Business Insight Zone

Generally I like Kevin Kelleher’s work, and that includes the first four-fifths of this piece on the proposed combination of Sirius and XM Satellite Radio:

XM/Sirius: The Wedding March Goes On

It was starting to look like the merger that time forgot. . . .

Kelleher gives a nice overview of how the two satellite radio companies have proposed a tiered subscription system to calm the worries of Kevin Martin and other FCC commissioners.

But then Kelleher takes an unusual — and apparently wrongheaded — turn:

Of course, if XM and Sirius were really interested in giving consumers the best offering, they wouldn’t combine at all. They’d also end all their exclusive relationships with MLB, the NFL and personalities like Oprah Winfrey and Bob Dylan, provide the kind of flexible pricing they are offering now only under duress — and let consumers choose.

That would be a true market-driven approach. This slowly brokered merger is the best we’re going to see. But if it helps push the cable companies to be more flexible, it would be worth the wait.

I say “apparently” wrongheaded because I’m still not sure I understand exactly what Kelleher is getting at. Sirius and XM have lined up exclusive programming just like all other broadcasters, whether we’re talking about ESPN (e.g. exclusive rights to Monday Night Football), NPR (exclusive rights to Car Talk etc.), or ABC (Grey’s Anatomy and so on). It’s not clear to me why the satellite radio providers should do anything different, and Kelleher doesn’t supply the links in the chain of his reasoning.

My own take is that this deal is somewhat like what I said about the Whole Foods acquisition of Wild Oats, which the FTC ridiculously opposed: two niche purveyors combine forces not to monopolize a niche, but to beef up so they can take on broad-range competitors in the larger market.

Whole Foods isn’t just competing with high-end or organic-only stores, but with Wal-Mart, Safeway, and every other grocery retailer that offers high-end and organic foods. XM and Sirius aren’t going to weild a pricing crowbar against satellite radio consumers, but try to use their combined strength to compete with the massively larger purveyors of terrestrial radio, plus Apple, Microsoft, and every other seller of networkable audio devices.

Maybe Kelleher will clarify what he meant in his post, but so far I have a hard time buying his position.