A case study analysis of satelitte radio and competitive strategies for gaining competitive advantage.

1. XM, SIRIUS SATELLITE, AND THE RADIO INDUSTRY
XM, Sirius Satellite and the Radio Industry
Mikenna Kossow
William Jessup University

2. XM, SIRIUS SATELLITE, AND THE RADIO INDUSTRY 2
Industry and Company Background
The radio industry has been evolving over the course of time with the continual
development of technology. Radio broadcasting began in the 20th century and transformed into
one of first modes of mass communication; television was to follow after. Before the start of
satellite radio majority of people were listing to traditional FM and AM radio stations. It was
estimated, according to Thompsons (2007), adults listened roughly 3 hours of radio daily. With
technology developing, satellite radio, internet radio, podcasts, and portable mp3 devices began
coming into the market threatening the traditional radio stations. These radio stations had to
adapt with the times and began to offer different ways of listening to their content. In the early
2000’s, ¾ of the population was listening to radio but those numbers began to fall because of the
younger people group using iPods and other portable mp3 players as a music source.
Over 10,000 commercial radio stations were present in the United States in 2006.
Roughly 60% were FM stations and the remaining 40% being AM Stations. Majority of these
stations were owned by large broadcasting operators such as Clear Channel Communications
(who had the most stations), Cumulus Media, and Citadel Communications. “Traditional AM
and FM radio stations had a well-established market for their product offering and used an
advertising-based business model that provided free broadcast reception paid for by commercial
advertising” (Thompson, 2007). The radio industry around 2006 had reported revenue of 21.2
million dollars with over 90% coming from advertisement sales. The radio industry has had
much success but can the satellite radio sector survive?
In the 1990’s, satellite radio found its start as another medium to broadcasting. XM
Satellite Radio and Sirius Satellite Radio were the only direct competitors in the satellite world.
XM Radio was founded in 1988 by Lon Levin but was not incorporated until 1992. XM Radio

3. XM, SIRIUS SATELLITE, AND THE RADIO INDUSTRY 3
derived from the company American Mobile Satellite Corp and was originally known as
American Mobile Radio Corp. In 1997, there were two licensing rights to satellite radio
broadcasting. XM Radio received one of those rights from the Federal Communications
Commission. XM programs began broadcasting in 2001. XM had about 350,000 subscribers who
paid close to $10 a month by the end of the first year. The rates were increased to roughly $13 a
month at the end of 2006 and XM radio at 7.6 million subscribers. However, XM failed to meet
many quantitative goals forecasted and had not yet earned a profit. In fact, XM reported an
increase in losses each year.
Sirius Satellite Radio was an internal competitor to XM and eventually (post-case)
acquired XM. It was founded by Martine Rothblatt, David Margolese, and Robert Briskman in
1990 but was not named Sirius until 1999. Sirius received the second right to satellite
broadcasting from the FCC. Sirius launched its broadcasting services a year after XM. Sirius
charged the same prices as XM and in 2006 had 6 million subscribers falling short compared to
its competitor. However, the company was not as far off from XM and one might think it was
doing better than XM because of its short span on the market. Sirius Satellite was also at a profit
loss that increased much higher than the other company. But unlike XM, Sirius did not stay at a
loss and achieved its first positive cash flow near the end of 2006. Sirius was excelling much
quicker than XM.
Industry and Company Analysis
Sirius and XM shared almost similar missions and goals. It was almost as if they were exactly
the same. The purpose was to “exploit satellite radio transmission technology and create a
national radio network to compete alongside traditional AM and FM radio stations” (Thompson,
2007). The strategy of both companies was to employ a subscription based business model. Both

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companies are employing product differentiation at the business-level because they are trying to
set themselves apart from traditional radio by offering subscription-based products with
commercial less content. The goals were to grow a subscriber base, market this new concept,
have appealing programming, partner with vehicle manufacturers, and sell satellite receivers in
retail stores. The two companies also have a strategic alliance. Sirius and XM partnered with
each other in order to create a common receiver platform that would allow buyers to have
receivers capable for both companies satellite signal. This was prompted by FCC rules.
Each company had agreements with different vehicle manufacturers. XM for example
partnered with GM, Honda/Acura, Toyota/Lexus/Scion, and many more. Sirius shared some of
the same manufacturers with XM but among those, it had partnerships with BMW, Rolls-Royce,
and Audi. XM and Sirius would give free trial memberships when someone bought a car from
those dealerships.
XM had roughly 40 more channels than Sirius offered through its company. However,
Sirius had pride that it was the leader in Sports broadcasting. Within a couple years various
figureheads and companies began moving their stations from XM and traditional radio stations to
Sirius Satellite. As an example, NASCAR had an arrangement with XM radio but in 2007
changed over to Sirius.
VRIO Framework
Due to the close similarities between the two companies, the resources and capabilities
are essentially the same. The first resource in the satellite radio industry is the technological
infrastructure for satellite radio. Sirius and XM are the only two companies given the rights to
broadcast via satellite at this time. Because of the limited amount of rights from the FCC, this
resource would be considered valuable. However, due to the various mediums of broadcasting

5. XM, SIRIUS SATELLITE, AND THE RADIO INDUSTRY 5
the rarity is only a possibility. It can only be imitated if the FCC allows other companies to the
licensing rights of satellite.
A second major resource of both companies is programming content. Satellite radio
offers a wide variety of stations to meet the interests of many different individuals and majority
of the stations are commercial free. The programming content is valuable because many people
do not like commercials and want to listen to specific types of content. A lot of traditional
stations may have the specific “genre” but satellite radio narrows that genre even more. For
example, Sirius and XM have stations dedicated to genres such as music from the 50’s, 70’s, kid
stations, financial news, and much more. Customers are willing to pay a small price in order to
have the options of a variety of specific, commercial less stations. This particular resource may
be rare but like the other resource people have other options for listening such as internet radio
and downloadable content such as podcasts. Due to regulations it may be costly to imitate.
The third resource of these companies were the partnerships. The ability to create
partnerships with various companies in different industries to sell and promote their products
was valuable to satellite radio. It brought them brand recognition, especially through offering
free trials in new vehicles in which the systems were installed. The partnerships were rare
because these companies had major pull with not only vehicle manufacturers but also music
artists and well-known figureheads. It was also costly to imitate because traditional radio stations
had harsher rules than satellite radio such as censorship. Satellite radio did not have to censor
most of its stations unlike traditional broadcasting. Overall, satellite radio is not in a competitive
disadvantage. However, due to the possibilities of some of these resources not being rare or
costly to imitate the companies are both either in a competitive parity or temporary competitive
advantage.

6. XM, SIRIUS SATELLITE, AND THE RADIO INDUSTRY 6
Key Issues
Sirius and XM both have several key issues up to this point. First, the lack of revenues. It
seems satellite radio is costly to implement because both companies have had major profit loss
since day one. Although, Sirius was able to get a positive cash flow, there is much uncertainty on
whether satellite radio has a future. The fact that both companies are almost exactly the same
seems to be a key issue. How can a business thrive off a constant battle for subscribers and
partnerships? It is almost as if both companies should partner up. The loss of faith in investors
poses an issue to the companies. Stock prices dropped 50% from 2005 to 2006. By the beginning
of 2007 Sirius’s stock was trading around $4 a share. Lastly, Sirius and XM both seemed to lose
a little faith in themselves as they scaled back growth estimates. The issue in this was not due to
market indifference but “to failure to ‘stimulate the market with new products’” (Thompson,
2007).
Strategic Recommendations and Conclusion
Due to the lack of profits coming in for both Sirius and XM, it might be best to do one of
two options. The first recommendation is someone needs to pull out before they go bankrupt.
The companies are competing for talent and programming, it is inhibiting the ability of either
company to be profitable. Year end of 2006, XM radio reported a net loss of $718, 872 and
Sirius had a net loss of $1,104,867. However, Sirius did much better at reporting a positive free
cash flow. It seems as if Sirius is making leaps and bounds quicker than XM.
On the other side, XM radio was the first to hit the vehicle manufacturing industry. XM
should push to penetrate that market through certified pre-owned vehicles. Cars are being built
and sold every year, as of 2007 XM radio is only being installed in new vehicles. By extending
to certified pre-owned vehicles the company will be able to expand its target audience. The last

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recommendation is to merge with one another. The company has already announced a plan to do
so in the beginning of 2007. Having one of the companies acquire the other, satellite radio would
begin generating a positive revenue stream because all the subscribers would be under one
company. One might think this would create a monopoly. The FCC allowed only 2 companies
the licensing rights to broadcasting via satellite. With all the other mediums of streaming such as
traditional radio, internet radio, mp3 players and other listening services from television
provider, it would not be a monopoly. Satellite radio will be able to thrive under one entity than
with two competing for all of the same slots.

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References
SiriusXM Satellite Radio. (n.d.). Retrieved from http://www.siriusxm.com/
Thompson, A. A. (2007). The battle in radio broadcasting: Xm vs. sirius vs. local radio vs.
internet radio. The University of Alabama, C30-C47.