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DirecTV-Dish Network Merger, Round 2

Time for the government to recognize the media landscape has changed

Steven Titch
September 12, 2008

Get ready for another new media antitrust rumble.

According to media reports, DirecTV and Dish Network, the two major providers of direct broadcast satellite TV, are pondering another merger attempt. Although neither side so far has confirmed negotiations are taking place, some reticence is understandable considering the 500-day ordeal Sirius and XM Satellite endured before the government green lit their deal. DirecTV and Dish tried this route back in 2001, but regulators, in an exceedingly narrow definition of the TV and video distribution market, blocked the merger as anticompetitive.

If this second attempt proceeds, it will likely provide a first glimpse into the telecom and media policy approach of the next administration. The hope is that whichever party claims the White House will demonstrate an understanding of convergence and intermodal competition that, evident as it was eight years ago, is undeniable now.

But it's hard to be optimistic given how the Sirius-XM deal went. Consumers see satellite radio as one of several choices for radio entertainment that also includes conventional AM and FM, not to mention the playlists on their own iPod and MP3 players that can now be plugged into many car audio systems. And since satellite radio is a choice for home listeners, we can add Internet radio as a competitor, too.

The satellite radio players also saw themselves as part of a bigger competitive field. When Sirius gave Howard Stern the big bucks, the shock jock was working for a conventional radio conglomerate, not XM. The Stern deal should have been a big hint to bureaucrats that Sirius and XM were battling AM/FM, not just each other, for listeners.

Unfortunately, the antitrust forces did not see it that way. Instead, the Department of Justice, the Federal Trade Commission and the Federal Communications Commission got hung up on the idea that one satellite radio broadcaster would constitute a dangerous monopoly and pose significant harm to consumers.

Because listeners of satellite radio paid for commercial-free service, both agencies tried to argue that satellite constituted a completely different segment than terrestrial AM/FM radio. Yet neither agency could adequately explain how, as a merged provider, Sirius-XM Satellite could truly harm consumers. After all, they were providing the same service that conventional broadcast stations still provided for free. This fact itself was a chief barrier to consumer uptake. Price-gouging wouldn't exploit customers. It would just increase their reluctance to sign up, or to stay with the service.

In March, as both companies struggled amid falling stock prices and "fence-sitting" by customers who were deferring a purchasing decision in order to see which of the two companies would be left standing, the FTC and the Justice Department finally came around to realizing that consumers would benefit more from having one satellite radio service provider than having none at all. However, FCC chairman Kevin Martin, demonstrating his usual astuteness for the industry he regulates, delayed a decision for four more months as he tried in vain to find a convincing reason stop the Sirius-XM deal. In July, he dropped all objections and basically agreed that that a Sirius-XM deal was not a danger to competition for broadcast audio and would not hurt consumers.

Neither will a prospective DirecTV-Dish merger. Worse, video consumers will not be served if regulators repeat the Sirius-XM episode and allow drag out antirust deliberations indefinitely.

Since little is likely to happen before the November election, if DirecTV and Dish proceed with a merger plan, the new administration will have a chance to show it can regulate media like it is 2009, not 1979.

Satellite broadcasters are not the companies they once were. In the 1980 and '90s, by leveraging popular distaste for the local cable monopolies and providing cable-equivalent programming in areas the cable companies didn't serve, satellite TV companies carved out a 25 percent share of the market. Yet, as far back as 2001, they could see their business was peaking as the telephone companies made their first hesitant steps into video. Still, their attempt to merge back then was blocked by a lack of regulator foresight.

Today, satellite companies are in a position of weakness. They have no real high-speed Internet play, as do cable and phone companies. They have had problems adding high-definition channels. And their video-on-demand choices to do not stack up well compared to cable and telephone competition.

Their competitive problems are reflected in their numbers. Dish Network just saw its first net quarterly loss of customers. And both companies are failing to win a significant share of new customers for multichannel video services. A study last year by Kagan Research found that between 2005 and 2006, telephone companies share of multichannel subscribers grew to 8.7 percent from 0.1 percent. Satellite stayed nearly flat, growing to 29.7 percent from 29 percent.

But that brings us back to the big question: will the Justice Department, the FTC and the FCC regard now-established video services like Verizon's FiOS, AT&T's U-verse, plus the upgraded cable service offerings, not to mention Netflix, and Web-based video on demand services like Hulu.com, and Amazon Unbox, as legitimate market alternatives for the services DirecTV and Dish provide? It would make a world of sense if they did.

And let's not forget that there is a substantial portion of the population that has chosen satellite TV and, we can assume, enjoys it. If we reached a point, and it seems we have, where the market can support just one video provider using a satellite platform, let the merger happen. And as long consumers have a choice of multiple services providing them with the video and TV they prefer, there's no threat of a monopoly danger from the one provider who happened to use direct broadcast satellite as a means of TV delivery. As with satellite radio, affording consumers one option of a satellite provider beats not having any at all.



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