Satellite radio report author: "I am not a flip-flopper."

by Bob Hamilton on 04/06/2007, 12:39 PM

Tags: NAB , satellite , Carmel Group


Here's an excellent post we found this morning on ARS Technica

By Nate Anderson | Published: April 05, 2007 - 11:33PM CT

We reported yesterday on a whitepaper from the National Association of Broadcasters (NAB) that argued against the proposed merger of XM and Sirius. The paper, authored by Jimmy Schaeffler of the Carmel Group, was immediately "busted" by bloggers who pointed out that Schaeffler had apparently contradicted himself only a year or two before, back when he was not on the NAB payroll. Is this a case of a trade group simply buying an "independent" position paper from an industry analyst, or is there more to the story? We talked with Schaeffler to find out.

Here's the controversy: XM and Sirius have been telling anyone who will listen that their true competitors are analog AM/FM radio, digital HD radio, Internet radio, and even iPods. This argument is crucial to establishing that a merger of the two companies would not be anticompetitive, since the combined company would still have plenty of other competition. It's an argument that Schaeffler doesn't buy. "This position is ludicrous," he writes in the whitepaper. "In fact, nothing could be further from the truth."

A couple years back, though, Schaeffler wrote a blog post about the satellite radio business in which he appeared to say exactly the opposite. "In this case, the new player is satellite radio, with more than seven million subscribers," he wrote at the time, "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." What's going on here?

Schaeffler tells Ars that it's really quite simple: his position hasn't changed at all. In the post, he points out that this is a "new battle" and that potential competitors like HD radio are "burgeoning services." In a phone conversation, Schaeffler argued that these other services may in fact be competitors to satellite radio someday, but are not at the moment—and says that's what he was saying two years ago.

This is a point that he makes in the whitepaper as well, saying that "Sirius and XM try, in a typically disingenuous fashion, to broadly define a future competitive landscape as one that exists today (and thus redefine this merger's review standard), in order to meet their own, one-time, selfish needs."

"Maybe in five, seven, 10 years this argument will sell," he tells Ars, "but not today."

That's because the issue for Schaeffler is "substitutable competition." For vehicles, especially, what services can be easily and widely substituted for satellite radio? iPod adapters and HD radios are still not widely available as manufacturer options, he says, and therefore can't be counted as true competitors. When I ask what this means for AM/FM radio, which is available in just about every car in the country, Schaeffler admits that this could be seen as competition. But he points out that each radio station only competes for satellite in a particular market, not nationwide. In the whitepaper, he lays out some additional distinctions that set satellite radio apart: it charges monthly fees, it produces its own programming, and it is ad-free.

"You can argue [that all these services are substitutable] till you're blue in the face, but it's not there," he says.

Fair and balanced?

The large issue here concerns companies and trade groups paying analysts for opinions that look impartial, but may simply be purchased. The NAB has been on something a run with this sort of PR lately, commissioning a string of reports from groups like the Consumer Coalition for Competition in Satellite Radio, an outfit which has been criticized for being an NAB front group.

The NAB has also issued engineering reports claiming that Sirius and XM will require new radios in order to receive both sets of signals, and it has even secured support from the Alabama legislature, which passed a resolution calling on the federal government to block the merger. The Alabama legislator who introduced the measure just happens to own a radio station of his own.

The whole campaign has been attracting plenty of negative attention, especially since so many of the "independent" actions look more like NAB-funded FUD (fear, uncertainty, and doubt) when examined more closely.

As for Schaeffler, he readily admits that his report is biased in the sense that it's not a balanced study. He was paid to produce something that the NAB could use, and this is clearly mentioned at the beginning of the paper.

Although he did not attempt to provide a "both sides" analysis of the issues, Schaeffler says that he took the job because he agreed with it, not because he's a corporate shill. He is deeply opposed to anticompetitive mergers, and believes that the XM/Sirius proposal would be bad for consumers. The satellite market is one that his Carmel Group has followed for years, so Schaeffler is intimately acquainted with the issues; he produced a similar report opposing the proposed merger of EchoStar and DirecTV several years ago and helped to derail that deal.

Dennis Wharton, Executive Vice President for Media Affairs at the NAB, tells Ars that Carmel was chosen to write the whitepaper because of "their reputation for high quality research within the telecommunications arena on a global scale."

"While I have not read The Carmel Group's entire body of previous work," he added in an e-mail, "it appears that their 2005 report on the satellite radio marketplace studied the potential competitive environment—prognosticating on unforeseen and future events, which have not yet occurred. Their more recent study focused on the current competitive environment in the satellite radio market—a market that consists solely of XM and Sirius."

Sirius and XM have already weighed in on Carmel's whitepaper, saying that the "NAB opposed the creation of satellite radio fearing that it would compete with terrestrial radio, so it's no surprise that it's producing biased 'studies' hostile to the Sirius-XM merger by NAB-paid consultants," according to the New York Post.

As for the money he received, Schaeffler calls it a very small sum. How loudly did that small sum speak? Despite the contradiction some have perceived in his work, Schaeffler is adamant that his position has remained "totally consistent" before and after authoring the report.