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Monopoly mergers

In the digital age, regulators must take a broad view toward competition in media markets.

March 31, 2008

The Justice Department's antitrust division, whose job it is to defend us against monopolies, blessed the proposed merger between XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc. last week, potentially subjecting more than 17 million listeners to something that looks like, well, a monopoly. The division argued that satellite radio is not a distinct market but instead a small slice of the broader one for audio news and entertainment. That's the right framework to judge the deal because it reflects how consumers measure XM and Sirius -- as an alternative to local radio, the Internet and whatever they can load on their iPods and phones.

Digital technologies are bulldozing the barriers to markets for all forms of media, including newspapers, magazines, television and movies. That's why antitrust officials should take the same expansive approach to defining other media markets as they did with XM and Sirius'. But that doesn't mean the federal government should give media companies, networks and broadcasters a free pass to consolidate. Antitrust officials and the Federal Communications Commission still need to consider the relative power of new competitors versus established sources, and the degree to which the public is being compensated for the use of its assets.

The market for audio entertainment is unique in the extent to which consumers have adopted digital alternatives. They've equipped themselves with more than 140 million iPods, and they're tuning in to online radio by the tens of millions. But local radio broadcasters still have the largest audience by far, and consequently the most powerful voices. Meanwhile, the market for video has been fragmented by the proliferation of cable and satellite networks. Yet content providers that have direct access to a TV set, as opposed to a computer screen or a cellphone, have a significant advantage over those that don't -- for now, at least.

The most powerful incumbents in the video and audio markets are the ones that have enjoyed a huge government subsidy: free, exclusive licenses to the public's airwaves. The supply of those frequencies is finite, and it's reasonable to limit their accumulation by broadcasting chains. It's also reasonable for the FCC, which has the final say over mergers by license holders, to impose conditions designed to promote innovation and the public interest. XM and Sirius have already delivered a financial benefit in return for their licenses -- they paid $173 million for them -- and they've pledged to offer more-affordable packages of their service. Nevertheless, the FCC should require the same kind of openness from XM and Sirius as it has started demanding from some wireless companies. It should direct the merged company to open its service to any manufacturer wanting to build compatible devices, and then let customers make their own choices.

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