Sirius XM Radio Merger and the “A La Carte” Offering
Given the FCC approval of the XM – Sirius merger, and the release of the “voluntary commitments and other conditions” that sealed the deal, one natural question that has arisen is “If satellite radio can do a la carte, why can’t cable providers do it?”
The answer, of course, is buried in the details.
To understand the answer, you need to understand several major differences between cable providers and satellite radio. Some of these include:
- Ownership of content
- Advertising support and business models
- Delivery and ease of reproduction/pricing
Most XM/Sirius channels are produced and owned by XM/Sirius so they do not compete with each other for listeners or access to the satellite radio lineup because the company only produces channels that they launch. In the video world, most channels are not owned by the distributor so they compete against each other for access to viewers, ratings and advertising dollars. In an a la carte world, this competition would require each video channel to spend significantly more money on marketing and promotional costs to attract viewers, driving up the cost of that programming to the subscriber.
In addition, satellite radio was founded on the notion that most of its channels would be commercial free or have very limited advertising. Unlike video programming which relies heavily on commercial advertising, XM/Sirius programming is supported almost entirely by subscriber fees. So with each channel relying on little or no advertising support, applying an a la carte model to satellite radio would not require each channel to boost its price (or reduce its quality) to make up for lost advertising revenues. In the video world, that is exactly what would happen.
You also must consider the programming. While satellite radio does have a respectable diversity of programming, each of the channels is essentially a technical reproduction of the other and the cost of production (which largely consists of recorded music and other material) is lower than video production and generally does not vary widely. Obviously attracting well known personalities like Howard Stern can affect costs (including potential litigation costs), but generally speaking, music and talk programming are fairly consistent.
In the video world, however, the cost of producing channels varies greatly and the cost gaps continue to widen with the growth of high-definition and more and more original programming. For instance, it costs more to produce an episode of Burn Notice than it costs to produce How Do I Look? So, while XM/Sirius may be able to offer customers the opportunity to purchase any fifty of its music channels at the same per-channel price, it is impossible for cable operators to offer video channels in this manner.
Finally, aside from the structural business issues mentioned above, it’s also important to understand that what Sirius-XM has agreed to is not actually ”a la carte”. Despite the marketability of attaching the words “a la carte” to their new options, according to their channel lineup and pricing document, XM and Sirius are offering consumers the opportunity to purchase smaller bundles. You can choose either 50 channels from ONLY one provider (out of a total of 100 possible choices) or 100 channels combined from both.
The pricing document makes it clear that the “a la carte” option will not be available for a year, and will require new equipment.
A la carte programming will be available beginning within one year following the merger, and the other programming options will be available beginning within six months following the merger… A la carte programming will only be available for subscribers using new radios, which will be developed following approval of the merger.
There is no opportunity to buy only 1, 3, 5 or 6 channels. You have to start with at least 50 channels. That’s not what most people describe when they talk about a la carte.
There’s no comparison between cable’s business model of delivering ad-supported television purchased from multiple competing providers and satellite radio’s model of delivering ad-free content of their own design. People may try to make such a comparison in order to argue that since XM and Sirius have agreed to provide “a la carte,” cable must be able to do it, too. Unfortunately, as study after study has shown, the facts just don’t support the fiction.