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413
– 413 –
TEACHING NOTE
CASE 11
Sirius XM Satellie Radio Inc. in 2014
Overview
In February 2009, the outlook for Sirius XM Satellite Radio was grim. Despite having 2008 revenues of nearly
$1.7 billion and some 19 million subscribers, the company’s stock price had dropped to a low of $0.05 per
share, and the company was mired in a deep financial crisis, with debts totaling more than $3 billion. Years
of big spending and annual losses in the hundreds of millions had depleted the company’s ability to secure
additional credit to pay its bills, and the company lacked the cash to make a scheduled debt payment of $171.6
million due on February 17. But hours before filing for Chapter 11 bankruptcy (in order to avoid defaulting on
the scheduled debt payment), Sirius XM got a lifeline from Liberty Media, a $2 billion company with business
interests in the media, communications, and entertainment industries; Liberty was headed by cable TV pioneer
and financial tycoon John Malone who not only owned a controlling interest in Liberty Media but was also
known for making big investments in troubled or undervalued companies having what he believed were good
prospects for long-term profitability. Liberty agreed to provide an aggregate of $530 million in loans to Sirius
in return for (a) 12.5 million shares of Sirius XM preferred stock convertible into 40 percent of common stock
of Sirius XM and (b) seats on the Sirius XM board of directors proportional to its equity ownership. Two of
these seats were to be occupied by John Malone, Liberty’s Chairman, and Greg Maffei, Liberty’s CEO. Many
outsiders viewed the terms to be a sweetheart deal for Liberty Media.
Sirius XM Satellite Radio was the product of a 2008 merger of Sirius Satellite Radio and XM Satellite Radio.
The two predecessor companies had begun operations in 2001–2002, spending hundreds of millions to launch
satellites to broadcast signals, arrange for the manufacture of satellite radio receivers and other equipment, install
terrestrial signal repeaters and other necessary networking equipment, develop programming, conduct market
research, and attract subscribers. The primary target market for satellite radio service included the owners of the
230+ million registered vehicles in North America.
Almost immediately after beginning operations, the two companies became embroiled in fierce competitive
battle waged on multiple fronts:
• Creating a programming lineup that was more attractive than their rival’s programming lineup.
• Convincing automakers to factory-install their brand of satellite radio (the radios of the two rivals were
incompatible—XM radios could not receive signals broadcast by Sirius, and vice versa).
• Gaining broad retail distribution of their various satellite radios models and equipment for use at home or in
used vehicles.
• Building brand awareness and stimulating consumer demand for satellite radio service.
The heavy expenses incurred by the efforts of the two rivals to try to gain an edge over the other produced
gigantic losses every year of their existence, despite having attracted millions of subscribers. There was much
speculation in 2006–2007 whether either XM or Sirius could obtain the financing needed to survive for much
longer. Executives at both companies concluded that after six years of battling for subscribers and bidding up
programming costs, the only long-term solution was to merge and bring a halt to the destructive competitive
battle that was unlikely to end short of bankruptcy. The executives and boards of directors of the two companies
On Track to Succeed After a
Near-Death Experience?
:
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
414
hammered out a planned merger agreement that was announced on February 19, 2007. After 17 months of
regulatory scrutiny and despite the objections of various concerned parties, the proposed merger won approval
from the FCC and the Antitrust Division of the U.S. Department of Justice in July 2008.
In the period since the merger, Sirius XM’s strategy had been aimed at:
• Recruiting new subscribers and rapidly growing the size of the company’s customer base.
• Eliminating largely duplicative programming and thereby significantly reducing the combined programming
costs of the two former companies.
• Cutting the “bloated” operating costs stemming from the mutually destructive and unprofitable “arms race”
between XM and Sirius to outcompete one another.
• Streamlining operations in ways that would enable the merged company to become profitable within a few
years.
• Reducing long-term debt, taking advantage of low interest rates to refinance existing debt at lower interest
rates, increasing the company’s operating margins, boosting cash ows from operations, and getting the
company on a strong financial footing.
Top executives believed it was essential to generate near-term results that would convince investors and creditors
that the merged company’s subscription-based business model was capable of producing attractive long-term
profitability. This required progressively reducing the company’s net losses per year and turning the corner to
positive net profits in the 2011–2012 time frame.
Headed into 2014, Sirius XM had 25.6 million subscribers, 2013 revenues of $3.8 billion, operating income of
$1.0 billion, net income of $377 million, and cash ows from operations of $1.1 billion. From August 2012 to the
end of 2013, Sirius refinanced $2.5 billion of debt, pushed the average maturities out from 4.7 years to 6.7 years,
and reduced its weighted average interest rates from 9.2 percent to 5.1 percent. The company’s stock price had
traded mostly in the $3.50 to $4.00 range during the last three months of 2013, equal to a market capitalization
of $21–$24 billion. Things are obviously looking up for Sirius XM—but for how long?
The case provides students with fairly detailed information on the turnaround at the merged Sirius XM, the series
of steps management took to avoid bankruptcy, and the strategy that Sirius XM is currently pursuing. There is a
wealth of financial data and operating statistics for students to assess in determining whether the company is on
the road to long-term competitive success and promising financial performance.
The threat that Sirius XM faces in 2014 is that all kinds of technological threats and competition from ambitious
rivals offering streamed entertainment services are swirling around the company. There is much talk and action
about “connected cars” with in-vehicle technology that would allow for crash notification, stolen or parked
vehicle locator service, remote vehicle diagnostics, roadside assistance, monitoring of vehicle emissions, and
other safety and convenience measures, as well as a host of streamed entertainment options. All motor vehicle
manufacturers across the world are taking aggressive steps to incorporate “connected car” technology into their
new car models for 2015 and beyond. It remains to be seen whether Sirius XM can successfully compete with
these new services and keep its subscriber base growing at an attractive rate.
The primary decision focus of the case centers on what Sirius XM management now needs to do to grow its
subscriber base and cope successfully with all the new “connected car” services that auto manufacturers are in
the process of installing in their new car models.
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
415
Suggestions for Using the Case
This case makes for a very good assignment following your coverage of Chapters 3, 4, 5 and 6, since it will
give students a chance to test their analytical prowess in using the tools of strategic analysis covered in Chapters
3 and 4 and in adapting the company’s strategy to shifting market and competitive conditions. Class members
will definitely have to do some strategic thinking and analysis relating to Sirius XM’s resources and competitive
capabilities. They will also have to evaluate whether Sirius XM will need to make further strategy adjustments
to contend successfully with fast-changing market conditions and the heightening competitive battle for the
allegiance of car owners regarding in-vehicle audio entertainment and the host of connected car services that are
on the near-term horizon.
We suggest use of a teaching plan that focuses on industry and competitive conditions in the market for motor
vehicle entertainment services—including use of five-forces analysis, driving forces analysis, and construction
of a strategic group map. Your teaching plan should also include calling upon class members to share their
SWOT analysis for Sirius XM, their assessment of Sirius XM’s recent financial performance (as displayed in
case Exhibit 2), and their evaluation of the data in case Exhibits 3 and 5. Then you can spend the remainder of
the class period on action recommendations for improving Sirius XM financial performance and prospects for
continued competitive success.
This case is most assuredly suitable for written case assignments and oral team presentations—our suggested
assignment questions are presented below.
Videos for Use with the Sirius XM Case There is an accompanying 1:06-minute June 26, 2013
YouTube video entitled “Can Pandora Top Sirius XM?” that you can show in class (or have students view on
their own) on the day that the Sirius case is used in class. The link to the video is http://www.youtube.com/
watch?v=HnXzGqk6I5k.
Our recommendation would be to show the video just prior to or immediately after your discussion of the five-
forces model and the competitive pressures confronting Sirius from substitutes for its service.
The Connect-based Exercise for the Sirius XM Case. We developed an exercise for Sirius XM for
inclusion in the publisher’s Connect™ Management web-based assignment and assessment platform because:
nThe case ties tightly to many of the topics covered in Chapters 3 through 6.
nOne of the purposes of the case exercises is to drill students in applying the analytical tools discussed in the
chapters to the circumstances posed in the cases.
This particular Connect-based exercise concerns the following questions:
1. What is your assessment of the strength of competitive pressures that Sirius XM must contend with as
a provider of radio entertainment services (principally for motor vehicle owners)? A five forces analysis
should be used to develop your answer to this question. Which competitive forces are strongest? Weakest?
2. How is the marketplace for providing in-vehicle radio entertainment changing? What are the underlying
drivers of change? Are these driving forces acting to make the business of a satellite radio provider such
as Sirius XM more or less attractive from the standpoint of competitive intensity and potential for good
profitability?
3. What does a SWOT analysis reveal about Sirius XM’s overall situation as of 2014?
4. Which one of the five generic competitive strategies discussed in Chapter 5 most closely approximates the
competitive approach that Sirius XM is employing?
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
416
5. What is your evaluation of Sirius XM’s financial performance during the 2010–2013 period (as shown in
case Exhibit 2)? Table 4.1 in Chapter 4 provides guidance on doing financial statement analysis; you should
become accustomed to using the financial ratios in Table 4.1 as guides for evaluating a company’s financial
performance.
It should take class members roughly 45 minutes to complete the exercise, assuming they have done a conscientious
job of reading the case and absorbing the information it contains. All of the questions are automatically graded,
and the grades are automatically recorded in your Connect grade book, which makes it easy for you to evaluate
each class member’s ability to apply many of the concepts and analytical methods in Chapters 3–5.
What to Tell Students in Preparing the Sirius XM Case for Class. To give students guidance in what
to do and think about in preparing the Sirius XM case for class discussion, we strongly recommend one of the
following:
nHave class members complete the Connect-based exercise for the Sirius XM case in the event you
have adopted the Connect software for your course.
OR
nProvide class members with assignment questions and insist that they prepare good notes/answers to
these questions before coming to class. Our recommended assignment questions for the Sirius XM case
are presented in the next section of this TN. You may wish to have the class concentrate their attention
on a subset of these questions, depending on how you want to handle the class discussion.
To facilitate your use of assignment questions and making them available to students, we have posted a file of
the Assignment Questions contained in this teaching note on the instructor resources section of the Connect
Library. In all instances, these assignment questions correspond to the assignment questions in the teaching
note for the case.
In our experience, it is quite difficult to have an insightful and constructive class discussion of an assigned case
unless students have conscientiously have made use of pertinent core concepts and analytical tools in preparing
substantive answers to a set of well-conceived study questions before they come to class. In our classes, we
expect students to bring their notes to the study questions to use/refer to in responding to the questions that
Utilizing the Guide to Case Analysis. If this is your first assigned case, you may find it beneficial to have
class members read the Guide to Case Analysis that immediately follows Case 31 in the text. The content of this
Suggested Assignment Questions for an Oral Team Presentation or Written Case Analysis.
We definitely recommend use of the Sirius XM case for written assignments and oral team presentations. Our
suggested assignment questions are as follows:
■ Sirius XM has employed you as a consultant to assess the company’s overall situation and recommend a set of
actions to improve the company’s future prospects. Please prepare a report to Sirius XM’s senior executives
that includes (1) an evaluation of competitive forces in the market for entertainment and other “connected
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
417
■ Prepare a brief report to Sirius XM’s senior management team outlining the 3–4 top priority issues that they
need to address and the actions you think they should initiate to address these issues. Your report should
contain detailed and convincing reasons in support of each one of your recommendations. It is imperative that
■ As a new member of Sirius XM’s management team, you have been asked to prepare an analysis of the
company’s industry and competitive situation. Your analysis of the industry should include a five forces
■ As a new member of Sirius XM’s management team, you have been asked to prepare a SWOT analysis of
■ (Short written case assignment) Which of the five generic competitive strategies discussed in Chapter 5 is
Assignment Questions
1. What is your assessment of the strength of competitive pressures that Sirius XM must contend with as
a provider of radio entertainment services (principally for vehicle owners)? Do a five-forces analysis to
support your answer. Which of the five competitive forces is strongest? Weakest?
2. How is the marketplace for providing in-vehicle radio entertainment changing? What are the underlying
drivers of change? Are these driving forces acting to make the business of a satellite radio provider such
as Sirius XM more or less attractive from the standpoint of competitive intensity and potential for good
profitability?
3. What does your strategic group map of the in-vehicle entertainment industry look like? Which strategic
groups do you think are in the best positions? Which are in the worst positions?
4. What key factors determine the success of companies competing to provide radio entertainment principally
for the owners of motor vehicles?
5. What does your SWOT analysis of Sirius XM reveal about the attractiveness of the company’s overall
situation in 2014?
6. What are the key elements of Sirius XM’s strategy? Which of the five generic competitive strategies
discussed in Chapter 5 is Sirius XM currently pursuing? Is Sirius XM’s strategy working well? Based on
what evidence?
7. What is your evaluation of Sirius XM’s financial performance during the 2010–2013 period (as shown in
case Exhibit 2)? Table 4.1 in Chapter 4 provides guidance on doing financial statement analysis; you should
become accustomed to using the financial ratios in Table 4.1 as guides for evaluating a company’s financial
performance.
8. Is Sirius XM’s decline in the number of subscribers from the third quarter to the fourth quarter of 2013
alarming (see case Exhibit 5)? Why or why not?
9. What recommendations would you make to the senior management of Sirius XM to improve the company’s
competitive position and financial performance over the next five years?
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
418
Teaching Outline and Analysis
1. What is your assessment of the strength of competitive pressures that Sirius XM must
contend with as a provider of radio entertainment services (principally for vehicle
owners)? Do a five-forces analysis to support your answer. Which of the five competitive
forces is strongest? Weakest?
Below is a representative five-forces model of competition for the traditional radio and satellite broadcasting
industry:
Suppliers to
Traditional
Rivalry among
Traditional and
Satellite Radio
Broadcasters
Competitive pressures coming
Competitive pressures coming
Substitutes for
Listening to Traditional
Threat of New Entry
into the Business of
Customers
Competitive
pressures
stemming
Competitive
pressures
Note in the diagram above that we have included advertisers in the “customers” box—this is because in the
traditional local radio segment of the industry, it is the advertisers that are the revenue-producing customers
nRivalry among traditional radio and satellite broadcasters—a strong to fierce competitive force
In assessing this competitive force, students should be directed to consider the presentation in Figure 3.4 on
p. 50 of Chapter 3.
Students should conclude that rivalry among Sirius XM, local AM and FM radio stations, and (to a much
smaller extent) Internet/online radio broadcasts is vigorous. All competitors are scrambling to win a profitable
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
419
factors:
nThe price of Sirius XM’s subscription plans versus the free (advertiser-supported) broadcasts of AM and
FM stations
nProgramming appeal
• Sirius XM offers its subscribers a wider, more diverse range of listening options than can be found
• Each local radio station customarily has a narrow programming format—news and talk programs,
• Many local radio stations try to enhance their programming appeal by limiting commercial
• Sirius XM, online broadcasters, and some local radio stations strive to attract bigger audiences
Sirius XM and most FM and AM radio broadcast competitors pursue a differentiation strategy (nearly always
related to their programming) to try to set their programming apart from competing stations.
Several factors were working to intensify rivalry among the various types ofradio broadcast competitors:
• Rivalry is growing stronger because of the increased variety of listening options—local radio,
Online broadcasters competed directly with Sirius XM’s services in automobiles, at home, on
mobile devices, and wherever audio entertainment was consumed. Internet-enabled smartphones,
most of which had the capability of interfacing with vehicles, could play recorded or cached content
Spotify had recently launched a music streaming service in the United States, which allowed its
• Low switching costs on the part of most radio listeners—it is incredibly easy to switch stations on
• Rivalry increases when one or more rivals are dissatisfied with their market position and launch
moves to bolster their standing at the expense of rivals. Clearly, Sirius XM and many of its online/
• Rivalry increases when the rate of market growth slows down. The total size of radio listening
audiences (both in terms of numbers of people and hours of radio listening time) does not seem
to be growing very much (it could even be eroding somewhat). The popularity of iPods and other
brands of MP3 players, streaming music from Pandora and Spotify, and audio smartphone radio
Case 11 Teaching Note Sirius XM Satellie Radio Inc. in 2014
420
On the other hand, it is a bit hard to say just where the radio broadcasting industry is in the industry
life-cycle. Most students are likely, with justification, to see radio broadcasting and perhaps satellite
radio as a mature industry. But it could be that satellite radio, Internet radio broadcasts, and streaming
on various types of devices from various sources—all of which give potential listeners a wide
On the other hand, there is at least one factor acting to make rivalry somewhat weaker and a potent
second factor may emerge:
• Rivalry weakens as the program offerings of radio broadcast rivals and other providers of audio
entertainment become more differentiated. Satellite radio, Internet radio, and streamed entertainment
have significantly added to the differentiation in radio/audio programming and greatly expanded
• Head-to-head rivalry also weakens as the number of alternative providers of radio services increases
and market shares become more fragmented—connected car technology paves the way for more
nThreat of entry—a moderate competitive force that seems certain to grow stronger as more and more
new automobiles are equipped with connected entertainment services, thus providing motor vehicle
owners with a bigger choice of audio entertainment services—traditional AM and FM radio, satellite
radio, Internet radio, and assorted streamed entertainment from existing and new providers)
In assessing this competitive force, students should be directed to consider the presentation in Figure 3.5 on
p. 55 of Chapter 3.
From our perspective, there does not seem to be much opportunity for additional traditional radio stations
to enter the industry in the U.S.—there are plenty of local radio station competitors in the marketplace at
present and the ability of new radio station competitors to generate enough advertising dollars to support
Most new entry into the local radio station business will take the form of acquisitions of existing
stations—new ownership of existing radio stations is a phenomenon which has been occurring for a number
of years and which will continue well into the foreseeable future. There are already a sizable number of
