Sirius XM Case Analysis

Published: 2017-12-27 16:26:10
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Sirius XM Satellite Radio Inc

Sirius XM Satellite Radio was the result of a merger of Sirius Satellite Radio and XM Satellite Radio in 2008. Both the organizations had commenced operating in 2001-2002, incurring hundreds of millions to run. These costs covered the launch of satellites to broadcast radio signals, the installation of necessary networking equipment, the manufacture of broadcasting equipment, market research, and attracting subscribers to their services. The primary target market for the company was registered vehicle owners, both new and used vehicles, in North America. 

Nevertheless, according to the companies’ executives, the only solution that was available to save both organizations from bankruptcy was merging them and ending their destructive competitive battle. In July 2008, the proposal won approval from the FCC and the Antitrust Division of the U.S Department of Justice. Therefore, despite their different needs, Sirius Satellite Radio and XM Satellite Radio had to operate as a single entity, Sirius XM Satellite Radio. Luckily, Liberty Media offered to help the company recover by providing a loan of $530 million in return for 12.5 million shares in the company and seats on its Board of Directors. Consequently, the company’s strategy focused on some key issues to rejuvenate its profit-making operations. 

Sirius XM Competitive Pressures

As a provider of radio entertainment services, Sirius XM has several competitive forces to contend with, mainly for vehicle owners. Rigorous rivalry exists among the company, Local AM/FM radio stations, and the upcoming Internet/online radio broadcasters. Notably, two primary factors form the base of this contention, namely, Sirius XM’s subscription costs versus the free broadcasts offered by local AM/FM stations and its programming appeal. The second competitive force against Sirius XM is the threat of entry. Indeed, this pressure is growing, as new vehicles are equipped with connected radio entertainment services. Furthermore, motor vehicle owners have a wider array of entertainment services from which to choose for installation in their vehicles. The entry threat posed by online broadcasters and streaming providers, who are targeting the in-vehicle market that consists a majority of Sirius XM’s subscription revenues, is high and it heightens the competitive pressure facing the company.

The third pressure arises from competitive substitutes for listening to traditional and satellite broadcasts. They include digital music players for in-vehicle music listening, smart phones, music compact discs and DVDs, music provided by free online sources such as Pandora, and music channels availed by cable TVs. Notably, these substitutes are relatively strong forces since they are readily available, consumers’ switching costs are low, and many customers are familiar with using them. The fourth force that Sirius XM has to contend with is the bargaining power and advantage of other suppliers in the industry. Nevertheless, it is a moderately intense pressure. Such players include manufacturers of radio broadcast equipment, satellite providers, music artists, and groups that own rights to broadcast their events, for instance, Sports federations. Notably, the providers of copyrighted content have the greatest bargaining power.

Finally, customers have a negotiating authority and leverage too, though it is weak to moderate force. It is essential to note that, these customers include advertisers in local radio stations and subscribers to satellite and online broadcasting radio stations. Advertisers’ bargaining power rests on the fact that they can shift the advertising money from one broadcaster to the other, depending on their certainty about where to get the biggest return for their money. Nevertheless, an individual satellite radio subscriber has limited bargaining power for a lower subscription fee from Sirius XM. The only available options are to choose not to subscribe, switch to a cheaper broadcaster, or threaten to cancel the subscription unless they get a price break.

Change in in-vehicle radio entertainment marketplace and its effect on Sirius XM

The market for availing in-vehicle radio entertainment, where Sirius XM operates, continues to change due to several driving forces. The biggest driving force was the arrival of connected car technology in 2014. Notably, the increasing availability of this technology in motor vehicles will decline the future demand for satellite radio service. Therefore, it will be harder for Sirius XM to widen its subscriber base in the long-term. The second driver of change is the growing inclination of consumers with iPods and smartphones to download their music files and listen to them while driving. Therefore, these individuals are less likely to subscribe to Sirius XM’s services. Nevertheless, the company’s vigorous efforts to upgrade the allure of its programming may still encourage motor-vehicle owners to remain and new ones to subscribe to its services. 

Third, there is a prospect that owners of copyrighted music and other licensed content can charge considerably higher royalties for the broadcast of their work. Higher royalty payments threaten to lower the profitability of traditional and satellite radio stations because they may not completely cover the increased costs through inflated advertising charges or exorbitant subscription rates. Indeed, these changes are intensifying the competitive pressures challenging Sirius XM. Additionally, they are weakening the company’s likelihood for improved profitability, though not to an extent to prevent Sirius from earning slightly acceptable gains.

A Strategic Group Map of the In-vehicle Entertainment Industry

According to Dornier, Selmi, and Delécolle, (2012), a strategic group map is paramount for determining a business’ market positioning about its competitors in the industry. An efficient plan involves identifying two strategic variables capable of distinguishing how different competitors are positioned in the industry. In the in-vehicle entertainment industry, three primary strategic variables seem to separate the various radio broadcasters. First, is the method of broadcasting, namely, through the local airwaves, satellite, or through files on in-vehicle equipment. The second variable is the breadth of program offerings. Third is the extent of the geographic area over which consumers can hear the broadcasts. 

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