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Sirius XM merger 09

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Research presented at the 2009 SRLA conference on the Sirius-XM merger and its effect on sport media rights.

Research presented at the 2009 SRLA conference on the Sirius-XM merger and its effect on sport media rights.

Published in: Business, Technology

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  • XM launched in 2001; Sirius in 2002
  • Federal Communications Commission (2008). Memorandum opinion and order and report and order (FCC 08-178). Washington, DC: Author.
  • Saghir, R. (2008, Oct. 28). NBA gets officially official on XM (and Sirius). Orbitcast. http://www.orbitcast.com/archives/nba-gets-officially-official-on-xm-and-sirius.htmlVan Buskirk, E. (2008, Oct. 20). Sirius subscribers lose NBA programming following XM merger. Listening Posthttp://blog.wired.com/music/2008/10/early-satellite.html
  • Sorkin, A. R., & Kouwe, Z. (2009, Feb. 11). DirecTV owner said to seek deal for Sirius XM. New York Times.http://www.nytimes.com/2009/02/12/business/media/12radio.html?_r=2&ref=businessSandomir, R. (2009, Feb. 11). Smart play for baseball and NFL in Sirius dealshttp://www.nytimes.com/2009/02/12/sports/12sandomir.html
  • Maher, R. (2009, Feb. 17). 8k watch: The fine print on the Sirius-Liberty deal. Paid Content.http://www.paidcontent.org/entry/419-sirius-8k-provides-additional-detail-on-liberty-transaction-good-deal-f/
  • Transcript

    • 1. When industry consolidation does not equal monopoly: The merger of XM and Sirius and its impact on sports media rights
      Stephen W. Dittmore
      Merry Moiseichik
      University of Arkansas
    • 2. In the beginning…
      XM and Sirius emerged as the two major providers of satellite radio services in the early portion of the decade
      The two competed against one another to purchase rights to exclusive radio content of sport organizations
      Result was hundreds of millions of dollars in revenue for sport bodies (Bruscas, 2005)
    • 3. Exclusive Contracts
      • XM
      • 4. 11-yr deal worth $650 million for MLB through 2015
      • 5. 10-yr deal worth $100 million for NHL through 2015
      • 6. Deals with PGA Tour, U.S. Open Series and U.S. Open tennis expired after 2008
      • 7. NBA switched to XM in 08-09 after being with Sirius since 2003
      • 8. Sirius
      • 9. 7-yr deal worth $220 million for NFL through 2010
      • 10. 5-yr deal worth $107 million for NASCAR through 2011
      • 11. Deal with AFL expired after 2008
      (Source: Ourand, Sports Business Journal, Feb. 26, 2007, p.3)
    • 12. Financial Problems
      As both struggled to attain profitability, the two companies proposed a merger in February 2007
      The U.S. Department of Justice began reviewing the proposed merger under the context of antitrust violations on March 22, 2007
    • 13. Purpose of Antitrust
      Perfect Competition
      Numerous sellers and buyers
      Consumers register preference (Supply and Demand)
      All prices are known to producers
      Every producer has equal access to input markets
    • 14. Antitrust
      §1 Every contract, combination in the form of trust or otherwise or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal
      §2 Every person who shall monopolize, or attempt to monopolize or combine or conspire with any other person…. Guilty of felony
      Congress mandates courts to determine direction
    • 15. Commercial
      Must be a commercial Enterprise
      Radio communication is commercial
      Must have significant anticompetitive effects
      Does the merger have anticompetitive effects?
      Part of interstate commerce
      It is interstate as it is national
    • 16. §2 Monopolies
      One actor shutting out another
      a market in which there are many buyers but only one seller;
      Increase Prices
      Reduces availability of goods or services
      Lowers quality of service
      Stifles innovation
    • 17. Monopoly
      Unreasonably excludes firms from market
      Significantly impairs ability to compete
      Predatory price fixing
    • 18. Mergers
      Section 7 of the Clayton Act prohibits mergers and acquisitions where the effect "may be substantially to lessen competition, or to tend to create a monopoly." Determining whether a merger will have that effect requires a thorough economic evaluation or market study.
    • 19. Reason to ? Mergers
      When a merger enables a single firm to increase prices without coordinating with its competitors, it has created a unilateral effect. A firm might be able to increase prices unilaterally if it has a large enough share of the market, if the merger removes its closest competitor, and if the other firms in the market can’t provide substantial competition.
    • 20. After the Merge
      Market substantially concentrated
      Difficult for new first to enter market and provide effective competition
      Not an issue here
      2 radio versions – customized to each Network- long time to make change
      Will be able to increase efficiencies
    • 21. Market
      AM/FM Radio
      HD Radio
      MP3 Players
      Evolution of Future
      Technology
      Limit price increase
    • 22. FCC Authorization
      “In light of the importance of local sports programming to terrestrial radio stations, we prohibit the merged entity from entering into any agreements that would preclude terrestrial radio station from broadcasting live sporting events.” (FCC 08-178, ¶ 155)
    • 23. Fallout - NBA Switch
      From 2003 to this past October 2008, NBA games were available exclusively on Sirius
      Following the merger, the games were available only through a “Best of XM” package after the NBA switched rightsholders
      Subscribers with an older model Sirius radio did not have the ability to receive “Best of XM” package despite assurances from post-merger company (Saghir, 2008; Van Buskirk, 2008)
    • 24. Bankruptcy?
      New York Times reports on Feb. 11, 2009 that Sirius XM Radio retains bankruptcy lawyer in advance of $175 million in debt payments due (Sorkin & Kouwe, 2009)
      MLB and NFL shielded from financial harm because of clauses requiring future Sirius XM payments be deposited into escrow accounts (Sandomir, 2009)
      Sirius placed $85 million in escrow to cover 2006 to 2009 rights payments
      XM placed $120 million in escrow to cover 2009 and 2010 rights payments (and borrowed $62.5 million to do so)
    • 25. Liberty Media
      Liberty Media, owner of Atlanta Braves and majority owner of DirecTV, loan Sirius XM $530 million secured by lien on Sirius assets
      $280 million secured with 15% interest; Of that $171.6 million paid to EchoStar as repayment of prior loan
      First major principal payment is due Jan. 1, 2012
      Liberty agrees it cannot own equity in Sirius in excess of 49.9% (Maher, 2009)
    • 26. Discussion and Conclusions
      DOJ broadly defined the competitive market to include technologies outside of satellite radio
      Leagues and governing bodies entering into exclusive media rights arrangements , especially with upstart businesses, are smart to protect themselves financially
      While the merger of Sirius and XM may not have hurt the consumer (in the eyes of the DOJ and the FCC), it has harmed the ability of leagues to receive commensurate rights fees in the future
      Although, this may be less concerning since the leagues had not conceived this revenue stream eight years ago
    • 27. Thank you