Answer: The February 2007 announcement that XM Satellite Radio and Sirius Satellite Radio plan to merge has generated heated opposition from terrestrial broadcasters. These interests emphatically claim that they oppose the merger because it will lead to a monopoly that will harm consumers. This fierce opposition is powerful evidence in itself that AM/FM radio – “free radio” – competes with satellite radio, and reveals the true concern of terrestrial stations: that the merger will create a stronger rival better able to meet the needs of consumers. If terrestrial broadcasters genuinely believed that the merger would increase prices and decrease satellite subscriber growth, they would favor the transaction, which would translate into larger audiences and ad revenues for them. Since even before satellite radio systems were launched, broadcasters have consistently argued that the media constitutes a competitive threat, and have repeatedly attempted to restrain this new service, via regulation, to protect their competitive turf. The merger is expected to lift the financial prospects of satellite radio, lower capital financing costs, and foster economies of scale. Consensus estimates identify cost synergies of between $3 billion and $7 billion in net present value – equal (at the mid-point) to about half the aggregate enterprise value of XM and Sirius combined. These savings will permit more aggressive investment in satellite systems and products and prompt competitive responses from terrestrial broadcasters and other competitors. Indeed, terrestrial broadcasters have already launched HD digital radio as a response to satellite radio. Through these efficiencies, XM and Sirius will be able to compete more effectively for market share and will lure more subscribers from “free” radio. That is precisely what terrestrial radio broadcaster’s fear. They recognize that satellite radio is a substitute for their product, and that a merger would enhance the attractiveness of satellite radio as a competitive alternative. While the terrestrial radio broadcasters dress their opposition in the rubric of antitrust law, their strategy to prevent this efficient market restructuring by obtaining regulatory intervention is an attempt to use antitrust law to subvert competition. Answer: In the year prior to Stern joining Sirius, its subscribers numbered less than 700,000 while XM had 2.5 million subscribers. Upon the announcement in October of 2004 that Stern would be broadcasting on Sirius beginning in 2006, Sirius’ stock went up a whopping 15%. After a year of trumpeting his journey to Sirius radio, Howard Stern had his initial broadcast on Sirius in January of 2006. By this time the number of subscribers to Sirius had risen to well over 3 million. The bidding war between XM and Sirius for the services of Howard Stern had been extremely competitive with Stern able to leverage a five year contract out of Sirius estimated to have been worth as much as $500 million in ca.

1. Answer: The February 2007 announcement that XM Satellite Radio and Sirius Satellite Radio
plan to merge has generated heated opposition from terrestrial broadcasters. These interests
emphatically claim that they oppose the merger because it will lead to a monopoly that will harm
consumers. This fierce opposition is powerful evidence in itself that AM/FM radio – “free radio”
– competes with satellite radio, and reveals the true concern of terrestrial stations: that the merger
will create a stronger rival better able to meet the needs of consumers. If terrestrial broadcasters
genuinely believed that the merger would increase prices and decrease satellite subscriber
growth, they would favor the transaction, which would translate into larger audiences and ad
revenues for them. Since even before satellite radio systems were launched, broadcasters have
consistently argued that the media constitutes a competitive threat, and have repeatedly
attempted to restrain this new service, via regulation, to protect their competitive turf. The
merger is expected to lift the financial prospects of satellite radio, lower capital financing costs,
and foster economies of scale. Consensus estimates identify cost synergies of between $3 billion
and $7 billion in net present value – equal (at the mid-point) to about half the aggregate
enterprise value of XM and Sirius combined. These savings will permit more aggressive
investment in satellite systems and products and prompt competitive responses from terrestrial
broadcasters and other competitors. Indeed, terrestrial broadcasters have already launched HD
digital radio as a response to satellite radio. Through these efficiencies, XM and Sirius will be
able to compete more effectively for market share and will lure more subscribers from “free”
radio. That is precisely what terrestrial radio broadcaster’s fear. They recognize that satellite
radio is a substitute for their product, and that a merger would enhance the attractiveness of
satellite radio as a competitive alternative. While the terrestrial radio broadcasters dress their
opposition in the rubric of antitrust law, their strategy to prevent this efficient market
restructuring by obtaining regulatory intervention is an attempt to use antitrust law to subvert
competition.
Answer: In the year prior to Stern joining Sirius, its subscribers numbered less than 700,000
while XM had 2.5 million subscribers. Upon the announcement in October of 2004 that Stern
would be broadcasting on Sirius beginning in 2006, Sirius’ stock went up a whopping 15%.
After a year of trumpeting his journey to Sirius radio, Howard Stern had his initial broadcast on
Sirius in January of 2006. By this time the number of subscribers to Sirius had risen to well over
3 million. The bidding war between XM and Sirius for the services of Howard Stern had been
extremely competitive with Stern able to leverage a five year contract out of Sirius estimated to
have been worth as much as $500 million in cash and stock. A major provision of Stern’s 2004
contract with Sirius was a bonus provision by which Sirius would make substantial stock
payments to Stern if Sirius exceeded its subscriber estimates in any year by more than two

2. million subscribers. Following the first year of the contract, Sirius paid the stock bonus payment
to Stern’s production company based upon its estimates of subscribers at 3,707,000 and the
number of actual subscribers by the end of 2006 reaching more than 6 million.
Solution
Answer: The February 2007 announcement that XM Satellite Radio and Sirius Satellite Radio
plan to merge has generated heated opposition from terrestrial broadcasters. These interests
emphatically claim that they oppose the merger because it will lead to a monopoly that will harm
consumers. This fierce opposition is powerful evidence in itself that AM/FM radio – “free radio”
– competes with satellite radio, and reveals the true concern of terrestrial stations: that the merger
will create a stronger rival better able to meet the needs of consumers. If terrestrial broadcasters
genuinely believed that the merger would increase prices and decrease satellite subscriber
growth, they would favor the transaction, which would translate into larger audiences and ad
revenues for them. Since even before satellite radio systems were launched, broadcasters have
consistently argued that the media constitutes a competitive threat, and have repeatedly
attempted to restrain this new service, via regulation, to protect their competitive turf. The
merger is expected to lift the financial prospects of satellite radio, lower capital financing costs,
and foster economies of scale. Consensus estimates identify cost synergies of between $3 billion
and $7 billion in net present value – equal (at the mid-point) to about half the aggregate
enterprise value of XM and Sirius combined. These savings will permit more aggressive
investment in satellite systems and products and prompt competitive responses from terrestrial
broadcasters and other competitors. Indeed, terrestrial broadcasters have already launched HD
digital radio as a response to satellite radio. Through these efficiencies, XM and Sirius will be
able to compete more effectively for market share and will lure more subscribers from “free”
radio. That is precisely what terrestrial radio broadcaster’s fear. They recognize that satellite
radio is a substitute for their product, and that a merger would enhance the attractiveness of
satellite radio as a competitive alternative. While the terrestrial radio broadcasters dress their
opposition in the rubric of antitrust law, their strategy to prevent this efficient market
restructuring by obtaining regulatory intervention is an attempt to use antitrust law to subvert
competition.
Answer: In the year prior to Stern joining Sirius, its subscribers numbered less than 700,000
while XM had 2.5 million subscribers. Upon the announcement in October of 2004 that Stern
would be broadcasting on Sirius beginning in 2006, Sirius’ stock went up a whopping 15%.
After a year of trumpeting his journey to Sirius radio, Howard Stern had his initial broadcast on
Sirius in January of 2006. By this time the number of subscribers to Sirius had risen to well over

3. 3 million. The bidding war between XM and Sirius for the services of Howard Stern had been
extremely competitive with Stern able to leverage a five year contract out of Sirius estimated to
have been worth as much as $500 million in cash and stock. A major provision of Stern’s 2004
contract with Sirius was a bonus provision by which Sirius would make substantial stock
payments to Stern if Sirius exceeded its subscriber estimates in any year by more than two
million subscribers. Following the first year of the contract, Sirius paid the stock bonus payment
to Stern’s production company based upon its estimates of subscribers at 3,707,000 and the
number of actual subscribers by the end of 2006 reaching more than 6 million.