If You Can't Beat 'Em, Regulate the Hell Out of 'Em

Radley Balko | March 25, 2008

Now that the Justice Department has handed defeat to the National Association of Broadcaster's high-profile (but laughable) campaign against the XM-Sirius satellite radio merger, they're taking a new tack: regulate away satellite's advantages.

Clear Channel is asking the FCC to slap a series of regulations on satellite radio before approving the merger, including requiring XM-Sirius to abide by FCC decency regulations, banning any local broadcasting or advertising (both companies currently offer traffic and weather for large metropolitan areas), minimum public interest programming requirements, and—somewhat surprisingly—licensure for a competing satellite provider.

I actually agree with the last one. I've never understood why the federal government only allowed for two satellite radio providers in the first place.

The other requirements are ridiculous. Whatever you think of FCC decency regulations, satellite radio is a subscription service. Customers pay for what they're getting. You can also easily block objectionable material. As for barring local programming, I'm intrigued to see how Clear Channel plans to argue that limiting competition to terrestrial radio's local coverage would in any way benefit consumers.

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Kenobi|3.25.08 @ 2:19PM|#

What does this mean, Balko?

"I actually agree with the last one. I've never understood why the federal government only allowed for two satellite radio providers in the first place."

|3.25.08 @ 2:20PM|#

Radley Balko|3.25.08 @ 2:25PM|#

Fifteen years or so ago, the FCC granted only two spectrum licenses for satellite radio. XM and Sirius won them. If memory serves, it was lobbying from NAB that persuaded the agency to limit the number of licenses to two. The amount of spectrum available for satellite radio is virtually limitless. We could well have had a dozen or more providers if the government had allowed it--which would have meant more competition, more business models, and probably a faster route to profitability.

mp: Thanks. Fixed.

Episiarch|3.25.08 @ 2:26PM|#

including requiring XM-Sirius to abide by FCC decency regulations

They'd have a hard time explaining why this is OK but they don't (can't, theoretically) regulate cable TV. Well, I guess it's a bandwith thing, but still, it's a for-pay service.

thoreau|3.25.08 @ 2:27PM|#

I admit to being skeptical that media consolidation is just peachy, but I also believe that the solution is to allow more competition rather than put the regulators and the monopolists in a room where they can strike a deal. Radley is exactly right in saying that the most useful part of this ruling is the decision to allow more satellite radio licenses.

Brandybuck|3.25.08 @ 2:27PM|#

Waaah! My revenues are dropping! Waaah! My content is bland! Waaah! Make the big bad competitor go away! Waaah!

Ramsey|3.25.08 @ 2:33PM|#

God I hate clear channel, thanks for reminding me why. I got satellite radio to get away from those cookie cutter ad-flogging shit-stains in the first place. The un-censored media is just icing on the cake.

Dave W.|3.25.08 @ 2:37PM|#

I admit to being skeptical that media consolidation is just peachy

*wipes a tear, a tear of pride*

tarran|3.25.08 @ 2:42PM|#

As for barring local programming, I'm intrigued to see how Clear Channel plans to argue that limiting competition to terrestrial radio's local coverage would in any way benefit consumers.

Why be intrigued? Just read one of the many justifications for anti-trust law. Anti-trust law's raison d'etre is to limit or reduce consumer access to the lowest-cost/most-capable provider of some good or service.

|3.25.08 @ 2:42PM|#

Holy rent seeking, Batman! Clear Channel, a large, established and profitable corporation is asking the govenment to hobble their upstart competition. I'm, to say the least, unsurprised.

Cue some idiot to explain how the government protects us from monopolies.

|3.25.08 @ 2:43PM|#

I don't understand how Clear Channel can "ask" the FCC anything. I can understand why you might want input from other folks playing a similar game, but the minute they start wanting concessions like that, you've got to be extremely suspicious. It would be nice if those making the rules would err on the side of the free market. I guess asking regulators to show some restraint of their power and stick to some sort of principle is just too much! I think it also goes to show you that the regulators are probably not that knowledgeable about the medium, at least as long as I don't get to thinking about the possibility that it's a completely corrupted process.

JMR|3.25.08 @ 2:52PM|#

Interesting that Clear Channel (and presumably by extension the NAB) is trying to stop satellite radio from offering local fare, while Congressman Ed Markey is saying we need to gum up the works on the merger until satellite radio offers up more local fare (among other conditions).

I had assumed Markey's desire to throw up roadblocks to this merger was because he was getting greased by the NAB. Either he is not, or they need to get their talking points coordinated.

|3.25.08 @ 2:56PM|#

The amount of spectrum available for satellite radio is virtually limitless. We could well have had a dozen or more providers if the government had allowed it--which would have meant more competition, more business models, and probably a faster route to profitability.

Hmm. I'm not sure about that "probably." It may be that competition from free terrestrial broadcasters would always mean that, in the short term, the optimal sized market for satellite providers would be one. (Just as Iridium showed that even one satellite phone provider couldn't make a profit.) Terrestrial radio does compete with satellite radio.

If the two FCC-approved satellite broadcasters were making money hand over fist, then yes, it would seem obviously to me like a case of them benefiting from the FCC limiting the number of broadcasters and granting them an duopoly. But it's the terrestrial outfits, not Sirius/XM making the money.

I agree that the FCC shouldn't limit the number of broadcasters (beyond certain technical limits about spectrum that have not been reached), but the argument that "satellite radio would be more profitable if only they weren't a monopoly" seems unlikely to me. It seems rather more likely to me that the NAB wanting a second satellite radio outfit indicates that satellite competition would make the XM/Sirius combination less profitable, not more profitable, independent of whether that competition would be a good thing.

|3.25.08 @ 2:57PM|#

Ah, remember those halcyon days, when thoreau was for media consolidation?

|3.25.08 @ 3:05PM|#

Color me unflapped as well. I hope like hell the FCC fuck us all, but why stop now. The FCC is the most obscene agency in all mainstream media. Stick that in your irony pipe and smoke it. Ron Paul might have done better demanding an end to the FCC than the Fed.

|3.25.08 @ 3:06PM|#

I hope like hell the FCC doesn't fuck us all

*grumble grumble

Anti-trust laws raison d'etre is not to limit access to the cheapest competitor...

Those rules about how many stations so and so can own might have been justified with anti-trust language but its all about politics. Nobody gives a rats ass about how many stations a guy owns if all he does is play seinfeld reruns.

Anti-trust is actually a pretty interesting and generally aims towards making sure prices are determined by how much people are willing to pay for a product, not how much they will pay if they don't have any other option. It's not a half bad area of the law and it has a much worse rep with libertarians than it really deserves. If it weren't for anti-trust laws it'd be pretty difficult to make arguments that the market is fair with a straight face. You'd have a lot more of this kind of stuff like Clear Channel trying to screw sattelite radio rather than bother with broadcasting a signal with a bit of originality in it.

I wish ClearChannel would ask the FCC to relax regulation on themselves rather than add new regulation to satellite radio.

|3.25.08 @ 3:11PM|#

Wow, your really puzzled about why they only allowed two licenses? have you checked the content of these two networks?

the political talk is made up of big government-Wilsonian-Teddy Roosevely-war-police state worship set off against marxist "we are going to take from you to help the common good and impeachment is off the table" channels.

The channels are paired up like WWF matches and the backers are all clearly tracked back to established CFR members.

I admit to finding the broader choices in music, sports and comedy channels an improvement, but it is clear that the government/business monopolies collaborate to limit competition. You really wonder about this fact?

|3.25.08 @ 3:13PM|#

And in other news, ClearChannel is evil:

http://www.radio-info.com/smf/index.php/topic,95779.0.html#top

tarran|3.25.08 @ 3:39PM|#

Anti-trust is actually a pretty interesting and generally aims towards making sure prices are determined by how much people are willing to pay for a product, not how much they will pay if they don't have any other option.

Toxic, this is a commonly held fallacy. However, in reality the operation of anti-trust is to force consumers to do business with people they otherwise would not do business with.

The first push for anti-trust came from regional businesses that found themselves being put out of business by the increased competition inherent to the growth of the railroads. The lobby that really popularized anti-trust theory in the late 19th century was a political action group on behalf of slaughterhouses being put out of business by the Chicago meatpacking industry.

Note that the anti-trust law always kicks in when one guy is dominating the market because they are actually charging far lower prices than any competitor can charge.

This was the case for Standard Oil, Alcoa, IBM and Microsoft.

If one looks at the "predatory" monopolies one finds only monopolies like A.T&T which were granted a monopoly by government fiat. In the case of A.T. & T., the federal Government seized the facilities of literally hundreds of phone companies and gave them to A T & T to operate on behalf of the U.S. government for the duration of World War I. This monopoly was not rescinded at the end of the war. When it eventually was formally rescinded, the FCC made it prohibitively expensive for new competitors to enter the field).

In the end, the traditional bogeyman of some businessman cornering some market and then chargin massively expensive prices has never been realized. It has been tried, but generally the results are disastrous for the would be monopolist. A classic case is that of Pierre DuPont who faced just that problem with a cartel from Europe for some chemical critical to gunpowder manufacture.

When DuPont started competing with them, the cartel members decided to drive him out of business through predatory pricing. They slashed prices below DuPont's production costs. Du Pont laid off all his workers, mothballed his plants and bought every shipment he could as soon as it came into port. His competitors lost money with every shipment that they made. When they started raising their prices, Du Pont sold off his stocks at below their production costs. In the end, the cartel was bankrupt. Their attempt at predatory pricing had subsidized their destruction.

When one really digs into anti-trust law, comparing the way economies really work to the theory behind the law, it is clear that the legal theory is about as inaccurate as the legal doctrine underpinning the Salem witchcraft trials. The people who lobbied hardest for anti-trust law, and its chief beneficiaries, have universally been politically connected people who have found their businesses struggling in the face of leaner and more efficient competitors who are better able to serve the public.

The purpose of anti-trust law is, based on how it operates and how it benefitted its early proponents, to prevent consumers from doing business with the most capable providers of a service. We can say this with the same confidence as we can say that the purpose of the anti-witchcraft laws were purposed to transfer land and property away politically unconnected women who had the means to live independently to their politically more connected neighbors.

D.A. Ridgely|3.25.08 @ 3:46PM|#

I admit to being skeptical that media consolidation is just peachy

-- *wipes a tear, a tear of pride*

-- -- Ah, remember those halcyon days, when thoreau was for media consolidation?

Oh yes, I recall. "Thoreau the Monopolist" we all used to call him back then.

thoreau|3.25.08 @ 3:52PM|#

That's back when I wore a top hat and monocle and ate poor Irish babies (with a side of coal miner's daughter kidney) for lunch.

|3.25.08 @ 3:59PM|#

tarran - do you have any sources that you would be willing to share? I'm particularly interested in what you said about anti-trust occurring initially during the growth of railroads. I read a paper concerning that time, specifically in regards to the anti-competitive practices of certain rail companies, but haven't been able to find it in ages.

|3.25.08 @ 4:11PM|#

including requiring XM-Sirius to abide by FCC decency regulations,

That would negate some of the allure of satellite radio, to Clear Channel's advantage.

banning any local broadcasting or advertising (both companies currently offer traffic and weather for large metropolitan areas)

Clearly Clear Channel doesn't want the competition for local interest broadcasting.

minimum public interest programming requirements

I'm sure some of the content already on satellite radio would meet minimal requirements.

licensure for a competing satellite provider.

Sure. The FCC should license anyone who wants to provide a competing service.

Paul|3.25.08 @ 4:16PM|#

I admit to being skeptical that media consolidation is just peachy,

What media consolidation?

Dave W.|3.25.08 @ 4:21PM|#

Ah, remember those halcyon days, when thoreau was for media consolidation?

Well, I stand corrected, gry. I see that you were there last time T. decried media consolidation, but that I was not a-"board" yet back in late '03:

http://www.reason.com/blog/show/103653.html

I was busy moving to Canada right then. It was my third day in the drug den. Ahhh, bad times. Anyway, T.'s analysis back then is defo worth revisiting. Specifically, he was considering a thesis (that he attributed to one Kevin Carson) that government regulation was the cause of media consolidation, which he admitted was bad. Of course, here the consolidation is problematic largely because of the just-two-licenses problem, and it looks like the Kevin Carson thesis is useful to help explain the problem. So, good for 2003style T.!!!

My own read is that government only gave out two licenses because the rich part of the private sector has trained them not to be vigilant about consolidation, over time and thru think tanks and other lobbying. I mean, Mr. Balko's position is pretty tenuous here:

- having only two competitors is bad because the government set up that arrangement; but

- having only one competitor is good because the private sector wants that in some sense.

The real deal is that there should be as many licenses as the bandwidth will allow and none of them should be allowed to merge, ever.

Paul|3.25.08 @ 4:27PM|#

Ohhh, you guys mean the media consolidation that's taking place because consumers have so much choice of varied media now, that some media is consolidating to try to buttress themselves agains the wide array of ever-increasing choices we now have.
Check.

thoreau|3.25.08 @ 4:27PM|#

In 2003 I was eating Irish babies with a corn syrup glaze, Dave.

To make it even worse, before cooking them I would fatten the Irish babies with corn syrup.

Dave W.|3.25.08 @ 4:35PM|#

In 2003 I was . . .

was that when you were a big John Mcain fan or do I have my years mixed up?

thoreau|3.25.08 @ 4:37PM|#

John McCain was a 2000 fad for me, Dave. 2003 was all about the corn syrup and Irish babies.

Grandpa Al Lewis|3.25.08 @ 5:33PM|#

Fuck the FCC!

|3.25.08 @ 6:22PM|#

They'd have a hard time explaining why this is OK but they don't (can't, theoretically) regulate cable TV.

You don't get how the minds of Our Masters work.

First, as the price of approving the merger, they get XM/Sirius to agree to FCC oversight.

Then, they say "It makes no sense for us to have the authority to oversee the content of satellite radio without having the authority to oversee the content of satellite/cable TV."

Geotpf|3.25.08 @ 6:25PM|#

tarran | March 25, 2008, 3:39pm | #

Note that the anti-trust law always kicks in when one guy is dominating the market because they are actually charging far lower prices than any competitor can charge.

This was the case for Standard Oil, Alcoa, IBM and Microsoft.

That's not exactly true. For example, Linux is free, yet Microsoft was hit with anti-trust charges due to their operating system anyways.

What is a problem is bundling. That is, everybody buys x, so the company that makes x throws in y for cheap or free, thereby preventing anybody who wants to just sell y from being able to do so. That was the case for Microsoft and for IBM (browsers and media players in Microsoft's case, bundling software and services with hardware in IBM's). If everybody didn't buy x in the first place, the ability to give away y wouldn't exist.

Now, sometimes it is the case. If you have one old, big firm that has billions in the bank that sells x, and a bunch of new, little firms also sell x, and the costs per unit sold between the big firm and the little firm are the same, the big firm can simply decide to lose money on every x they sell until all the little firms are forced to go out of business. This works best when there are seperate markets that the big firm plays in; that is, it lowers prices in areas with competitors and raises them in areas without competitors until it no longer has any competitors, then it raises prices everywhere to a level much higher than what the price would be if there was a lot of competitors.

Paul|3.25.08 @ 7:14PM|#

Geotpf,

Don't want to turn this into a microsoft hate thread, but the 'bundling' concept is a theory. Linux is free, and still being produced and supported. Microsoft hasn't "bundled" Linux yet.

The software industry is going through many of the same issues that occurred during the industrial revolution. We don't have a company that produces nails, another that produces #8 screws, another that produces lag-bolts, etc. Sometimes it's cheaper for one company to churn out all the doo-dads due to economies of scale. The software industry is very similar in a way. Not perfectly symmetrical, but analogies can be drawn.

It's difficult for a programmer to spend zillions of hours on say, a media player and sell it as a unique product, support it, provide updates, keep it compatible with the O/S and every patch and version of said O/S. The media player is basically a #8 screw. Netscape discovered this about the browser. I still giggle everytime I see the term "Browser wars". Who gives a shit what browser you use? With all the smugness that someone projects when they say "I use firefox", you'd think that their entire computing experience was somehow more enlightened because of it. Fine, cool. You use that #8 screw, I get by with the #6 but have to use a couple more of them.

The future of the O/S-- nay computing, is far more conceptual and service oriented, and less tied to doo-dads. Why do you think MS is very, very nervous about Google? Because google could render the O/S irrelevant. Microsoft Windows could end up as the next #8 screw of the computing world. Or maybe better said, Microsoft could end up the Netscape of the OS world.

tarran|3.25.08 @ 7:36PM|#

That's not exactly true. For example, Linux is free, yet Microsoft was hit with anti-trust charges due to their operating system anyways.

Uhmm, in 1996-1998, the amount of business Sun Microsystems, Apple, Compaq and Netscape were losing to Linux was non-existant, and no wonder, Windows had so many more of the applications with large consumer demand written for it than linux did. At the time of the lawsuit Microsoft Windows was attracting the vast majority of consumer purchases. The "bundling" was not a crime; it was merely a case where Microsoft was trying to satisfy consumer demand. IBM, Netscape, Apple, Sun all could have written operating systems and applications that would compete with Microsoft's offerings. some of the companies tried, and even wrote some nice OS's (truth be told I preferred IBM's OS/2 Warp to any to the Windows 9x operating systems). In the end though Microsoft was much more adept at satisfying consumer demand than they were, and unable to compete in the market place, all those companies went crying to the government to force Microsoft to stop satisfying customers so effectively.

Incidentally, bundling is not a problem. Can you imagine suing Walmart because they provide free parking in their stores, thereby competing with independent for profit parking lots? Should car manufacturers be prevented from installing radios and air conditioners in their cars? Should manufacturers of televisions and audio receivers be punished for bundling A/V cables and remote controls thereby competing "unfairly" with Radio Shack? Should cell-phone providers be prevented from bundling ring-tones or XM radio with their service?

Bundling is merely the act of a company trying to better satisfy their customers and again is no way a crime.

This works best when there are seperate markets that the big firm plays in; that is, it lowers prices in areas with competitors and raises them in areas without competitors until it no longer has any competitors, then it raises prices everywhere to a level much higher than what the price would be if there was a lot of competitors.

this has been tried. Invariably the company or cartel that tries it either
a) goes bankrupt
b) has to abandon the attempt when competitors start undercutting their high-priced offering and taking advantage of their below market pricing.

See what is happening to Microsoft now. As the price of the O/S rose to be a larger and larger percentage of the total cost of a new computer, the benefit of writing open source alternatives increased. The dramatic increase in the usability of Linux is a direct result of the dissatisfaction of a segment of consumers with Microsoft's offering. And now, as a result, Microsoft must now either slash their prices, or improve their offering to make their software attractive in the face of Open office, GNU/Linux and Eclipse.

According to anti-trust theory, this should not be happening. But it is.

|3.25.08 @ 7:53PM|#

J sub D | March 25, 2008, 2:42pm | #
...
Cue some idiot to explain how the government protects us from monopolies.

Can I call 'em or what?

|3.26.08 @ 7:40PM|#

The real deal is that there should be as many licenses as the bandwidth will allow and none of them should be allowed to merge, ever.

The phrase "begging the question" comes to mind. "As many as the bandwidth will allow?" Do you mean over the entire spectrum, or within some band that's arbitrarily set aside by the FCC for satellite radio? If the latter, all the FCC has to do is allocate only enough bandwidth for two national carriers, and the result is the same.

"None of them allowed to merge, ever?" What if they're losing money? Are they allowed to go out of business? If not, how do you keep them in business? If they are, do you create new firms (and how?) in order to make sure that there are still as many firms "as the bandwidth allows?"

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