COMPETITION AND THE FUTURE OF DIGITAL MUSIC WEDNESDAY, FEBRUARY 28, 2007 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE JUDICIARY, The Task Force met, pursuant to notice, at 3:05 p.m., in Room 2141, Rayburn House Office Building, the Honorable John Conyers, Jr. (Chairman of the Task Force) presiding. Mr. CONYERS. Good afternoon. The first hearing of the Antitrust Task Force for the 110th Congress will come to order. I welcome all of our Members, especially our Ranking Member, Steve Chabot of Ohio, who will be joining us momentarily. The very first hearing of our Antitrust Task Force involves a discussion of the issue of competition in digital media as exemplified by the proposed merger of Sirius and XM Radio. We come to this hearing with an open mind. But we recognize that the companies have the obligation to convince the Congress, the regulators and, most importantly, the American people, that this combination will improve the competitive playing field and benefit consumers. And so, here are the concerns I would like to lay on the table. The critical issue in this hearing to me is whether the relevant market is all forms of digital music and retail music and radio, or simply satellite radio. Proponents of the merger would note that the retail music industry exceeds $12 million in annual revenue, includes more than 230 million people who listen to ordinary radio, and 50 million people who listen to Internet radio, more than 100 million iPods are going around the country, but yet there are 14 million satellite radio subscribers. If we are to define the market as broadly as merger supporters advocate, what sort of precedent are we setting for other businesses? Now, several commentators have suggested that the reason this deal is being pushed is that the present Administration's appointees will be able to give their approval before the next election. Excuse me for being so candid about this consideration. And from at least one perspective, this merger can be said to turn a duopoly into a monopoly circumstance. And, finally, my concern is about the potential for non-interoperability of competing technologies. How are we going to ever get the consumers who have already purchased equipment for either XM or Sirius to be able to use the equipment in a post-merger world? These consumers could be left high and dry and there could be complications that we hope to examine about how this could be made technologically smooth. I look forward to a full and frank discussion with our distinguished witnesses and urge that we all be as concerned as we can for the public interest issue that overlies this hearing. Our witnesses are David Rehr, the president and CEO of the National Association of Broadcasters. Our next witness, Ms. Gigi Sohn, president and founder of Public Knowledge, a nonprofit public interest organization that focuses on issues involving intellectual property as it applies to the communications sector. Our third witness is Mark Cooper, director of research at the Consumer Federation of America, who has testified on numerous occasions about communications and media matters. Our fourth witness is Mr. Charles Biggio, partner of a very prominent firm and who has himself served as Deputy Assistant Attorney General in the Antitrust Division in earlier Administration. And finally, Mr. Mel Karmazin, CEO of Sirius Satellite Radio, previously president of Viacom. And since our Ranking minority Member has been unavoidably detained, I now recognize the full Committee Ranking Member, Mr. Lamar Smith of Texas. Mr. SMITH. Thank you, Mr. Chairman. Let me just augment what you have said. The Ranking Member of the Task Force, the gentleman from Ohio, Mr. Chabot, has been detained at the House Administration Committee where he is testifying on behalf of the Small Business Committee, that he is also Ranking Member of. So that is the reason for his absence. And in his absence, I too want to thank you for convening this first hearing of the Antitrust Task Force. Vigorous, unimpeded competition sustains our economy and keeps it strong. It leads to innovative products that better our lives and keep prices low. The Judiciary Committee has a long history of oversight to ensure that American markets retain healthy competition. This hearing gives us the opportunity to examine one of the newest technologies emerging in our economy. In the last decade, the options for receiving music, sports, news and other programming have increased dramatically. Consumers also have the choice of two satellite radio companies, XM and Sirius. These companies provide hundreds of channels of unique programming options to millions of customers nationwide. Listeners have access to numerous choices in music, news, sports and talk programming that would have been unimaginable even 10 years ago. Often these programming options come without commercial interruption and without the content restrictions that exist on terrestrial radio. Now those two companies have announced that they want to merge. They argue that a combined company would allow them to compete more effectively against broadcast radio, the Internet and a number of emerging technologies. They argue that efficiencies in the merger will allow them to provide even more choice to consumers at a competitive choice. Critics of the merger contend that this will reduce the number of satellite radio offerings from two to one and that approval of the merger would amount to a Government-sanctioned monopoly. They further argue that this merger would allow the combined XM-Sirius to raise subscription prices to consumers without providing any new or innovative services for those higher prices. Mr. Chairman, it is important we not prejudge the proposed merger. We are at the beginning of a very long process. Both the Federal Communications Commission and the Department of Justice will review this proposal. I trust that both the FCC and the DOJ will do a thorough job of reviewing the evidence and will also take into consideration the oversight findings of this Task Force. With that in mind, Mr. Chairman, I too look forward to listening to our witnesses and I yield back the balance of my time. Mr. CONYERS. Thank you very much, Mr. Smith, for stepping in in such a timely fashion. We will accept all other opening statements to be inserted in the record, without objection. [The prepared statement of Ms. Jackson Lee follows:] PREPARED STATEMENT OF THE HONORABLE SHEILA JACKSON LEE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND MEMBER, ANTITRUST TASK FORCE Thank you, Mr. Chairman for holding this oversight hearing. Let me also thank the Ranking Member and all the members of the Task Force for volunteering to serve on this very important Antitrust -2 Task Force. After all, the law of antitrust is the law of fair competition. The continued vitality of our nation's economic system depends upon fair and vigorous competition. This has proven to be the best and most effective way of ensuring innovation, improving quality, reducing prices, widely distributing goods and services throughout the population, and turning the diversity of the nation into its greatest strength and asset. I am therefore very pleased to be a member of this Task Force. I strongly believe that working together, we can achieve great things for the American people. Mr. Chairman, technological developments are dramatically changing the ways in which consumers can obtain music. In addition to the traditional offerings of broadcast radio and record stores, consumers can choose from digital music delivered via the Internet or satellite, as well as by broadcast or compact disc and other "hard copy" formats. The recently announced merger plans of XM Satellite Radio and Sirius Satellite Radio raises a host of questions regarding implications of these developments for competition in the digital music marketplace. |