This excerpt taken from the XMSR DEFA14A filed Jun 27, 2007.
Satellite radio, also known as satellite DARS (digital audio radio service) or SDARS, was first considered by the FCC in 1990. Four firms filed petitions requesting spectrum allocations, and a proceeding was opened to consider the applications. A contentious rule-making took place that spanned seven years before the FCC successfully allocated 25 MHz of spectrum to two DARS licenses (12.5 MHz each) and awarded them, via auction, for approximately $173 million in April 1997.54
The long rule-making was largely consumed by a dispute over what harm satellite radio entry would bring terrestrial radio stations. The National Association of
Broadcasters (NAB) relentlessly fought the allocations, claiming that the introduction of satellite broadcasting would deal a lethal financial blow to many terrestrial stations. See Appendix 1 for a sample of these comments.
When outright denial faded as a policy outcome, the NAB put forth multiple requests for regulatory burdens to be levied on the rival service. In this proceeding, and long before the SDARS services had even launched, the broadcasters position was that satellite radio would siphon55 listeners from terrestrial radio and reduce its revenues. That, the NAB argued, would reduce the public interest in a healthy and vibrant local radio service. Whatever the merits of that argument, the competitive position of terrestrial broadcasting was never in doubt: broadcasters explicitly sought to block competition for broadcasters market share on the grounds that such competition was harmful to society. A 1995 FCC Reply Comment filed by the NAB is illustrative:
One way that the Commission can act to minimize the harmful effects of satellite DARS introduction is to structure it as a subscription-only service, as the NAB has proposed. Although satellite DARS will have a competitive impact on terrestrial stations in every radio market no matter what its regulatory classification, the NAB has urged the Commission to soften this blow to the greatest extent possible. Canvassing the Commissions available regulatory options, a subscription requirement will introduce at least some level of differentiation between satellite DARS and terrestrial radio, and will help to minimize the direct impingement by satellite DARS providers into markets for advertising sales.56
Lest there be any question about the reality of terrestrial-satellite radio rivalry, the NAB elaborated in a footnote:
Whether it is advertising-supported or not, satellite DARS providers fundamentally will compete with terrestrial broadcasters for listeners. Because audience impacts are the primary driver in the radio business, smaller audiences translate into reduced sales of advertising to both local and national advertisers, notwithstanding DARS suppliers focus of subscriptions or national advertisers for support.57
The footnote went on to cite a Kagan study:
Although subscriber supported services would not appear to propose a direct threat to local broadcasters revenue base, the audience fragmentation likely to occur from the deluge of programming options could severely handicap traditional radio broadcasting 58
The competition that the NAB feared has materialized, according to numerous NAB Comments filed with the FCC post-DARS entry. In a 2004 petition to the Commission, terrestrial broadcasters sought a declaratory ruling that satellite operators could not offer local content even if distributed nationwide. It stated the case that inter-modal competition was intense:
What was true in 1995 is still true today if SDARS is allowed to penetrate the local market, local broadcasting, and the voice of the community it provides, will suffer. Contrary to XM and Sirius assertions, the Commission did not reject the 1995 economic studies. Rather, the Commission stated that they because they [found] no evidence that satellite DARS would be able to compete for local advertising, terrestrial broadcasting would not be substantially harmed. The latest actions by satellite radio providers step beyond the boundaries they promised to stay within, to be a national service, and require the Commission to again look at the hard data the NAB and others provided in 1995. With the addition of local traffic and weather, satellite radio is no longer an exclusively national service; and its impact on terrestrial broadcasting is growing and could quickly evolve into a force in the local advertising market. How much harm, however, is largely dependent on Commissions decision in this proceeding and timely FCC action.59
The FCC took no action, the NAB petition was withdrawn,60 and the competition that the NAB feared rages on. Terrestrial broadcasters are not, of course, sitting idly by. Continuing to see satellite radio as a competitive threat, in late 2005 the NAB launched a $40 million advertising campaign with spots that highlight compelling audio entertainment on local radio and close with the tag Radio: You Shouldnt Have to Pay for It.61 This followed the launch of HD radio as a performance-based competitive response to satellite radio and other audio products, and preceded the initiation of a $250 million advertising campaign to make consumers aware of this competitive option.62