TCS Daily


No Ear Ache: Let Sirius and XM Merge

By John E. Tamny - February 22, 2007 12:00 AM

If you want to understand whether or not to be worried about the proposed merger between satellite radio firms XM and Sirius, a little history lesson is in order.

On November 18, 1906 the federal government filed suit to break up John D. Rockefeller's Standard Oil under the Sherman Anti-Trust Act. The world's richest man, Rockefeller's oil trust refined 87 percent of all kerosene, and handled 87 percent of all kerosene exports. Always late to the game, the federal government brought suit against Standard just as the invention of the light bulb threatened the kerosene industry with obsolescence.

At the same time gasoline was thought a nearly valueless oil by-product, and when it couldn't be sold for 2 cents a gallon, it was disposed of completely. Little did the U.S. Justice Department know, oil discoveries in Texas and Russia combined with mass production of automobiles would soon erode whatever control Standard had over the oil industry, not to mention market power over previously useless gasoline. Had the federal government not weakened Standard, unforeseen market forces would have.

Responding to the proposed merger between Sirius Satellite and XM Radio, FCC Chairman Kevin Martin noted that the anti-trust hurdle "would be high," and that the "companies would need to demonstrate that consumers would clearly be better off" in the merger's aftermath. But before blocking the nascent combination, Martin would do well to heed business history which shows how difficult it is for anyone to predict what the commercial landscape will look like in the future.

In 1976, two American Motors executives said if GM's growth weren't halted, "they might find themselves selling the whole market," and that if "they wanted to wipe out everybody by 1980, the only one who could stop them is the government." Nearly thirty years later the once impregnable GM announced losses of $10.6 billion alongside the rise of formerly-irrelevant Toyota. The latter will soon topple GM as the world's largest carmaker, with a market capitalization greater than that of GM, Ford, Daimler-Chrysler, Honda and Nissan combined.

If the stories of Standard and GM have a familiar ring to them, it is because dominant companies in the U.S. have regularly been knocked from their perches by seemingly insignificant competitors. Former anti-trust target IBM's failure to see the potential of the personal computer led to Microsoft's ascendance with Windows, and much like IBM, Microsoft (targeted by anti-trust forces in the late '90s) failed to see the transformative nature of the Internet in time to stop Yahoo and Google among others.

More recently, while the Justice Department sought to stop "anti-competitive" combinations in the movie-rental industry, Netflix stepped in and transformed the industry altogether with no-late fee delivery by mail. Amazon has recently unveiled Unboxed video downloads, thus raising the question of whether Netflix isn't the next former category killer soon to be made extinct.

Returning to Sirius and XM Radio, just as they caught free radio asleep to the potential of fee-based based music and talk, the latter now faces competition from Ipods, cell phones, and HD Radio; three options that did not exist when Sirius and XM secured their licenses back in 1997. Rather than restrict the ability of Sirius and XM to act in what they deem their economic interest, the FCC would best stimulate competition by allowing the merger to occur unfettered.

Indeed, if the federal government succeeds in distorting market-driven combinations, capital made available to the radio/music sector will necessarily shrink. In order to ensure the greatest amount of competition for the "ears" of U.S. and international listeners in the future, the FCC would do most for the consumer by sitting back and watching what unfolds. If the past is any kind of indicator, competition will arise from an unknown corner; one that will catch the FCC and the industry it regulates totally unaware.

John Tamny is a senior fellow at the Manhattan Institute, and editor of RealClearMarkets. He can be reached at jtamny@realclearmarkets.com


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5 Comments

IBM and Windows
The rise of Microsoft is far more complicated than IBM failing to see the importance of personal computers. IBM was an early player in this market and dominated it for years. What did IBM in was the emergence of IBM compatibles led by Compaq. By the time Microsoft released a usable version of Windows, the PC had become a commodity item. IBM still had a large market share when they exited the market due to shrinking margins.

Except for OS/2 which started as a joint project with Microsoft, IBM was always a hardware manufacturer while Microsoft writes software. The two were never in serious competition with each other. Even when IBM was selling OS/2, it was the world's largest reseller of Windows.

So Rockefeller was an idiot and couldn't have made good
With the new product and the new market. Man is the comparison nieve. If anything, Standard Oil was broken up at just the right time, else it may have really developed into a monopoly in the U.S. (with a little government help).

kind of
IBM made (in the 'mob' sense) MSFT what it is, read up a little on the history of DOS, IBM didn't see the writing on the wall and let gates/MSFT get away with too much in their licensing of DOS to IBM which is what made companies like Compaq viable

also, the writer of the article talks about MSFT being usurped by google... um, MSFT still has about 90% of the desktop market and google has no OS from what they say publicly, yeah its a *huge* company but it hasnt knocked down the 'king of the mountain' and doesnt look to be in position to do so (just yet, though i'd certainly welcome it)

DOS History
In the early days PC makers could license MS-DOS which was nearly identical to PC-DOS (IBM's version). No one was interested because applications like Lotus went around the operating system and directly called the BIOS. IBM thought that this protected their market and they were right until AMI developed a clean-room BIOS that was compatible AND won a court case saying that this was legal.

Other computer makers were having similar problems at the same time. Apple II clones were fairly common and even the Radio Shack Color Computer was cloned as the Dragon in Britain.

Regardless, my point was that IBM was a hardware company and Microsoft is a software company.

Similarly, Google is a web company. They might steal some of Microsoft's Office business but they don't even try to compete in operating systems.

touchee
>Regardless, my point was that IBM was a hardware company and Microsoft is a software company.

good point
just for reference its history lessons such as http://www.quepublishing.com/articles/article.asp?p=339470&rl=1 that i get my information from, in 81 i was still in diapers ;)

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