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The window for entering the satellite radio broadcasting business in North America has closed. Sirius XM
However, growing ownership of “connected” vehicles opens the door for online and streamed providers
The entry threat from online broadcasters and streaming providers into the in-vehicle segment (where
Sirius XM gets the great majority of its subscription revenues) should be viewed as high, thereby
What is uncertain in the radio broadcast marketplace today is the extent to which motor vehicle
owners will divide their listening time between local radio, satellite radio, online broadcasters, and
Conclusions concerning the threat of entry. The entry threat in audio broadcasting in the years to
come varies by segment. There is little likelihood of further entry into satellite radio, only an insignificantly
small entry threat in the local radio segment (mostly via the buying and selling of existing radio stations,
nCompetition from substitutes—a moderately strong competitive force presently with potential to
become even stronger. In assessing this competitive force, students should be directed to consider the
• The use of iPods or digital music players for in-vehicle music listening.
• The music channels provided by cable TV companies (for music listening at home).
Connected car technology opens up an avenue for motor vehicle owners to listen to programming
from sources other than traditional local radio stations and satellite radio (Sirius XM).
And, of course, there is a myriad of other ways people can spend their time apart from listening to radio/
audio broadcasts from whatever source and in whatever location (in or out of a motor vehicle). When people
are outside of a motor vehicle, radio entertainment must compete with all the other forms of entertainment
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Conclusion. Students should conclude that substitutes for radio listening are a relatively strong competitive
force, given that
• Acceptable substitutes are readily available and competitively priced (in most cases).
nThe bargaining power and leverage of suppliers to the radio broadcasting industry—a moderately
strong to very strong competitive force, depending on the type of supplier.
In assessing this competitive force, students should be directed to consider the presentation in Figure 3.7 on
p. 59 of Chapter 3.
The types of suppliers to the radio broadcasting industry include:
• The makers of radio broadcast equipment.
• Songwriters, artists, and music publishers that command fees for broadcasting their recordings.
Sirius XM and other radio broadcasting enterprises (as well as such broadcasters as Pandora,
Spotify, and others) are obligated to pay royalties and license fees to songwriters, artists, music
The class should recognize that while the makers of satellites probably have considerable bargaining power
bargaining power here, which accounts for why Sirius XM’s costs for programming content are quite
significant.
Other suppliers, however, are relatively weak and have no significant bargaining power. Such is the case
nThe bargaining power and leverage of customers—a weak to moderate competitive force
In assessing this competitive force, students should be directed to consider the presentation in Figure 3.8 on
p. 61 of Chapter 3.
Here, students must be alert to the fact that the customers of radio broadcasting enterprises include advertisers
as well as the subscribers (in case of Sirius XM and other providers of online and streamed audio programs
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In assessing the bargaining strength and leverage of the various customer types, students should be expected
to bring out most of the following points:
• Advertisers have bargaining power in the sense that they can shift advertising dollars from one type
of broadcast provider to another, depending on their convictions about where to get the biggest bang
for their advertising dollars. Likewise, they can switch their radio ads from one AM/FM station to
But audience ratings for programs work both ways—if a broadcaster is selling ads for a highly-rated
or much-listened-to program, then it can charge higher rates per minute for commercials than for
• An individual satellite radio subscriber has very limited power in bargaining for a lower subscription
price from Sirius XM—all an individual can normally do is (1) subscribe or not or (2) switch to a
lower-priced subscription or (3) respond to promotional offers that contain price discounts or (4)
• Unlike Sirius XM subscribers, the people who listen to local radio stations, Internet radio or
nConclusions concerning the overall strength of competitive forces: The competitive pressures faced
by traditional radio and satellite broadcasters are pretty strong and seem likely to grow stronger in
upcoming years, as more and more motor vehicles are equipped with connected car technology.
With regard to the traditional and satellite radio broadcasting industry as a whole:
• Competitive pressures associated with the threat of additional entry (of traditional radio broadcasters
or another satellite radio broadcaster) is the weakest of the five competitive forces. Sirius XM faces
• Buyer bargaining power is relevant only from advertisers (but not listeners). Here, Sirius XM is
• Rivalry is certainly strong among traditional radio broadcasters, and there can be no argument that
• The strength of the other two competitive forces—substitutes and supplier bargaining power—are
But while the competitive pressures confronting traditional radio and satellite broadcasters are, on
balance fairly strong, they are not so strong as to prevent most local radio stations or Sirius XM from
being profitable.
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With perhaps substantially higher royalty payments to music studios and music artists looming on the near
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?
This question should prompt the students to identify the driving forces affecting the market for providing
in-vehicle radio entertainment and to weigh how these forces are going to affect Sirius XM. You may want
Students should identify the following as driving forces operating to affect Sirius XM:
nFar and away the biggest driving force in 2014 is the rapid emergence of connected car technology—
nThe growing propensity of people with iPods and smartphones to listen to their own downloaded music
charge substantially higher royalties/fees for the broadcast of their works. Higher royalty payments/
Conclusions: As per the text treatment of driving forces in Chapter 3, you should press the class to assess
the likely effect/impact of the driving forces on Sirius XM by answering three questions:
nWhat is the likely effect of the driving forces on the demand of motor vehicle owners for satellite
radio service?
Students will almost certainly conclude that growing availability of connected car technology in motor
vehicles will weaken the long-term demand for satellite radio service. It will likely become harder for
Sirius XM to grow its subscriber base in future years than it has been in prior years. Clearly, teenage drivers,
young adults, and others who spend lots of time listening to their own downloaded music files and assorted
nAre the driving forces acting to increase the competitive pressures on Sirius XM?
This would clearly seem to be the case. The advent of connected car technology will almost certainly act
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nWill the driving forces act to boost or weaken Sirius XM’s prospects for improved long-term
profitability?
We think the best answer here is that the driving forces will act to weaken Sirius XM’s prospects for
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?
Strategic group maps are beneficial for determining a company’s market positioning relative to other
competitors in the industry. A good strategic group map entails choosing two good strategic variables capable
In radio broadcasting, the three chief strategic variables that seem to differentiate the various radio
broadcasters are:
nBreadth of program offerings
nScope of geographic coverage (the size of the geographic area over which someone can hear broadcasts)
nMethod of broadcasting (the local air waves, satellite, Internet streaming, and files on in-vehicle device)
For the purpose of this teaching note, we have chosen here to utilize program breadth and method of broadcast
delivery to construct a representative strategic group map for the radio broadcasting industry. As shown in
The blank map we have provided for students in completing the Connect case exercise uses the same axes
shown in Figure 1.
Once students have come up with their proposed map, then we think you should press them for their
nWhich strategic group is best positioned?
nWhich strategic group is weakly positioned?
The point here is that students should not stop their analysis with just drawing a strategic group map. The
• On the whole, we like Sirius XM’s strategic position on the map (after all, it is the monopoly provider
of satellite entertainment; also it is very easy for a subscriber to access all the various Sirius XM
channels—probably easier than it is to obtain the same programming breadth by switching Internet
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but not equipped with all the buzzes and whistles of connected car technology (or else unwilling to incur
the added costs of Internet streaming of programs to their vehicles). Cost-conscious vehicle owners can
• A strategic weakness of Internet streaming providers is their relative inability to leverage their Internet
audiences into a bigger stream of advertising dollars and the higher data costs users may have to pay
• The free programming associated with listening to local AM and FM stations while driving is a powerful,
• The use of other devices to supplement the programming of local AM and FM programs is definitely
attractive to the owners of iPods, smartphones, and tablets who have downloaded music and other
FIGURE 1. A Representative Strategic Group Map of the Providers
of In-vehicle Entertainment
Breadth of Program Offerings
Broad—a big
variety of
Narrow—
Local air waves Satellite Internet In-vehicle
streaming device
Downloaded
files
Sirius XM
Local Radio Stations
Internet
streaming
providers
Method of Entertainment Service Delivery
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4. What key factors determine the success of companies competing to provide radio
entertainment principally for the owners of motor vehicles?
The KSFs vary a bit between the strategic groups.
In the case of Sirius XM, the KSFs are:
nOffering a variety of subscriptions plans that cover the price spectrum
nPartnering with motor vehicle manufacturers on installing a variety of connected car services in new
In the case of local radio stations, the KSFs are:
nAppealing programming—so as to attract a sizable listening audience that is appealing to advertisers (all
nGood ability to sell ads at attractive rates to enterprises wanting to reach the station’s listening audience—
In the case of companies that have the capability to stream entertainment programs to listeners via the
Internet, the KSFs are:
nAppealing programming that can attract a loyal and sizable audience in motor vehicles with connected
nEither charging the listening audience subscription fees to help pay content and other operating costs
There’s yet a slightly different set of KSFs for growing the use of iPods, smartphones, etc as an in-vehicle
entertainment source:
nThe availability of a plug-in power source (to avoid unwanted battery drain)—many vehicles of recent
vintage have a plug-in for such devices in the dashboard or in a storage compartment. Appealing
nStrong driver/passenger preference for listening to downloaded/stored files as opposed to traditional
5. What does your SWOT analysis reveal about the attractiveness of Sirius XM’s situation?
Sirius XM’s Resource Strengths and Competitive Assets
nA very diverse and attractive lineup of channels and programs, coupled with a set of “reasonably-
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nStrong, longstanding partnerships with virtually major motor vehicle manufacturers predicated on
giving these manufacturers appealing subsidies and incentives as a “reward” for equipping their various
nLongstanding partnerships with the retailers of satellite radios that included assorted subsidies and
nWorking relationships with over 11,000 franchised and independent vehicle dealers to promote and
sell Sirius XM subscriptions for both certified and noncertified used vehicles equipped with satellite
radios—the centerpiece of Sirius XM’s program with these participating used vehicle retailers was
giving a 3-month Sirius XM trial subscription to customers buying any pre-owned vehicle with a
factory-equipped satellite radio; in addition, these dealers reported the sale of such vehicles to Sirius,
nA eet of 10 orbiting satellites that provided clear reception in most all geographic areas of the United
States and Canada.
nStrong relationships with the manufacturers of satellite radios—these radios were designed by Sirius
nSirius XM’s new capability (as a consequence of having acquired Agero, Inc.) to develop a connected
vehicle platform and begin delivering connected vehicle services to a host of major automotive
manufacturers. Agreements had already been negotiated with Acura, BMW, Honda, Hyundai, Infiniti,
nRecently improved customer care and customer service capabilities
Sirius XM’s Resource Weaknesses and Competitive Liabilities
nSubstantial long-term debt (~$3 billion) see case Exhibit 2
nSizable annual expenditures for subsidies and incentives—needed (necessary? essential?) to win the
collaboration of partners in acquiring new subscribers. These “subscriber acquisition costs” included