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Satellite radio: XM versus Sirius Essay

Sirius Satellite Radio Inc (initially called Satellite CD Radio) was one of the two initial players in the satellite radio industry created by two passionate guys David Margolese and Robert Brckman back in 1997 in Canada. The second player in the industry was XM Radio, backed by AMS Corp., and Hughes Electronic (a subsidiary of GM). Market situation for both companies was similar, but Sirius somehow fell a few steps behind XM Radio, therefore I will analyze in particular problems of and opportunities for Sirius Satellite Radio Inc.

1. ProblemsA problem for Sirius as well as for XM was huge initial investments. All amounts in this case are with six figures and had to be invested without backup of powerful investors. Clear data on Sirius initial investments are not available, but they can be derived from the competitor’s expenditures in the same area.

Another common problem for both competitors is the competition with tall free radio (FM AM); Internet radio; satellite TV and cable systems, who provided radio services as part as their digital package for free. It is difficult to persuade a regular listener to purchase a service, which is already provided for free in good quality.

A major problem for Sirius was the broadcasting delay for 2 years due to technical problems. Sirius started broadcasting 9 months later then XM started to offer its service nationwide. XM launched initial ad campaign ($100mil) and collected most of initial customers by the end of 2002 (347 vs. 30 thousand).

After entering the market Sirius offered service for a higher price of $12,95 vs. $9,95 for XM. No explanatory ad campaign took place to explain to potential consumers the reasons for price difference.

Income was mostly generated from the subscription fees – 85% of total income, because of the ads-free music channels. This can be perceived as a plus or minus. On the one side subscribers are willing to select music channels free from ads on the other side the company looses money it could collect from broadcasting advertisements.

Unfavorable business agreement conditions with car producers and dealers (initially dealer installed option vs. factory installed meaning that customer has to request and pay additionally for Sirius radio set, also later not sufficient amount of factory installed Sirius car radio sets).

Sirius chipsets required to pick up signal are more expensive than XM’s, therefore bigger subsidies to car producers are required from the Sirius’ side (part of the unfavorable terms of the agreement).

Initially Sirius did not provide home radio equipment thereby missing 37,3- 47,3% radio potential radio subscribers. After providing radio sets for homes the most popular still remained XM radio Delphi XM SkyFi.

Sirius Radio channels did not cover Latin-American (XM had 5 channels) and African American (reggae) audience. This also resulted in the loss of potential subscribers.

2.Recommendations and alternativesSirius could merge with XM and carry on as one joint company, for example Sirius XM, provided it is permitted by FCC and NAB under the applicable competition regulations.

A new company of joint ownership could be set up (owned by Sirius and XM), which would own the technical equipment, such as satellites and network of terrestrial repeaters. Then both companies could rent transmission frequencies form this third company. It definitely could save hundreds of millions for both competitors and they could still remain independent and competing with each other.

As an additional money saving activity could be a cooperation with cell phone service providers using their network coverage equipment to cover zones, which are difficult to access geographically.

Situation for Sirius could be substantially improved by defining the satellite radio target market and product positioning in it; also it could develop tactical marketing plan and set pricing according to the target audience.

As a competitive advantage Sirius could offer service to upload music for MP3 players played on the radio as well as on request. There could be possible cooperation with music record companies, for example IGM, Sony records etc. Sirius could be as a mediator between record companies and music listeners who are not willing to buy expensive CDs, but would agree for a small charge download it legally through the satellite radio.

Cooperation could take place also with personal computers producers, so that Sirius satellite radio could be listened on PCs without additional technical installations.

As one of the offers could be a cheaper initial package for the budget audience with a possibility for a small cost to add additional channels.

3.Implementations of recommended alternativesI would suggest to implement a second recommendation mentioned above – to create a third jointly owned company.

My point of view is that it is better to retain two different companies with their distinctive business strategies and keep a healthy competition in the market, because sooner or later other competitors will arrive.

When additional competition arrives the third joint company could (a) sell satellite broadcasting services to the new competitors thereby reducing costs for Sirius and XM, or (b) decline providing this service thereby making entrance to the market for new competitor extremely expensive process (it is questionable whether this would be allowed under the competition regulations).

To cover the North America just 2 or 3 satellites are needed, therefore the third company could expand to south America, and thereby Sirius could enlarge its audience.

After saving enormous amount of money Sirius should focus on seriously defining the target market; product positioning in it; develop tactical marketing plan and set pricing according to the target audience.

Implement wide marketing plan and spend money on research and development of new services and products.

charles w.l.hill and gareth r.jones. Strategic managemnt 7th edition


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