to create a stronger company and a more valuable service in order for satellite radio to survive.

Clueless, utterly clueless. Yes, Sirius will be stronger. But XM will be far weaker as a result of this combination. The combined entity will have 3 billion in debt, the same fixed costs, and most of the same variable costs.

Tell you what: You tell me how the merger makes a "stronger" company and I'll either refute your claim or STFU. Since the day this nonsense was announced I've tried, on every Internet message board covering the subject, to get someone to explain with any specificity how the merged entity comes out "stronger" than XM is today. And nobody has. So, take your shot, or just admit you are wrong.

Here's your proof - less than 50% of OEM trial subs convert to self-paying subs.

I don't know why anyone thinks XM is stronger than Sirius - XM actually has less cash and more debt on the balance sheet, FYI. All things considered, from where I'm sitting, the 2 companies are equally shitty right now. I haven't invested in either for that exact reason.

What will make them stronger? They will undoubtedly be financially stronger, which will give them more opportunity to invest in hardware, coverage, and programming improvements. Yes, the synergies will be small at first - like until some of the overpaid contracts (MLB, Stern, etc.) come up for renewal. The dual-mode radios will be an immediate consumer benefit, as will the unloading of some of the executive salaries (i.e. Hugh Panero).

There are 2 absolute criteria that should be used to determine whether or not to approve a merger:

1) Opportunity - Can the merger conceivably facilitate improvements in the value of the service?

2) Motive - Will the company still have incentive to improve the value of the service?

I will be the first to say that the merger should NOT depend on how well Mel sweet-talks the FCC. It should not be approved based on promises from the company.

Will the merged company be able to improve the bang-for-the-buck of satellite radio? By giving the customer extra channels beyond the existing ones for the same price, by unifying development efforts, and by eliminating redundancies, they will at least have the OPPORTUNITY to improve the value of the service.

Do they still have incentive to improve the service? Absolutely yes. They NEED to convince more people to subscribe just to survive, and the next 10 million subscribers will undoubtedly be harder to convince than the first 10 million. It makes a lot more business sense to make the service more attractive for the 95% that haven't subscribed instead of trying to squeeze more profits out of the existing 5%.

With churn at 2.5% and rising, they can't afford to piss off subscribers and scare potential customers away. If they try, they will lose. I, for one, would be one of the first people to cancel if they cut one of my programs or raised prices. And I think I speak for the common subscriber here - like the ones that aren't brainwashed into thinking that satellite radio is an irreplaceable product. I still listen to FM radio, mp3's, and internet radio in addition to satellite radio, and it wouldn't bother me one bit to stop sending money to Sirius every week if they starting screwing around with me. It's just a nice convenient luxury, and I guarantee you I can still make it to work and back without it.

>>>> I don't know why anyone thinks XM is stronger than Sirius - XM actually has less cash and more debt on the balance sheet, FYI.

XM is requiring a lot less cash for operations, and is losing far less money (economically) than is Sirius. FYI.

>>>> All things considered, from where I'm sitting, the 2 companies are equally shitty right now. I haven't invested in either for that exact reason.

Until the merger nonsense is over, I'm pretty much out of both, too. But all things considered, XM is in far better shape than is Sirius now (which has been the case for several years, as well).

>>>> What will make them stronger? They will undoubtedly be financially stronger,

Please, you're saying it doesn't make it so. Could you please be specific as to what, EXACTLY, will make the combined entity stronger. The debt will be the same. The costs will be the same (or higher). The combined revenue will be the same.

If you believe, as Mel has told us, the savings on the "catering bill" are going to make this merger work, you're nuts (the fact that Mel couldn't cite anything more substantive than the "catering bill" is telling). Yes, some advertising expense will be saved. But that isn't going to come close to offsetting the increased cost of receivers, the massive cost of trying to integrate two incompatible technologies, or the cost of running these companies as virtually separate for many years to come.

>>> Yes, the synergies will be small at first - like until some of the overpaid contracts (MLB, Stern, etc.) come up for renewal. The dual-mode radios will be an immediate consumer benefit, as will the unloading of some of the executive salaries (i.e. Hugh Panero).

This is ridiculous. Those overpaid contracts aren't coming down just because the companies merge. Yes, Stern will -- but only because there is no way in hell Mel would sign that idiotic 3/4 billion dollar deal again. No way (I know -- he said he would LOL). XM's deal with MLB is for 11 years; it isn't coming down anytime soon.

If XM wants NFL games on its bandwidth, that is going to have to be paid for. If Sirius wants MLB, they're going to have to pay for it. If Sirius wants Bob Dylan, they're going to have to pay for it. And it is a safe bet that if XM wants to run Stern, they're going to have to pay for it. Not pay Sirius, but pay STERN. Stern has no deal with XM. MLB has no deal with Sirius. You can't just merge these contractual commitments away.

This is the kind of utter nonsense that these idiot analysts are bandying about on a daily basis. Totally clueless.

>>> There are 2 absolute criteria that should be used to determine whether or not to approve a merger:

More BS. One thing matters. Are there synergies. If not, you don't merge. Period, end of story. Unless, of course, you think it is a way to get monopolistic pricing power.

Geez. You guys.

All those "idiot analysts" with Harvard MBA's, are those the ones you're talking about?

Even the ridiculous Carmel report concedes that at least some money will be saved, buddy. How can you sit there and say with a straight face that there are no synergies between a merger of satellite radio companies? Do they have to immediately develop a common transmission system on the first day before you'll allow the merger?