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Ethiopian-born Noah Samara is founder and CEO of WorldSpace, an international satellite radio service that is partly owned by XM.
A founding father of satellite radio tells DailyTech that the XM-Sirius merger would create more choice -- not less.

Noah Samara, CEO of WorldSpace, says that for satellite radio to thrive, the FCC must approve the merger of the only two satellite radio broadcasters serving North America.

Samara was involved in satellite radio from its inception. He was instrumental in developing and licensing key technologies for the launch of XM in the early '90s before turning his attention to creating satellite radio services for Africa, Asia and Western Europe. In an exclusive interview with DailyTech, Samara called on regulators to support the merger and look for alternative ways to ensure that consumer interests are protected.

"There are other ways of ensuring that the consumer is not price-gouged," Samara said."The FCC could find those ways and ultimately benefit the public interest."

The biggest benefits will come in the form of new and innovative programming, made possible by the economic efficiencies XM and Sirius will realize as a merged company, Samara said. In the current situation, both companies are hemorrhaging money because of the exorbitant sums each must pay for premium content, he said. "In a duopoly, each player is doing everything it can to undermine the other."

Sirius' and XM are "not profitable because, though the product is good, bringing it to the consumer has been very expensive," Samara said. He cited examples such as XM's $650 million, 11-year contract to broadcast Major League Baseball and Sirius's 5-year, $500 million-plus package to lure Howard Stern away from FM radio, making him perhaps the best paid "talking head" in the world. "This one-upmanship has driven up the price of the content and therefore the ultimate breakeven point for the business," Samara said.

By ending the content bidding war between the two companies and allowing them to reduce costs by eliminating redundancies in their operations, the merger could usher in a "new golden age of radio -- except this time on steroids," Samara said.



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Producer monopolies never benefit consumers
By jskirwin on 4/12/2007 9:34:59 AM , Rating: 1
The benefits he's touting fly in the face of economic reality. Producer monopolies never benefit consumers.




RE: Producer monopolies never benefit consumers
By BigPeen on 4/12/2007 9:54:49 AM , Rating: 3
Simply not true, not when increasing economies of scale exsist like this, and there are government bodies who are more than happy to step in and regulate it.


By Talcite on 4/12/2007 10:52:09 AM , Rating: 1
Regulate it with what? Price controls?

Even any high school economics student can tell you that price controls are not an efficient solution to high prices.

A monopoly does not price it's goods or services at the equilibrium price level of a perfectly competitive market, but instead at the price level that will maximize its profit.

If satellite radio is struggling to get off the ground, then tough. If it fails, it's probably not a viable product anyways.


RE: Producer monopolies never benefit consumers
By abhaxus on 4/12/2007 10:01:21 AM , Rating: 3
Except this isn't a monopoly. It is a monopoly on satellite radio. But satellite radio is competing with a few "free" services: namely broadcast radio, but also things like mp3 players have kept satellite radio from being widely accepted. I personally don't care for the audio quality on either service so I've stayed away for that reason. XM/Sirius will never get off the ground while they are not able to provide a one stop shop for content. Even if they raised the price to $15 or even $20 a month over the current $13, it would be less than the price of having both services.


RE: Producer monopolies never benefit consumers
By GoatMonkey on 4/12/2007 1:54:50 PM , Rating: 2
Think about that as you adjust the rabbit ears on your TV. What?!?! you don't have any? Weird.


RE: Producer monopolies never benefit consumers
By abhaxus on 4/12/2007 4:43:49 PM , Rating: 2
I have a set of rabbit ears for my PC which has an ATI HDTV wonder card. The situation is completely different for broadcast TV vs radio, as radio is primarily used in the car, while TV is almost entirely used in homes. There's no option to run a hard line to your car for better reception and more channels :)


RE: Producer monopolies never benefit consumers
By GoatMonkey on 4/13/2007 8:26:57 AM , Rating: 2
You're right, it's not exactly the same as cable vs. broadcast tv, but there are similarities.

At this point you have the option of HD radio or standard radio or an MP3 player. The market for music is a little different than for TV since you can listen to the same song many times without getting bored with it.

Satellite radio currently has the same draw to it that cable had back in the 80's. You get some features that other options don't have, primarily, no commercials (usually), and content that is not available elsewhere.

Once satellite radio has built up it's user base it will start to become normal for everyone to have it. I mean, if you went to someone's house and all they had was an ATSC antenna and couldn't get ESPN you'd be a little disappointed on game day.

I think the topic of the article is correct, in the short term anyway. Joining the two companies will benefit consumers for a while. However, long term it will be bad for consumers from a cost perspective. I have to admit that I like the idea of being able to get every channel in one place though.


RE: Producer monopolies never benefit consumers
By masher2 (blog) on 4/13/2007 10:40:50 AM , Rating: 4
> "Once satellite radio has built up it's user base it will start to become normal for everyone to have it"

I don't believe this will ever happen. There's a lot of people such as myself who just don't listen to the radio period. Even if it was a dollar per month, I wouldn't buy it. I might consider it if the radio and subscription were both totally free...but even then, I doubt I'd be bothered to get it.

There are even more people who are slightly less disinterested...people which might pay $5 or even $10/month, but who most certainly wouldn't keep the service if a monopolistic provider began to raise prices. The total value of in-car audio entertainment just isn't that high...and there are too many other ways besides sat radio to get it.


RE: Producer monopolies never benefit consumers
By h0kiez on 4/13/2007 2:05:25 PM , Rating: 2
Maybe he should have said "most people" instead of "everyone". Not "everyone" has cable TV, but the vast majority of people do.


By masher2 (blog) on 4/13/2007 4:14:37 PM , Rating: 3
> "Not "everyone" has cable TV, but the vast majority of people do. "

About 65%...which is a majority, but not a 'vast' one. And my point was that 65% of the population will NEVER own satellite radio, not if its priced at anywhere near its current price level.


RE: Producer monopolies never benefit consumers
By Icepick on 4/12/2007 10:02:45 AM , Rating: 1
Agreed. Corporations do not merge to benefit consumers. They do so to make themselves as efficient as possible while reducing competition, thereby, increasing profit. If anything, this will cost consumers much more since there will be no alternative provider to offer a reduced cost and no incentive to keep pricing reasonable. It will also eliminate good jobs as their operations are consolidated. Monopolies never benefit consumers and this one will .


By Seemonkeyscanfly on 4/12/2007 10:51:53 AM , Rating: 4
You are thinking in terms of physical products you can buy, in which you are correct. However, not correct in this service market. In this case all customers have access to all stations and cost could go down, because marketing one product not two, however, they probably will not lower their fees to the consumer. There is still competition in this market. If the consumer feels they are not being fare or they raise their rates, the consumer will vote with the almighty dollars by cancelling their service and listen to AM, FM, CD’s or whatever they choose.


By masher2 (blog) on 4/12/2007 11:02:27 AM , Rating: 3
> "Corporations do not merge to benefit consumers. They do so to make themselves as efficient as possible..."

Making a company more efficient does benefit the consumer. Inefficient companies are forced to charge higher prices, or they go out of buiness....neither of which benefits anyone whatsoever.


RE: Producer monopolies never benefit consumers
By masher2 (blog) on 4/12/2007 11:01:05 AM , Rating: 3
First of all, you have to remember that both companies are hemorrhaging cash badly. If SOMETHING isn't done, one will go out of business and there will be a monopoly on satellite radio regardless.

Second of all, monopolies can and do benefit consumers. Would two separate, disconnected subway systems in NYC be cheaper and more convenient than one? The situation is even more complex in the case of satellite radio, as companies not only compete with each other, but other forms of in-car entertainment, such as terrestial radio, prerecorded content, etc. A monopoly provider couldn't raise prices with impunity...people would simply tune them out and listen to other options.


RE: Producer monopolies never benefit consumers
By jskirwin on 4/12/2007 1:05:52 PM , Rating: 2
quote:
Second of all, monopolies can and do benefit consumers


That's the "Natural Monopoly Argument" (see: http://www.tutor2u.net/economics/content/topics/tr... ) It's commonly applied to transport systems and utilities that require extensive infrastructure building.

Sat radio doesn't qualify, and the idea that monopoly should be allowed to exist so that the government can regulate it is - I believe the economic term for it is "goofy".

Markets self-regulate much better than any gov't bureaucrat, and give the consumer a much greater voice.


RE: Producer monopolies never benefit consumers
By masher2 (blog) on 4/12/2007 1:25:08 PM , Rating: 2
> "It's commonly applied to transport systems and utilities that require extensive infrastructure building...Sat radio doesn't qualify..."

Oops, the "natural monopoly" term is applied to any industry where entry costs or economies of scale are such so that one only firm is able to profitably survive.

In fact, this is the reason why utilities and transport systems are judged natural monopolies. Two subways systems couldn't survive in NYC...the costs of two separate sets of tunnels and tracks would be far too high.

> "Markets self-regulate much better than any gov't bureaucrat"

They sure do...and the market in this case wants to merge. Regulation is preventing them from doing so.


RE: Producer monopolies never benefit consumers
By jskirwin on 4/12/2007 2:20:02 PM , Rating: 2
quote:
A monopoly provider couldn't raise prices with impunity...people would simply tune them out and listen to other options.


Then they aren't a monopoly... I think we're getting caught up in semantics here. I have nothing against the merger and in fact support it.

My beef is with the statement "monopolies benefit consumers". Monopolies CAN benefit consumers, but only if they are regulated - and there is no guarantee that in the end consumers will be better off.


By masher2 (blog) on 4/12/2007 2:39:05 PM , Rating: 2
> "Monopolies CAN benefit consumers, but only if they are regulated..."

I have to disagree here. In nearly all cases, a natural monopoly (i.e. one not mandated by government fiat) benefits the consumer...with or without government intervention. I can point out numerous examples of such, going all the way back to Standard Oil. When it was broken up, oil prices (which had been been steadily declining for decades) immediately rose, and stayed artificially high for many years. Or the case of aluminum, where Alcoa was carved up via antitrust legislation, and the less efficient firms caused prices to rise as well.

Finding a case where a non-government mandated monopoly breakup actually benefitted the consumer is considerably more difficult. But I'm willing to hear any examples you might raise.


By Oregonian2 on 4/12/2007 1:34:31 PM , Rating: 2
quote:
First of all, you have to remember that both companies are hemorrhaging cash badly. If SOMETHING isn't done, one will go out of business and there will be a monopoly on satellite radio regardless.


I agree that before very long there will be only one exactly as you have stated for the reason you stated (I actually agree with you most of the time masher2).

However it's more likely we'll have none whatsoever, IMO, because the damage already done will likely do away with the survivor as well. About the only way that one will stay long term would be if the "last" one can cancel/renegotiate its contracts when under bankruptcy proceedings while simultaneously still being able to get financing for its continuing losses. They've still got to compete with a hundred million iPods and free broadcast radio. :-)

P.S. - I always find it amusing to see the comments (not by masher2) about how companies are always doing horrible things so they can increase profits (for their wealthy owners) -- when in reality the companies (such as these) are losing money hand over fist trying to prevent their death. Possibly losing retirement savings money that an aggressive fund in our 401K has invested. :-)


Monopoly?
By BMFPitt on 4/12/2007 10:55:53 AM , Rating: 2
They're merging two entities that have a combined 10% share of the radio market or something like that, and the other 90% is free. The only people who will be "hurt" by this are the content creators who can't run up absurd contracts from either one trying to get exclusivity.




RE: Monopoly?
By jskirwin on 4/12/2007 1:09:31 PM , Rating: 2
quote:
They're merging two entities that have a combined 10% share of the radio market


Right, but a 100% of the sat radio market. Cable is a recognized monopoly yet only has less than 2/3 of the TV market in the US.


RE: Monopoly?
By masher2 (blog) on 4/12/2007 1:29:30 PM , Rating: 2
You just answered your own question. Cable controls nearly 2/3 of the total TV market. Satellite radio controls 10% of the radio market. That's a huge difference.

Furthermore, cable services many areas for which TV broadcasts are unavailable. But terrestrial radio is available nearly everywhere...Satellite radio is the only radio option for very, very few people.


RE: Monopoly?
By BMFPitt on 4/12/2007 1:37:29 PM , Rating: 2
Not to mention that they are using public utility lines.


The merger will be bad for consumers.
By 91TTZ on 4/12/2007 12:57:39 PM , Rating: 2
We're currently getting a lot of product for a decent price. If the companies merge, the price will quite obviously be increased for the same level of service. Do you really believe that you'll get what you're getting now for the same amount of money?

Also, the channel lineup will suffer. The efficiency gained by merging will come in the form of eliminating redundant jobs. Keeping all of their stations wouldn't make sense for a newly merged company. Instead of having 100 stations on Sirius and another 100 on XM, they'd likely merge it into a unified set of stations that they broadcast to both kinds of receivers. So whether you have an XM receiver or a Sirius receiver, you'd be getting the same stations.

In addition, they'd definitely break the lineup into tiers so they can raise prices. They'd offer a "standard" tier for the same price you're paying now, and then higher level tiers with premium content. Of course much of that "premium" content will be stations that the average listener currently listens to, increasing the chances of them subscribing to the more expensive plan.




By masher2 (blog) on 4/12/2007 1:05:06 PM , Rating: 4
> "We're currently getting a lot of product for a decent price..."

For now, sure. But companies that lose money don't stay in business forever. What happens when one (or both) simply go belly-up?

> "If the companies merge, the price will quite obviously be increased "

Why do you believe this? A merged company will have less overhead, more users to amortize that overhead against, and (most important of all) won't have to outbid their competitor simply to buy programming. Sirius and XM have spent several billion dollars to buy rights to the NFL, MLB, Howard Stern, and other content sources.

In fact, its quite possible that a merged company will, once it consolidates it costs structure, opt to drastically reduce pricing, in order to dip into the vast untapped market of people who would rather listen to terrestrial radio rather than pay $13/month.


Utilities *are* regulated monopolies
By Maetryx on 4/12/2007 10:39:29 AM , Rating: 2
By defining the satellite radio service as a utility, it can be regulated as a necessary monopoly in the exact fashion as power companies, cable TV, local telephone service, natural gas utilities, water supply, sanitary sewer, curbside garbage pickup....

It could work out just fine.




By Moishe on 4/12/2007 1:50:38 PM , Rating: 2
it's not a utility.

radio is a luxury.


I don't believe XM or Sirius
By cerclage on 4/12/2007 1:50:49 PM , Rating: 3
XM and Sirius have promised to simulcast exclusive programming on the opposing platform. They claim they have bandwidth available to do this, but I don't buy it. If they merge, existing programming will either have to be terminated or more greatly compressed to make room for this programming. The streams are already over-compressed.

The merged company would possess the combined bandwidth and FCC licenses of both XM and Sirius, conveniently omitting the possibility of a third entity competing against the merged company (ie Google). If they merge, there should be a limitation giving them either the XM or the Sirius spectrum, not both. The one left should be available for a competitor.

This merger is dead and the market knows it.




What really hurts them both
By Spivonious on 4/12/2007 12:32:42 PM , Rating: 2
If you could pick up both XM and Sirius with one reciever, more OEMs would install them in cars and leave it up to the consumer to choose the service. Imagine your car comes with an AM radio. If you want FM you need to first decide which stations you're more likely to listen to and then buy the 87-100MHz FM tuner. If you later decide that some stations in the 100-107MHz range are better, you must buy a completely new tuner.

This is just like how it is now. I don't know if a merger is the answer, but they should at least agree on an industry standard satellite radio reciever. That way more stations could spring up that aren't necessarily affiliated with XM or Sirius.




more choices
By Moishe on 4/12/2007 1:49:28 PM , Rating: 2
A merge would offer more channels/choices. Not necessarily lower prices. The channels per dollar number would go up and the overhead costs of running two companies (if they're smart will go down). This will end up in a more efficient company for sure and maybe in time there will be a price drop but for now they need the money. A business that loses money with no end in sight is no business at all. It may be that they need to charge $45/mth to break even, but whatever that number is they have to charge at least that much at some point or the whole business is pointless. Some businesses or products simply are not viable and this may be one of them. They are having a tough time trying to sell pay-to-listen radio to a few generations of people who have always had free radio.

The true question is, will they abuse their monopoly or not. Frankly I don't mind a monopoly now and then, but a monopoly is mainly bad when it's abused.




By SpatulaCity on 4/12/2007 6:55:41 PM , Rating: 2
Hey XM/Sirus, don't blame the consumers or the competition for your dumb decisions. How in the world does it make sense to sign Howard Stern for $100 Million per year when you only have 5 million subscribers? Each subscriber would have to pay just over a $1.60 per month just to support the cost of that jackass.




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