Dinosaurs vs. Satellites

How the National Association of Broadcasters is trying to kill radio

Last year, the National Association of Broadcasters (NAB), the lobbying group for local radio and TV stations, began running a series of truly awful advertisements attacking satellite radio. In one, for example, you hear the play-by-play for a baseball game. Just as the announcer gets to a crucial point in the action, an operator interrupts, and asks you the listener to deposit money to keep listening, as if you were on a pay phone. A voiceover then announces, "Radio. You shouldn't have to pay for it."

The ads were economically illiterate (as if the time you spend listening to the endless commercials on traditional radio were free), blatantly dishonest (you pay a monthly fee for satellite radio, not by the hour), and roundly criticized for their broad assault on the intelligence of the average radio listener. But the NAB stuck with them. They were part of the NAB's longstanding, sometimes vicious attack on satellite radio, an emerging medium that the NAB clearly sees as a long-term threat. And with good reason.

While satellite radio still seems to be figuring out how to make a profit, it's soaring in popularity, winning over 14 million paid subscribers in just a few years. Of course, that may not be a reflection of XM or Sirius' quality so much as the mundanity and drollery of Clear Channel America. With only two business models to choose from, it's unlikely that satellite radio has come anywhere close to fulfilling its potential.

So when XM and Sirius announced a highly-publicized merger this year, everything changed for the NAB. Clearly, the two startups it so feared for so long were floundering. And with no other licensed satellite providers around, the NAB's position on the merger became clear: What's bad for satellite is good for the NAB. So the NAB would oppose an XM-Sirius alliance.

Problem is, the only colorable argument against the merger is that it would create a monopoly for satellite radio. XM and Sirius cleverly (and probably accurately) headed that objection off by noting that satellite radio competes with a variety of technologies for the listener's ear. This put the NAB in an awkward position. The lobby would have to argue that despite its 15-year effort to derail satellite radio, satellite radio was not a competitor. Of course, the harder the NAB fights and the more money the NAB spends to promote this message, the clearer it becomes that the NAB fears the competition posed by an XM-Sirius alliance. In effect, the more the NAB fights the merger, the more it undermines its own argument against it.

But adherence to logic and consistency have never stopped a Washington lobby before. So the NAB went to work. It first put an abrupt halt to the "Radio. You Shouldn't Have to Pay for It" ads (though a press release announcing the ads remains, the ads themselves seem to have disappeared from the NAB's website).

The NAB then hired on other lobbying firms to help influence policy makers. Among those is the Ashcroft Group, run by the former U.S. attorney general. It has since been reported that the Ashcroft Group initially offered its services to XM-Sirius, in support of the merger. When they declined, the firm switched sides, and signed up with the NAB. John Ashcroft himself then fired off a strong letter opposing the merger to his successor, Alberto Gonzalez. This from a man who made "personal integrity" the cornerstone of his confirmation campaign.

If nothing else, the frantic backpedaling has been entertaining. The NAB initially opposed the federal government allocating any spectrum at all to satellite start-ups. Its lobbying efforts then managed to delay that allocation for seven years. Finally, the FCC doled out the spectrum, but licensed only two companies to broadcast in the U.S., what would become XM and Sirius. Thanks in large part to the NAB's recalcitrance, satellite radio would get just two chances to find its footing. To borrow a cliched analogy, imagine if buggy whip manufacturers had successfully lobbied Congress to limit all manufacture of automobiles in the U.S. to just Ford and Chevrolet. If both failed, well, then that probably would have been a good indication that there just wasn't much of a market for automobiles in America.

Once XM and Sirius started broadcasting, the NAB continued to work K Street to put up barriers to their success. The lobby was particularly nasty in attacking XM's plan to add local traffic and weather to its service. This, the NAB said, violated a "gentleman's agreement" between the NAB, XM, and the FCC that XM wouldn't offer localized programming, a concession the company says it had to offer up to traditional radio in order to get its license (though there was no binding agreement). Clearly, radio consumers would benefit from an additional traffic and weather provider, and the NAB knew it. When I called the NAB for an article I wrote on the fight at the time, the NAB rep couldn't explain to me why or how the NAB's position would benefit consumers. His only argument was that "XM went back on its word." And allowing XM to broadcast local traffic and weather "could put terrestrial radio out of business."

Now comes the backtracking, which is at least good entertainment. It's also a fine illustration of the sleaze that is Washington lobbying. In addition to the Ashcroft Group, consider the Carmel Group, a California-based consulting firm that represents the NAB. In 2005, the consulting firm's chairman Jimmy Schaeffer wrote an op-ed on the emerging threats to traditional radio. In it, he described a marketplace in which, "numerous competitors thrive, side-by-side. In this case, the new player is satellite radio, with more than seven mil. subscribers, and its competition comes in the form of traditional analog AM & FM radio, as well as burgeoning services like MP3 players, terrestrial radio, and video- and Internet-to-the-vehicle. "

Fast-forward to 2007, after the merger. Within weeks the same firm, the Carmel Group, rushed out an NAB-funded white paper concluding that XM and Sirius "state that their competitive landscape presently includes all forms of terrestrial radio (i.e., analog AM and FM, digital HD and Internet radio), as well as digital services such as MP3 devices and music-to-cellular telephones. This position is ludicrous. In fact, nothing could be further from the truth."

(For amusement, read this NY Post column on the paper, which labels it "independent" despite the fact that the NAB both paid for the paper and hosts it on its website.)

Then there's David Rehr, the NAB's current president. Rehr polished his forked-tongue in his previous job with the Beer Wholesalers Association. Alcohol wholesalers are a curious bunch. Their entire existence depends on a series of antiquated, post-prohibition state laws requiring a "three-tier" system of alcohol distribution: They require alcohol to pass through a wholesaler between its manufacture and retail sale. The useless middleman laws really only serve one purpose: to make wholesalers rich at the expense of consumers. Because of the unique nature of the product and the anachronistic business model they want to protect with the force of law, the booze wholesalers simultaneously argue "personal responsibility" when it comes to the marketing and advertising of alcohol, but for continued government control over distribution, because consumers can't be trusted to buy booze in bulk from Costco, or responsibly purchase wine over the Internet.

That kind of rudderless advocacy has at least prepared Rehr for his baptism-by-fire at the NAB. The guy has had to completely reverse course over the span of just a few months, a flip-flop that makes John Kerry look like Barry Goldwater. In just October of last year, Rehr said in a speech to the National Press Club, "Who are the newer competitors?…On the radio side, we have satellite radio, Internet radio, iPODs, other MP3 players, cell phones and others."

And now? Here's Rehr three weeks ago in an NAB statement about the XM-Sirius merger: "… XM and Sirius compete ferociously against each other in the market for nationwide multichannel mobile audio services, and no one else."

The NAB has consistently opposed every bit of new technology offering new media options to consumers, going back to satellite television in the 1980s (for which a federal appeals court called the group a "Luddite"). How does it get away with it? Simple. It has a lot of money to throw around. Not to mention influence. One NAB program, for example, lets members of Congress and their families record public service announcements in NAB studios free of charge. The commercials are then broadcast in the members districts on NAB stations, also free of charge. That's broadcast time politicians often have to pay thousands of dollars to reserve.

There seem to be three approaches the federal government might take to the proposed XM-Sirius merger. The most extreme would be to prevent it from happening, which would be a monumental victory for the NAB and a crucial loss for consumers. If both companies continue to lose money at current rates, they may well go under, leaving consumers with no satellite option at all. That's not a monopoly, but it hardly seems like a good scenario for consumers, either.

The second option would be to allow the merger, but only after forcing satellite radio to agree to a wish list of demands from regulators and politicians, such as forcing satellite broadcasters to abide by FCC indecency regulations. That too would be a loser for consumers, many of whom subscribed to satellite solely to listen to frequent FCC targets like Howard Stern or Opie and Anthony.

The third option is of course to allow the merger. And while this may be the least worst of the realistic outcomes, it's certainly not optimal. The number of business models in the medium would halve from two to one. And if XM-Sirius still falters, then what?

There is a fourth option, but it isn't likely. That would be for the FCC to allow the merger, but then to buck the NAB and open a considerable amount of spectrum to other potential satellite broadcasters. This most consumer-friendly approach to satellite radio would create a true market in the medium, allowing several, perhaps dozens of companies to compete for consumer attention.

Unfortunately, until dinosaurs like the NAB step out of the way, that isn't likely to happen.

Radley Balko is a senior editor for reason.