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Sirius Satellite Radio, Inc.
Case Overview
⚫Comprehensive analysis of a growth company that
requires economies of scale to attain profitability
⚫Company spends aggressively to increase subscriber
Overview of Business
⚫Underdog in the nascent satellite radio industry
duopoly
⚫Business model centers on providing satellite radio
services in the US for a subscription fee.
Business Strategy Analysis (1)
⚫Source(s) of competitive advantage in the radio
business relative to traditional AM/FM
broadcast radio stations
–Wide range of programming –133 channels
⚫Identify two key risks associated with Sirius’
business model relative to traditional broadcast
radio stations
–Unwillingness of listeners to pay ongoing
subscription fees
Business Strategy Analysis (3)
⚫Sirius uses automakers as a major distribution
channel. Briefly evaluate Sirius’ ability to generate and
sustain competitive advantage through this distribution
channel
–Unlikely to generate and sustain a competitive advantage
Accounting Analysis (4)
⚫Accounting for subscriber acquisition
costs :
–Sirius basically expenses these costs as they are
incurred (shipment/installation for subsidies paid to
Accounting Analysis (5)
⚫Assume that instead of using its current accounting
practices for its subscriber acquisition costs, Sirius
instead capitalizes all of its subscriber acquisition costs
in the fiscal year that these costs are incurred and then
amortizes them using the straight-line method over the
subsequent two fiscal years. Estimate the Loss from
operations that Sirius would have reported for the fiscal
1/2*(173,702+33,149)-1/2*(74,860) = (570,646)
Accounting Analysis (6)
⚫Which of the above two methods of accounting for
subscriber acquisition costs do you think better reflects
the underlying economics of the business?
costs to the future generates that they are expected to
generate. Amortizing over 5 years would seem to be an even
better reflection of the underlying economics –assuming that
current churn rates are indicative of future churn rates.
Accounting Analysis (7)
⚫Briefly explain how Sirius accounts
for its subscriber revenue.
deferred revenue and then amortized to
revenue ratably over the subscription period.
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