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March 25, 2008

Sirius and XM: The Changing Nature of Competition

David Rogers
Director, Center on Global Brand Leadership
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Not long ago, market competition was seen in terms of functional product categories. Marketing textbooks told you that Barnes & Noble competed with Borders (bookstores), Delta competed with United (airlines), and McDonald’s competed with Burger King (burger & fries). Many marketers persist in sprinkling these competitive sets onto their 1960s-era positioning maps.

But a huge shift has taken place in consumers’ choices and the fluidity with which they move between them. Nowadays, McDonald’s is as likely to compete with Starbucks for a diner’s time and dollar as with another burger joint (“Do I want a quick bite with fries? Or maybe a sandwich and latte?”). NY–to–DC commuters are not just picking between Delta and United, but considering the Acela train as well. And book lovers can skip the bookstore for Amazon.com — or even skip the book itself, opting for something from an RSS feed, a podcast or a Kindle. Companies no longer compete in functional product categories, but within the contexts of consumer needs and experiences: a casual meal, a productive commute, a thoughtful read.

This was the argument put forward by Sirius to the Department of Justice in its bid to acquire XM, its sole competitor in the field of satellite radio.

From a traditional view of competition, this would be an open-and-closed case of free-trade infringement. If Sirius buys XM, it will be the only satellite radio game in town. Zero competitors equals zero choice for consumers and an anticompetitive monopoly — right?

But Sirius argued that its real competition is not XM, but all the other options consumers have for incorporating audio and media into their drive time: from hi-def radio, to MP3 players (my 2007 car came with a plug where my iPod fits right in), to cellphones and backseat DVDs.

Today, the Department of Justice announced that it had accepted Sirius’ argument and is greenlighting the acquisition (still to weigh in: the FCC). Antitrust regulation is still vital to preserving competition, but for many areas of the market, the scope and dynamics of competition have expanded greatly. Watch out Starbucks: even McDonald’s is starting to offer lattes of its own.

Comments

by Sukesh | March 25, 2008 at 3:42 PM

McDonalds may offer lattes of it's own but you still go to starbucks for lattes. Sirius is using this to get the acquisition approved but does the consumer really benefit from this acquisition? remains to be seen!

by Lysia Nieves | March 26, 2008 at 10:20 AM

Several years ago when my boyfriend got a new car, it came with a choice between Sirius and XM. We opted for XM because there was programming that was particular to that company that we wanted. Last year when it came time to trade in the old car for a new model, the only "choice" was Sirius. As such, we now have 2 subscriptions (read, twice the bill) so that we can still listen to XM online and Sirius in the car. It remains to be seen whether all of the programming we enjoyed on XM is retained after the merger, but my money is on not. There is no benefit to consumers in that case. Also, I think it is false to believe that satellite radio is in direct competition with MP3 players, backseat DVDs, etc. Again, it comes down to personal choice - if I want to create my own programming/playlist, I might use my iPod or burn a DVD of my favorite TV episodes. But we turn to the radio to provide innovative programming that we cannot create ourselves, including talk radio, live interviews, music that is rare and that we cannot acquire on our own. Bottom line is that I believe this was just a shady (yet well presented) argument on Sirius' part, and the DoJ bought it.

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