SIRIUS XM SATELLITE RADIO CASE ANALYSIS 1
SiriusXM Satellite Radio Case Analysis
Sirius XM, like any other company, often faces competition in the satellite and radio broadcasting industry. Competiveness in this industry is either strong or moderate, and as a result, the “intensity of rivalry” in the radio and satellite industry, is often considered to be a strong competitive force. First, there is the threat of new entry. Here, content is often expensive and infrastructure demands broadcast as a radio-satellite operator. This has forced Sirius XM to establish itself to be a product differentiator and at the same time eliminate motivation of new entry (Thompson, 2014). Secondly, there is threat of rivalry. Sirius XM faces moderate rivalry since there are few satellite-oriented companies. There is however, more threat when it comes to the radio section. AM/FM provides competition, but often lacks the strategy to introduce new products into the market like the satellite.
Threat of substitutes provides a high threat for Sirius XM.Substitutes, apart from Sirius XM, include iTunes Radio, AM/FM Radio,I Heart Radio, and the Spotify. However, this seems to be no perfectsubstitutes for Sirius XM, which would offer substantialdifferentiation. Threat of suppliers is another force, which presenta higher threat for Sirius XM. This is because the Sirius XM is moredependent on the music and entertains industry for its main content.Here, music has few suppliers (Thompson, 2014). Finally, there isthreat of buyers. The intensity of rivalry, in this case, is low.Sirius XM benefits immensely from this force since the company is oneof the few players in the industry to be able to provide differentialradio service. In this case, customers are not afforded muchflexibility when choosing another service since they prefer theirradio service to have differentiation.
Majority of the companies are known to adopt one business strategy among the five generic ones. This helps them to align their internal activities and objectives/direction to that strategy in order to achieve competitive edge. There are a number of strategies that have been employed by Sirius XM with the aim of staying at the top of their game. These strategies are programming strategy, sales and marketing strategy, customer service and customer care strategy, and satellite operations and systems strategy. However, one strategy that stands out is the sales and marketing strategy. Because subscription fees was the company’s primary source of revenue, the company therefore, aimed at concentrating the sales and marketing its initiatives and programs in order to attract new subscribers and retain the old ones. The choice of this strategy is supported by some of the key elements and sales and marketing activities.
Key elements to Sirius XM’s sales and marketing strategy began withthe installation of radios to nearly 60 million vehicles in the U.Salone. These numbers represent over 30% of close to 20 millionregistered, but non-fleet vehicles on the roads. With the sales ofnew vehicles in the U.S. that runs at close to 15 million vehiclesannually, roughly 11 million vehicles annually where installed with asatellite radio. This could not have been possible is it was not forthe aggressive sales and marketing strategy that Sirius XM employed.Key elements to this strategy were Automakers’ subsidies andincentives, trial subscription, which involve lease or purchase ofused vehicles installed with a satellite radio, and a variety ofsubscription plans and packages (Thompson, 2014). With subsidies andincentives, Sirius XM’s activity was to secure new subscribers.This was aimed at people who leased or purchased new vehicles. Itbegan with the company’s effort of rewarding automakers forinstallation of satellite radios on new vehicles. The element ofsubscription plans and packages is involved with Sirius XM marketerswho come up with variety of subscription plans to pick from. Theseactivities target new subscribers who would opt for annual,quarterly, semi-annual, and monthly subscription plans (Thompson,2014). The company’s activities also involve discounts offered toprepaid customers and the automatic renewal plans.
Value Chain Analysis and Resource-Based View (RBV) are tools used for conducting internal analysis of the company without the intention of company’s identification of competitive positioning and the overall attractiveness. With this, Sirius XM therefore, has resource strengths and competitive assets, at the same time, resource weaknesses and competitive liabilities.
The Sirius SM resource strengths and competitive assets are:
After many years of squeezing through tacking and red ink on millions of accumulated losses and deficits, Sirius XM has been in a position to deliver three quarters of breakeven profitable results.
Reports from Sirius XM shows that additional 1.1 million net subscriber, over the previous years prior to 2010, have now come up with a revised guidance for its subscribers, twice. The company’s resource strength is now expected to close its financial year with over 19.8 million subscribers. Thompson (2014) observed that at the realm of entertainment based on subscribers, a few other satellite-based companies have commanded a larger crowd.
After the merger, the company is now the only game across the United States when it comes to radio-based satellite.
Sirius XM is now in a position to accumulate billions worth of tax loss, when it could be carried forward to offset liabilities in the future. It also presents the company with leverage, if it all seeks acquisition of other profitable companies.
Sirius XM have gone ahead an embraced all the top smartphones platforms for a competitive edge.
Sirius XM is presented with more freedom when offering content to the viewers. It also has great control in the costs of its programmes.
The following are competitive liabilities or resource weaknesses ofthe Sirius XM:
Sirius XM has engaged in more than is required when it comes to outstanding shares.
The company’s retail shares have dwindled in recent years because of, for example, car companies installing their own satellite radios.
Sirius XM continues to generate minimal profits even after the merger.
With stiff competition, the company faces a deep in dominance.
Performance analysis is a tool used to study a company’s position in regard to finance. From the company’s assessment of its operating performance, what is the company’s concluding analysis? Since, 2010, Sirius XM operations have survived revenues received through advertising. This required a substantial amount of money capital expenditure, especially with the acquisition of satellite equipment (Thompson, 2014). Since, with all the financial circulation around the company, the company has benefited greatly on subscription revenues received from the customers. This was after the company used an estimated 300 million in construction and launch of each satellite. This, at the beginning of 2013, had equated to approximated 3.3 billion worth of capital expenditure.
Since the merger, and specifically towards the end of 2013, it isevident that huge profits were collected due to increase in thenumber of subscribers. Subscribers rose from 18.7 million in 2010 to23.9 million in 2013. All the money acquired from the new subscriberswas channeled to developing share re-purchase and dividends cause ofcessation. From this, it can be concluded from a financialperspective that the merger improved the company’s financialstrength.
Three major strategic groups include the Sirius XM, Local Radio, and other devices of entertainment. In any other industry, there has to be key success factors that determine the company’s success. Among the three groups, there is at least one common key success factor that runs across. One of the key success factor that run across the three is successful marketing and penetration. The three groups have all changed entertainment landscape. The three are adept to the development of a business model that allows the business and supposed investors to be successful (Thompson, 2014). These three groups are known to be selective in their approach to advertising and penetration of market. They are also known to be selective in deploying their advertisement product. For instance, radio and satellite require radio chipsets, which are very expensive.
When bought, there is a high chance the costs incurred will never berecovered. This, therefore, forces the three groups to engage invigorous marketing advertising with the sole aim of ensuring thatwhat they have invested will be profitable. What is unique withSirius XM is vigorous advertisement of satellite installationdevices. The audio radio is unique with audio metrics that propeltheir services (Thompson, 2014). The three groups also share otherkey success factors such as music royalty fee and the value addedservice and subscription models.
The Porters Five model is often used to examine the strength of competitiveness within an industry. Among the five Porters Forces is the “the threat from substitutes”. The Sirius XM satellite radio does offer an audio entertainment to its end user. Therefore, all the audio players are viewed to be the substitutes to the satellite radio. As much as they are not viewed as direct substitutes, since they are deprived of information received directly from the satellites. One cannot ignore, nonetheless, that a lot of consumers are able to enjoy their own music selection, with the pre-loaded music players to what they like (Thompson, 2014).
The continued expansion capable music players, account for majorityof substitution threats. A typical music player, currently, caneasily accommodate a day’s of audio and video. Majority of them arecurrently equipped with FM enabled radio tuner. Modern versions ofsome current devices such as iPods have also been equipped withWi-Fi, which allows users to access the internet easily (Thompson,2014). Finally, most of these substitutes, are able to podcast, whichallows them to be in a better position that satellites to downloadepisodic and periodic content before time (Thompson, 2014). This way,music players have turned out to be a powerful substitute for theSirius XM. This means that the substitutes’ bargaining power isrelatively high.
There are important driving forces that can create pressure for alterations in an industry. In this case study, there are driving forces that have altered Sirius XM mode of operation. These are competition, market evolution, and evolution of technology. Sirius XM is faced with competition, which has impacted on the company, especially in its approach to its target market. With presence of AM/FM radio, Sirius XM has been forced to adopt another way to stay competitive (Thompson, 2014). This has also forced the company to offer variety of services free of charge. With the evolution of market, Sirius XM opted to use satellite since most of the competitors were radio-based AM/FM. Evolution of market have also forced Sirius XM to go the satellite way, which have in turn been faced with fluctuation in satellite services economy. This is because while the customers are able to pay more to receive radio services, the economic fluctuations have in turn impacted on the customers to want to pay less on the satellite services. Finally, improvement in technology has impacted on the Sirius XM company. Since its inception of AM/FM radio in 1900s, radio design was known to depend on radio waves. With the advancement in technology, the company has faced technological constraints in improvement of the satellite-based services. This have also in turn impacted on the company’s finances.
Thompson A. Arthur. (2014). Sirius XM Satellite Radio Inc. in2014: On Track to Succeed after Near-Death Experience? TheUniversity of Alabama: Alabama, US