MKTG 345
Sirius XM Case Analysis
May 3, 2016
Prepared for: Tim Donohue
Prepared by: Henry Jackson
Strategic Profile and Case Analysis Purpose
XM satellite radio was first founded in 1988, known then as the American Mobile
Satellite Corp. After spending the first years finding their own identity amongst its
competitors in 1997 American Mobile Satellite officially changes their name to XM
Satellite Radio. In October of that same year XM obtains one of only two satellite digital
audio radio service licenses offered by the Federal Communications Commission.
Once this took place XM beat out two companies as licensees with the help of their
main competition, Sirius Satellite Radio.
XM was given their biggest investment in 1999 when Clear Channel Communications,
DirecTV, and General Motors invested $250 million into the company. Both Clear
Channel and DirecTV would agree to help develop services for XM, while with GM’s
investment they enter into a 12-year agreement which calls for exclusive installation of
XM Satellite Radio into GM vehicles. A year later, after XM’s parent company changes
their name to Motient, American Honda joins as a private investor and purchases $235
million worth of preferred stock in the company.
Launched on September 25, 2001 the service provided by XM had an initial lineup of 71
music channels and 29 other channels which included sports, talk, children’s
programming, entertainment and news. They were originally launched in San Diego
and Dallas/Fort Worth, before it spread across the United States. By the end of the
2001 year XM has a total of 27,733 subscribers. Within the next year the company
adds Playboy Radio, an adult entertainment premium channel and they end the year
with 347,159 subscribers.
In 2009 the company prepares to file Chapter 11 bankruptcy. They begin to work on a
merger which will occur when Sirius Radio purchases the company and joins to become
Sirius XM radio. Prior to the merger, XM was the largest satellite radio company in the
United States. They had a following of around 6 million subscribers, and now Sirius and
XM offer a combined channel offering after increasing the basic rate from $12.99 a
month to $14.49 a month.
Situation Analysis
By looking at a market’s attractiveness we are required to notice important macro
environmental trends and make sure that they are understood. These trends can
influence the demand in market interest, favorability, and un-favorability.
General Environmental
Demographics are the most easily understood and quantifiable elements of the general
environment, which is why they are used to look at the target consumer the most. In
looking at the average customer who would purchase Sirius XM services, I have
concluded that they are the following. About 55% of customers are male, with a median
age of 44. Customers tend to be home owners who are married, and have an average
income of $110,600 per year and have a college degree.
Sociocultural forces influence the values, beliefs, and lifestyle of society. Recently there
has been an increase in the number of people traveling to work by personal vehicles,
which means a higher percentage of listeners while they are driving. There has been a
change in primary listening habits, customers used to listen to the radio at home where
as now they listen to the radio mainly in their vehicles.
Political forces have influenced industries with regulations that they must comply by.
Sirius XM lobbied the government to provide them with the SDARS (Satellite Digital
Audio Radio Service). The government provided the digital radio industry with two
frequency bands, but under the rules of the contract there were time limits for XM and
Sirius to launch and operate their system.
The Satellite radio industry saw huge advances in technology, because the product
itself offered something new for customers. One of the main breakthroughs was the
emergence of the satellite radio system. It offered new communication technologies
and a wider range of listening options for customers. Also with the creation of a wired
network, satellite radio offered customers a greater listening experience because they
did not have to rely on radio frequencies to get their listening pleasure.
Industry Analysis
Michael Porter’s Five-Forces Model of Industry Competition is a useful analytical tool for
examining the industry.
1. The threat of new entrants.
2. The bargaining power of buyers.
3. The bargaining power of suppliers.
4. The threat of substitute products and services.
5. The intensity of rivalry among competitors in an industry
The threat of new entrants is low in this industry because there are high barrier costs. A
new entrant would have to purchase a satellite, which on average cost $250 million
each. They have to get media agreements, and have access to proprietary software as
well. That is why at first there was only two satellite radio companies, and now there is
just one main company thanks to the merger between Sirius and XM.
The bargaining power of buyers is high because the product is subscription based.
Since the majority of users listen to the radio in their car, the customer also has to own a
newer vehicle that supports the Sirius XM platform. The customer can also choose to
unsubscribe at any time, which add power to the buyer. If they decide to unsubscribe
due to cost, Sirius XM should relook at the monthly membership cost.
The bargaining power of the supplier in this industry is also high due to the increasing
amount of royalty agreements that music and talk show programs alike are requiring
from the company. Along with this top talent is very costly and they carry a lot of
leverage, so big name talk shows like Howard Stern and Martha Stewart are very costly.
I have ranked the threat of substitutes at medium because there are other options out
there for customers listening needs. There are websites not that offer free radio that
you can pick which music you want played, (Spotify and Pandora). Customers also own
their own music devices that have personal collections of music on them or they can
choose to listen to free AM/FM Radio.
The intensity amongst rivals in the industry would be ranked at low, because of how low
the threat of new entrants are. If you look at the satellite radio industry, Sirius XM has a
sort of monopoly on the industry. This is because companies do not want to put forth
the money to become established in this industry when there are so many other
competitors that are competing against Sirius XM from the outside.
Competitive Environmental Analysis
