Sirius XM Satellite Radio Inc Analysis Sample

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.

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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 companys strategy focused on some key issues to rejuvenate its profit-making operations.

Sirius XMs 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 XMs 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 XMs 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.

Five-Force Model Analysis

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 XMs services. Nevertheless, the companys 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 companys 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 Delecolle, (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.

Methods of Entertainment Service Delivery

According to the case study, the four top strategic groups are the Sirius XM, the local AM/FM radio stations, online broadcasters, and direct in-vehicle plug-ins. From the strategic group map, Sirius XM is the best positioned. Furthermore, it is the monopoly provider of satellite radio station. Additionally, subscribers can easily access all its various channels, probably easier than it is to get similar programming breadth by switching online broadcasters while driving. Similarly, Sirius XMs positioning increases its chance to gain additional subscribers from buyers of used vehicles installed with satellite radios. For the same reason, it is well positioned to its consumer base from owners of new vehicles only equipped with satellite radios.

Internet streaming broadcasters are in the worst positions in the strategic group map. Moreover, they are relatively unable to leverage their audiences into a bigger stream of advertising money and the higher data costs users may have to incur to listen to streamed programs in cars. Nevertheless, the introduction of connected vehicle technology in automobiles, introduced in 2014, will position internet providers as the biggest beneficiaries. However, it is paramount to consider the free programming offered by local radio stations, which is a powerful and no-hassle attraction for drivers in need of entertainment. Finally, the use of other plug-in devices to supplement local and satellite radios programming is attractive to owners of iPods and smartphones who are strict listeners of their downloaded music files.

Key Factors to Determine the Success of In-vehicle Radio Entertainment Providers

The main competing in-vehicle entertainment providers are the strategic groups identified above, namely, Sirius XM, online broadcasters, local AM/FM radio stations, and plug-in devices, for example, iPods and smartphones. The key factors of success vary between these groups although they depict some similarities. Sirius XM has four key success factors. First, it can develop an appealing programming to attract more paying subscribers. Second, it has active collaborations with motor vehicle manufacturers, for example, General Motors and Toyota in offering prepaid subscriptions on trial basis. Moreover, drivers of new and used vehicles installed with satellite radios are key prospects of becoming Sirius XMs subscribers. Third, the company is currently collaborating with car manufacturers to install different connected car services in new vehicles that it can transmit through its satellites economically and reliably. The final success factor available to Sirius XM is that it can offer a diverse array of subscription plans that cover a broad price spectrum.

On the other hand, online broadcasters have two key success factors. First, they have appealing programming that can attract a vast and loyal consumer base of motor vehicle owners with connected car technology. Similarly, the programming can target the audience that use internet enabled devices such as smartphones to stream online at an affordable cost. The second success factor is that online broadcasters have the option to either charge its listeners a subscription fee or sell advertising included in the delivery of content to help pay for content and other operating costs and earn adequate profits.

Similarly, local radio stations have two success factors too, namely, an appealing programming that can attract a sizeable audience that is appealing to advertisers and the ability to sell ads to marketers striving to reach the stations audience at attractive rates. However, the growing uses of plug-in devices as an in-vehicle entertainment source have slightly different key success factors. They include the availability of a plug-in power supply, which is readily available in many current vehicle models. An actual driver preference for listening to downloaded music files as opposed to traditional or satellite radio shows or online programs comprises the second success factor.

Sirius XMs SWOT Analysis

A companys SWOT analysis includes its strengths, weaknesses, opportunities and threats. According to the case study, Sirius XM has the following advantages. It has a diverse and appealing lineup of channels and programs available at a variety of affordable subscription rates. Similarly, it has great longstanding partnerships with car assemblers, manufacturers, and retailers of satellite radios. In addition, it has good working relationships with over 11,000 vehicle dealers who promote and sell Sirius XMs subscriptions. Additionally, it has a fleet of 10 orbiting satellites that avail clear transmission in almost all over North America. Similarly, Sirius XM has a new capability to develop a connected vehicle platform following its acquisition of Agero Inc. Already; it has negotiated with the leading vehicle manufacturers, for example, BMW, Nissan, Lexus, and Toyota to begin delivering connected car services.

Nevertheless, Sirius XM has two significant weaknesses that can limit its attractiveness. First, it has an outstanding long-term debt of $3 billion as shown in Exhibit 2. Second, it is still investing...