Sirius and XM Radio Broadcasting

1. What are the key elements of XM Radio’s strategy? Is its strategy working well? What do you make of the company’s enormous losses?

XM'x strategy is "building awareness and demand among potential subscribers and in the advertising community" by appealing to to a broad market with "innovative and diverse programming, nationwide coverage, many commercial-free music channels and digital sound quality." XM is using sports promotions by signing numerous contracts with Major League Baseball, the PGA and others to help market the service. XM has formed partnerships with General Motors and Honda with XM Radio being optional in many makes of cars.

Overall, XM has been successful in adding subscribers to its service. Subscribers has increased to 7.63 million by the end of 2006.The problem with XM's strategy is that XM is mostly commercial free service thus subscriber fees make up the vast majority of revenue. Unlike HBO which can market its shows (DVD and on-demand) after the initial airing XM does not have any way to improve the revenue stream.

The majority of losses are caused by two areas; the first is marketing costs associated with convincing people that radio is worth paying for. Spending over 50% of subscriber revenue just to bring in more subscribers makes the current model ineffective. The second area is interest expense on a growing mountain of long term debt.

2. What are the key elements of Sirius Satellite Radio’s strategy? Is its strategy working well? What do you make of the company’s enormous losses?

Sirius has a three prong approach to its marketing strategy. The first is enhancing and refining programming. Sirius has added programming of such variety as Howard Stern with 2 channels and $100 million annual budget. Channels dedicated to music superstars such as The Who or creating a Metropolitan Opera channel. The second is introducing radios with new features and functions such as producing a satellite portable radio with WiFi. The third feature is expanding distribution of Sirius radios through automakers and retail outlets.

By the end of 2006 Sirius had achieved the 6 million subscriber mark with a per subscriber acquisition cost of $108. The company has brought on subscribers but like XM the revenue stream is limited to subscriber fees. Sirius needs to invent ways to increase revenue beyond the subscriber, whether by using advertising on its Internet radio service or finding the ability to remarket radio content.

The company is suffering enormous losses due to two areas. The high costs associated with acquiring new subscribers which amount to more expenses than total revenue and the use of equity to compensate employees. Like XM the battle is to convince people that radio is worth paying for. With all the alternatives (podcasting, MP3, live streaming, free internet radio, etc) presently available to occupy peoples time a reason needs to be created for people to want to pay for radio.

3. What are the pros and cons of the proposed merger between XM Radio and Sirius?

I realize the companies have merger and needed a suitor to survive. I wrote this for a class is school. Schools are always behind the times by too many years.

The companies feel that competition for satellite radio exist within many areas including the iPod, Internet radio and free radio thus to survive the companies are stressing the merger would allow for the development of greater content and programming choices for consumers and the ability to better introduce lower cost and easier to use satellite receivers. Sirius CEO Mel Karmazin has stated that a possibility would be that a merger might lead to lower monthly subscription fees. Another reason for the merger maybe the survival of the industry, with both companies losing huge amounts of money maybe a combined company could survive and prosper.

The cons are that with the merger there would only be one satellite radio company thus creating a monopoly. Plus the original satellite licenses granted XM and Sirius by the Federal Communications Commission prohibited one company from owning both licenses.