Are there lessons for satellite TV in satellite radio’s big merger?

On Nielsen Media Research’s blog Follow The Video, Larry Gerbrandt, the Senior Vice President and General Manager of Nielsen Analytics, looks at how the XM-Sirius takeover/merger compares to a potential merger between satellite television providers DirecTV and Dish Network. While the satradio companies are now looking for FCC approval, the two sattv companies have already had merger overtures slapped down by the federal bureaucracy.

Among the similarities are, according to Gerbrandt:

* Both operate in the direct-to-consumer space using satellite spectrum

* Both were launched to provide competitive alternatives to consumers and to challenge perceived monopolies in their respective sectors (radio broadcasting and cable television)

* Both are now facing a lot more competition than when they launched (satellite radio must now compete with portable media players and HD radio; direct satellite faces quad-playing cable operators and telcos)

* Both are in maturing markets

* Both face high programming costs, the result, in part of intramural competition for scarce hits

If you remember the dotcom era you may recall the buzz phrase “first mover advantage,” the idea that the company that was first to enter a market had an outsized chance to dominate it. Whether the theory is correct, and plenty of people think it isn’t, it certainly influenced what and how venture capitalists invested in the late 1990’s. Gerbrandt sees a smiliar mechanism at play in the satradio and sattv market space:

If there is a strategic lesson to be gleaned from this merger is that in a digital age, entertainment delivery technology is moving at an accelerated pace, with narrowing windows of opportunity to become widely adopted before a newer and shinier platform shows up.

I’m not convinced that satradio is hurt as much by a newer and shinier technology (like iPods) as by reckless spending and, perhaps, an outright over estimation of the market demand to begin with. Perhaps a stronger lesson is this:

A new technology must offer affordable equipment and usage (subscription fee in the case of satradio) to win economies of scale, from which profits can be attained through premium-priced upsale offerings. Both XM and Sirius have gone the other way: Expensive equipment, somewhat high-ish subscription fees and no upsale opportunities.

Posted by Chuck on Wednesday, February 21st, 2007 at 2:58 pm under Satellite TV.
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