Analysis of XM & Sirius Prior to the Merger ECC: Evolution of Technology FM and AM radio was first launched in the early 1900s. The basic design of FM and AM radio is based on the creation of radio waves. However, there are several constraints to radio wave technology. First, it is susceptible to the limitations of weather conditions. Second, it gets highly disruptive in some circumstances. For example, the presence of metal structures, elevated buildings, and electronic noises obliterate the presence of radio waves. Lastly, FM and AM radio have low geographic coverage. In order to overcome these aforementioned problems, satellite radio was introduced (Oborny, 2007). Furthermore, the introduction of portable internet devices helped to further evolve radio technologies. Internet radio services became widely available as internet was successfully integrated into a prominent aspect of life. Given the growing demand for internet radio services, it is a wise decision for XM and Sirius to invest in internet radio technology instead of focusing solely on satellite radio as it might become obsolete in the near future. ECC: Evolution of Market Radio was once the sole venue for interactive entertainment. However, the emergence of television has severely diminished the demand for radio. Fortunately, the main complimentary asset of radio, automobiles, secures the demand for radio. Nonetheless, satellite radio services fluctuate with economic conditions. While consumers are willing to pay more for radio services in an economic boom, they are less likely to pay for satellite radio services given that there are abundant supplies of free radio services. Additionally, the growth in portable media players such as mp3s, Apple iPods, and even cell phones, decreases the demand for satellite radio services (Vardera, 2005). The growth of substitutes, combined with the recent economic downturn, make the radio communication a less profitable industry as it is. ECC: Competitive Forces It is insufficient to examine just the satellite radio industry since it is a minor portion of the whole public broadcasting industry. In the public broadcasting radio industry, there are few competitors with each competitor having its own competitive advantages (Worth, 2005). AM and FM radio are government owned, and they are free and widely available to everyone (Worth, 2005). Internet radio streams stations worldwide and is largely free (Worth, 2005). Satellite radio offers a variety of commercial-free channels with a monthly fee. Given all these advantages of each type of broadcasting, Sirius and XM ought to focus on differentiation strategy rather than simply cost cutting. Internal Analysis of XM One of the advantages that XM radio has over its competitors is that federal regulation exerts less force and rules over the contents of its broadcasts (Tavernise, 2004). XM is capable of offering many channels including comedy, news, business, sports and a variety of music genres. However,.

1. Analysis of XM & Sirius Prior to the Merger
ECC: Evolution of Technology
FM and AM radio was first launched in the early 1900s. The basic design of FM and AM radio is
based on the creation of radio waves. However, there are several constraints to radio wave
technology. First, it is susceptible to the limitations of weather conditions. Second, it gets highly
disruptive in some circumstances. For example, the presence of metal structures, elevated
buildings, and electronic noises obliterate the presence of radio waves. Lastly, FM and AM radio
have low geographic coverage. In order to overcome these aforementioned problems, satellite
radio was introduced (Oborny, 2007). Furthermore, the introduction of portable internet devices
helped to further evolve radio technologies. Internet radio services became widely available as
internet was successfully integrated into a prominent aspect of life. Given the growing demand
for internet radio services, it is a wise decision for XM and Sirius to invest in internet radio
technology instead of focusing solely on satellite radio as it might become obsolete in the near
future.
ECC: Evolution of Market
Radio was once the sole venue for interactive entertainment. However, the emergence of
television has severely diminished the demand for radio. Fortunately, the main complimentary
asset of radio, automobiles, secures the demand for radio. Nonetheless, satellite radio services
fluctuate with economic conditions. While consumers are willing to pay more for radio services
in an economic boom, they are less likely to pay for satellite radio services given that there are
abundant supplies of free radio services. Additionally, the growth in portable media players such
as mp3s, Apple iPods, and even cell phones, decreases the demand for satellite radio services
(Vardera, 2005). The growth of substitutes, combined with the recent economic downturn, make
the radio communication a less profitable industry as it is.
ECC: Competitive Forces
It is insufficient to examine just the satellite radio industry since it is a minor portion of the
whole public broadcasting industry. In the public broadcasting radio industry, there are few
competitors with each competitor having its own competitive advantages (Worth, 2005). AM and
FM radio are government owned, and they are free and widely available to everyone (Worth,
2005). Internet radio streams stations worldwide and is largely free (Worth, 2005). Satellite radio
offers a variety of commercial-free channels with a monthly fee. Given all these advantages of
each type of broadcasting, Sirius and XM ought to focus on differentiation strategy rather than
simply cost cutting.
Internal Analysis of XM
One of the advantages that XM radio has over its competitors is that federal regulation exerts less

2. force and rules over the contents of its broadcasts (Tavernise, 2004). XM is capable of offering
many channels including comedy, news, business, sports and a variety of music genres.
However, unlike AM and FM, XM does not offer localized services, such as local weather or
road conditions (Maines, 2007). However, XM hopes to brand with AM and FM, the two most
well known types of radio communication in order to get recognition from the similarity in the
names (Reuters, 2009). In addition to branding with famed radio telecommunications, it has
developed strong alliances over the years. XM has collaborated with GM, Clear Channel
Communications, DIRECTV, and American Honda. Most of all, XM possesses invaluable
human capital such as Howard Stern, a media personality who is known for being “The King of
All Media.” He is considered one of the most influential people in the world and ranked the
seventh “Most Powerful Celebrity” in the world (“Howard Stern”, n.d).
Internal Analysis of Sirius
Much like XM, Sirius also has the advantage of having very little federal regulation. However,
Sirius is much more successful in financial terms as it has technology that significantly reduces
costs. For example, Sirius builds only 105 repeaters because its satellites are on orbit. XM,
however, had to build approximately 1700 repeaters due to the undesirable position of its
satellite (Reuters, 2009). Additionally, Sirius is able to offer 65 commercial-free channels. In
fact, one of the channels features a well-known celebrity, Oprah Winfrey. Oprah, signed to a
three-year contract, is one of the most influential women in the world. Aside from partnerships
with celebrities, Sirius has also collaborated up with car companies such as Daimler Chrysler,
Ford, and BMW to install their radio devices onboard (Reuters, 2009).
Benefits of Merger
Given the significant and paralleled problems XM and Sirius faced, there are many reasons why
their merger could benefit both sides individually and cohesively. First, the merger eliminates
duplicating costs including the redundancies of requiring multiple mainstream programs to stay
in business. Second, both companies hold important technological information that synergize
with each other, which reduces the cost of technological investment (Banks & Mingarelli, 2008).
With all these cost reductions, the merger is also able to bring benefits to consumers by lowering
the service fee. Prior to the merger, both companies charged $12.95/month for the basic
subscription (Palmer, Hemley and Breyley, 2009). However, after the merger customers are now
able to get access to both full services for less than $25.90 ($12.95 x 2). Third, it eliminates all
the competition in the satellite radio industry, thereby transforming the industry from a duopoly
into a monopoly. Lastly, the merger would allow the company to provide more programming
choices such as foreign language broadcasts, children’s programming, minority and underserved
population-based programs, and public-safety and homeland security channels (Banks &
Mingarelli, 2008).

3. Detriments of Merger
Despite the aforementioned benefits of the merger, there are also some risks that must be
considered, including technical compatibility, customer petition, cannibalism, and Federal
Communication Commission (FCC) approval. With the merger, the company is required to
develop a radio that is capable of receiving signals from both XM and Sirius’ satellites (Banks &
Mingarelli, 2008). This would require more manufacturers to be involved in the technology
engineering. In addition to developing the new radio, the customers will be required to buy the
new radio set or else the customers will only receive half the services they paid for by using
earlier models. In fact, discontented customers started a petition on Facebook called “Anti
XM/Sirius merger.” The main reason for this disappointment is that customers have developed
brand loyalty. Being competitors for three years, many loyal XM users despise Sirius and vice
versa. Therefore, loyal customers view the act of merger as betrayal. Cannibalism is another risk
associated with the merger. Some customers use both Sirius and XM and thus the merger will
reduce profits since customers originally paying two times will now only need to pay once.
Lastly, the merger requires FCC approval, which is especially costly and time-consuming since it
grants monopolistic power in the satellite radio industry (Reuters, 2009).
Post-merger Strategic Issues & Problems
Still, the merger came about despite all the aforementioned detriments, and that may result in
many issues for the newly named Sirius XM Satellite Radio. The dreadful auto sales during the
recession damaged Sirius XM’s revenue heavily (Kharif, 2009).To counteract the decrease in
auto sales, Sirius XM decided to offer its services as software for the Apple iPhone. However,
the listeners who have downloaded Sirius XM’s iPhone application have been mostly existing
subscribers who were able to use the application free of charge (Kharif, 2009).
While Sirius XM faced a decline in subscription from auto sales, the emergence of internet radio
services is also cause for concern for Sirius XM. Companies like Pandora are offering customers
the ability to stream music into wireless-enabled cars, such as certain Ford models. Moreover,
new upstarts that broadcast cheaper mobile content are replicating current Sirius XM programs
(Kharif, 2009).
In addition to the growth of imitators, Major League Baseball is offering an iPhone mobile
application that stream baseball games live from all 30 teams and offer video clips and score
updates for $10 for the entire season (Kharif, 2009). This new mobile phone practice is in turn
substituting the traditional outlets of radio broadcasting (Kharif, 2009). According to market
research conducted at Barrington Research Associates, Sirius could lose approximately 1 million
subscribers this year, ending 2009 with only 18 million overall (Kharif, 2009).
The newly merged company has also retreated to old methods of staying afloat as it recently
negotiated $530 million worth of financing from Liberty Media to avoid going into bankruptcy

4. in February 2009 (Mintz, 2009). Despite the ‘bailout,’ Sirius still faces an uphill battle with
another $250 million in notes due in May and $228 million in December (Mintz, 2009). Sirius
XM’s reliance on performers like Howard Stern will also be jeopardized as his contract runs out
in 2010 and he claimed that he might retire afterwards. Amobi calculated that Stern contributes
to nearly 2 million of Sirius XM’s 19 million subscribers (Kharif, 2009).
Analysis Subsequent to the Merger
Competitive Rivalry
Sirius and XM Satellite Radio were the only two firms in the satellite radio industry. Upon the
merger between the two, the industry is presumably monopolized. If Sirius XM were truly a
monopoly, it would be reasonable to conclude that Sirius XM has no competitors. However, this
is far from the facts. A major reason why the merger into a “monopoly” was approved was that
Sirius CEO Mel Karmazin argued that satellite radio is in the same market as conventional
AM/FM radio and internet radio, and that satellite radio listeners only account for 3.4 percent of
all radio listeners (Broache, 2007). Therefore, traditional radio and internet radio must be
considered as competitors of Sirius XM.
Traditional radio has a major advantage over satellite radio: it is readily available and free of
charge. Moreover, an FM radio receiver can be purchased for a coffee’s worth of money. Given
the low cost on the consumer side, it is not surprising that conventional AM/FM radio accounts
for the vast majority of all radio usage. With this in mind, AM and FM broadcastings are
aggravating competitors who possess a major portion of the market share.
Internet radio is quickly increasing in popularity in recent years, most likely driven by the
booming Internet usage. Aforementioned services like Pandora, Foneshow, Stitcher, and Slacker
are expanding quickly, taking up market share in the radio industry. The major advantages of
Internet radio include cost-free usage and the diversity in programs available. Hundreds, if not
thousands of channels are available 24/7 for the end user, from soft rock to classical, talk shows
to news, everything is available. The limitation, however, is immobility, where internet radio
requires an internet connection. In essence, the force of competitive rivalry is high.
Threat of New Entrants
If Sirius XM is viewed as a company operating in the satellite radio industry, it is easy to
conclude that Sirius XM faces very low threats of new entrants due to the entry barrier of setting
up the satellite infrastructure. Prior to the merger, XM and Sirius had four and three satellites in
orbit respectively. Currently, cross-compatibility between satellites of the two companies is not
possible, but many analysts believe that combining the two satellite networks is inevitable. This
upgrade will bring Sirius XM’s satellite fleet to a total of seven; with each satellite worth roughly
$300 million, the entire fleet values to approximately $2 billion (“Sirius XM Radio”, n.d). New
entrants will be required to launch their own satellites, costing them large sum of money that

5. many would not be willing to invest.
However, it is impractical to include only satellite radio industry competitors in this analysis
since it has very little market share in the overall broadcasting industry. In the perspective of the
broadcasting industry, Sirius XM faces much higher threats from new entrants. New AM and FM
radio stations can utilize pre-existing radio infrastructures, thus largely reducing the high setup
costs a start-up satellite radio company will need to spend. In addition, because AM and FM
radio stations often have a limited broadcasting area to their local regions, it is difficult to detect
new entrants. Internet radio is even easier to setup: all that is required is an internet connection
and a network server to broadcast multimedia content to end users. Setup cost is almost zero; in
fact, setup is simple enough that tutorials such as “Creating Your Own Internet Radio Station”
are available to the public (Creating Your Own Internet Radio Station, n.d.). This is particularly
true as computers become increasingly powerful. Increasing numbers of periodic audio
programs, including recorded radio programs, talk shows, and recorded lectures, are made
available in the form of podcasts, in which end users can download these contents to their
electronic device and listen to them later. This is very similar to Sirius XM’s offerings of
downloadable content to their satellite radio devices. Once again, the threat of new entrant is
high.
Threat of Substitutes
Sirius XM satellite radio offers audio entertainment for the end user; therefore, all audio players
can be viewed as substitutes to satellite radio. They are not direct substitutes, as they all lack the
ability to receive information directly from satellites. Nonetheless, it cannot be ignored that
many consumers enjoy listening to their own selection of music, preloaded into their own music
players with songs to their likings. The expanding capabilities of portable music players account
for most of the threats of substitutions. Currently, a typical music player can easily hold a day’s
worth of music with many currently equipped with an FM radio tuner. In addition, modern
versions of popular devices such as the Apple iPod and many mobile phones are equipped with
Wi-Fi; this allows users to gain access to internet radio services such as Pandora whenever Wi-Fi
is available (Kharif, 2009). Finally, many of these devices also have podcast capabilities,
allowing them to download periodic or episodic audio content ahead of time. It is evident that the
line between a radio and a music player have blurred, since technological enhancement have
pushed the two to converge and be bundled into one device. In this way, portable music players
have become an increasingly powerful substitute for Sirius XM. In other words, the bargaining
power of substitutes is moderately high.
Bargaining Power of Customers
There are two segments of buyers identified – B2B and B2C. In B2C commerce, the consumers
are those who subscribe to the service for the sole purpose of entertainment. For those buyers,

6. the switching cost is low to none because most substitutes are widely available such as terrestrial
radio. On the other hand, in the B2B context, a significant amount of Sirius XM’s sales comes
from automobile radios. Prior to the merger, it was expected that satellite radio would become a
standard component of automobiles (Bussey, 2006). Arguably this is somewhat achieved today,
as many higher end versions of numerous car models are starting to have satellite radio included
as the standard audio system. However, for those automobiles without the feature built-in, car
buyers often have the choice to add this feature as a purchase option. This is where the
bargaining power of customers evidently shows to be high: customers have the option to
different subscription length, and even the choice whether to subscribe at all. Having a satellite
radio reinstalled does not guarantee that the purchaser will subscribe to satellite radio services
and utilize that feature. If they decide to subscribe, the consumer can choose a subscription
length. What can happen is consumers will subscribe for a short period as their “trial” period,
and then discontinue subscription if they find the services to their dissatisfaction. Decline in
subscribers in evident in Q1 of 2009, where Sirius XM lost 1.7 million subscribers, gained 1.3
new customers, settling at a net decline of 404,000 subscribers in Q1 2009 (McBride, 2009).
Finally, the availability of substitutes gives customers more bargaining power, as Sirius XM
knows that customers have a wide variety of options available to them. Combining the
bargaining power of both consumers and business users gives united bargaining power that is
high.
Bargaining Power of Suppliers
The suppliers to Sirius XM are not limited to but include electronic components of the physical
radio. Manufacturers are required to get licenses from both Sirius and XM to make the radio
devices, thus the cooperation between the two companies result in high collective bargaining
power to press the material cost down. Nevertheless, being responsible for hosting their own
radio channels, the suppliers of media content are just as important. Each year, Sirius XM spends
millions into acquiring unique content to establish competitive advantage over conventional and
internet radio. In 2008, Sirius XM spent $446.6 million on programming and content alone
(Kharif, 2009). As previously mentioned, $100 million was paid to radio celebrity Howard Stern
and his team, and $60 million paid to Major League Baseball for exclusive broadcasting rights
for play-by-play commentaries. Knowing that their content differentiates them from competitors,
Sirius XM is therefore willing to spend such huge sums of money to keep these contents
exclusive. Other valuable programs included Oprah Winfrey channel, Martha Stewart Living
Radio, and Sirius NASCAR Radio, all of which represents Sirius XM’s competitive advantage.
Combining the physical asset and human capitals, the collective bargaining power is moderately
high.
Competitor Analysis

7. In order to develop a differentiation strategy, competitors must be analyzed in order to assess the
incompetency of the competitors. For example, Apple iPod can be both a competitor and a
complimentary asset. While Apple iPhone offers Sirius XM services, it offers other competitors’
services too. Therefore, in terms of network effects, Apple iPhone is considerably a rolling stone
to satellite radios. However, Apple iPhone can only replace the music function of the radio
aspect thereby allowing Sirius XM to focus on other aspects of radio such as sports or news.
Another feature of Apple iPhone is that it offers internet services. Therefore, other internet radio
providers may soon be bothersome competitors. In order to prevent future competition, Sirius
XM should soon tap into the internet radio market to capture a portion of the growing market
shares. Currently, the demand for Apple products is still growing; therefore it is important that
the differentiation strategy is used to make Apple products a complimentary asset rather than a
competitor.
Another major competitor is FM and AM radio. In Canada, FM and AM, the two conventional
approaches of broadcasting are owned by the Canadian Radio Corporation (CRC), a crown
corporation. CRC has many subsidiaries located in different regions and provides local services,
while the headquarters provides national services (Reuters, 2009). As a crown corporation, the
CRC is naturally subsidized by the government and is provided aid and protection when it
endures financial difficulties. In other words, CRC is a competitor that cannot be eliminated.
Additionally, many people argued that there is an unfair advantage of tax practices for crown
corporations. Nonetheless, public media are restricted by many regulations such as content to
suit the public.
While FM and AM are owned by the government in Canada, they are mostly owned by private
firms in the United States such as Citadel Media. Like Canadian Radio Corporation, Citadel
Media has many subsidiaries in various regions in the United States. The company has
established many business relations that strengthen their programs and advertisements; some
clients include Walt Disney, ABC, and ESPN. However, the company has faced hundreds of
complaints due to technological malfunctions. Due to the current economic state, the company is
suffering from severe financial problems and a large debt (Reuters, 2009).
Internal Analysis of Sirius XM
Resources and Capabilities
Sirius XM radio differentiates itself from its competitors by providing a variety of programs
which are uncensored and some of which are advertisement-free. As previously mentioned, they
also ventured into other channels of distributing their programs, such as automobiles, to capture
more market share. This allows Sirius XM to focus their competitive advantage of program
accumulation rather than allocating resources to manufacturing XM satellite radio hardware.
Furthermore, Sirius XM is able to minimize costs by combining programs and human talent after

8. the merging the two companies.
Target Market and Market Shares
With 130 digital channels, Sirius XM radios offer its listeners a variety of programs. The two
main groups of customers the company target to are music-lover and sport fans. There are over
70 pure music channels ranging from decades themes to rock music. Many customers enjoy
Sirius XMs radio music channels’ because they are commercial-free. Sirius XM satisfies sport
fans by offering over 15 sport channels including play-by-play reporting on most teams. They
are the exclusive satellite radio provider of MLB and the NHL, and they feature every team and
every game throughout each league’s respective seasons (Kharif , 2008). With Sirius XM radios
installed in cars, the company also provided programs for family entertainment such as the
Disney channel.
With the merger of the two companies, Sirius XM radio eliminated some of the niche
programming that made their company unique. Although it helps the company to reduce the
costs of production, many fans are dissatisfied with this decision. For example, they have
eliminated punk and early hip-hop music channel. Charley Steiner’s “Baseball Beat” was signed
off. These changes in programs caused some customers’ dissatisfaction, which has affected
Sirius XM radio market share as many listeners decided to unsubscribe after their favorite
programs have been cancelled. Rick, a user of Sirius XM radio, posted on The New York Times
paper, “If a company were to set out with a plan to lose subscribers they couldn’t have done a
better job than what they’ve done to channel 175, especially cancelling Baseball Beat with
Charlie Steiner. I too am seriously considering cancelling my subscription, especially now that
mlb.com has live games and programming” (Kepner, 2009).
Channels of Distributions
Sirius XM partnered with many automotive manufacturers to install radios to increase awareness
of their products and capture a larger audience. With the recent economic downturn, Sirius XM
decided to penetrate into the used-car market as well hoping to capture more market share before
the automotive industry rebounds. Starting in June 2009, the company has launched “a
promotion to offer service to owners of certified pre-owned Volkswagens” (Kepner, 2009). The
used-car industry is especially important for Sirius XM as it could potentially offset the loss of
revenues resulting from too few subscribers in new car sales.
In addition to the traditional method of listening to Sirius XM programs from a portable or car-
installed radio, the company also offers broadcasts of its programs online. Subscribers of Sirius
XM radio can listen to their program online free of charge (What is XM, 2009). This has created
easy access for its listeners for Sirius XM services. With this feature, customers also have the
option to enjoy Sirius XM services without purchasing the XM radio hardware, which is an
additional cost for most customers (MarketWatch, 2009).

9. As Apple iPhones, iPod Touches and smartphones became more popular, Sirius XM launched an
application that allows users to streams Sirius XM content on these devices. Subscribers to an
Internet-radio package are able to listen to about 120 channels (Gilroy, 2009). However, some of
the popular programs such as Howard Stern’s are not available to these users. If users want to
enjoy all programs provided by Sirius XM, they must subscribe to the full package.
Pricing and Promotion Strategy:
Sirius XM promotes its subscription by offering one to three months of free service depending
on the length of subscription. This strategy helps to secure subscriber for a short period.
Aeroplan Miles are also offered to new subscribers, which might be appealing to Aeroplan
Members and customers who enjoy travelling. By being a subscriber to Sirius XM, music lovers
can also download more than 1.5 million songs from Napster’s catalog with no additional charge
(What is XM, 2009). In addition, to attract more subscribers for Apple iPod and iPhone users, the
company has offered a 7-day free trial. Free trials can create awareness of Sirius XM product and
potentially increase the number of new subscribers (McBride. 2009).
Human Resources
As previously mentioned, Sirius XM has signed top talents such as Howard Stern, Martha
Steward and Oprah Winfrey to draw in large numbers of subscribers. These celebrity programs
and endorsements have increased the competitiveness of Sirius XM as many customers subscribe
to Sirius XM solely to listen to these talk shows and programs. However, these talents come with
huge costs. As mentioned, Howard Stern and his team alone cost $100 million for Sirius XM
annually (Kharif , 2008).
Recommendations
Sirius XM is at a pivotal fragile stage in the company’s history. Their current position makes
their strategy moving forward crucial to their long-term viability in the audio entertainment
market. Now that the company has merged management, they must ensure that they maximize all
of the possible synergies that are now available to them. This should include an in depth cost
cutting analysis as well as a strong marketing focus on the new collaboration of content available
due to the merger. Sirius XM must also focus on turning satellite radio from an early growth
product to a rapid growth product. Doing so will involve finding a niche market that will
eventually influence mass-market appeal. Sirius can do this by forming new strategic
partnerships and continuing to focus on those strategies that have been successful in the past.
Cost Cutting
The merger of XM and Sirius has made way for a number of cost saving opportunities. Sirius
XM’s CEO, Mel Karmazin, believes the combined company will realize savings of 400 million
dollars within the first year (“Tuning in a Post Merger Strategy”, 2008). While many of these
savings opportunities are far more technical than the scope of this report, there are a number of

10. basic opportunities for cost savings. The first of these is in relations to advertising and new
subscriber costs. Before the merger Sirius and XM each spent extremely large sums of money in
advertising. In the case of Sirius, sales and marketing totaled 12% of their total expenses
(Wikiinvest, n.d.). The major benefit of the merger in relation to marketing is that the combined
company can focus their marketing dollars on competing with the broader industry rather than
each other. By focusing their marketing on competing with one another, Sirius and XM may
have been doing a disservice to satellite radio’s ability to compete with other audio
entertainment.
The second area where Sirius XM will be able to cut costs is in their programming. Previously,
the two companies were competing for the likes of Howard Stern and Oprah Winfrey to join
their company; as a combined company, they will now have a much stronger position from a
bargaining perspective with their major suppliers of programming. While this cost saving may
not be realized until the current contracts expire it is still a very valuable aspect of the merger.
Another example of the type of cost saving moves that Sirius XM can now make is the removal
of redundant employees. Since the two companies operated in a very similar manner, there are a
number of opportunities to retain the most talented employees from each company and release
the lesser talented employees performing the same or similar tasks. These examples of cost
saving measures that can be taken are by no means exhaustive as the opportunities for removing
redundancy between these two companies are nearly limitless. These examples do however give
a clear idea of the types of cost savings that the merged company should focus their strategy on.
Collaboration of Content
As individual companies, Sirius and XM spent a great deal of time and money on providing the
most popular programming possible. Because of these efforts, the combined company has a very
extensive list of extremely popular programming. An important part of their strategy moving
forward is how they will combine this programming. The second important factor is the
combining of programming bundles. Sirius’ programming is headlined by Howard Stern, Martha
Stewart, as well as a full line up of sports programming. XM’s programming includes Oprah
Winfrey and a somewhat more limited sports line-up. Sirius XM could also increase their growth
by bundling with DirecTV of which Liberty (the company that recently granted them a $530
million loan) holds an ownership interest (Kharif, 2009).
There are a number of benefits that come with combining this programming. To begin, Sirius
XM can combine programs that complement one another into bundles, which they are able to
charge higher fees for. As an example, it may be advantageous to combine Sirius’ Howard Stern
with XM’s Major League Baseball package as it could be argued that both programs appeal to
men. As another example, Sirius XM could combine Sirius’ Martha Stewart program with XM’s
Oprah & Friends program in a package geared towards woman. The main point is that from a

11. customer’s perspective it is no longer a one or the other situation when it come to their favorite
programming but rather they can choose from all of the programming that they may want.
Another programming advantage of being merged is that they can simply arrange for each
companies original programming to be aired on both networks in order to reach those customers
who do not yet have a receiver capable of receiving both signals. This can already be seen in the
Oprah programming originally found on XM now also being available on the Sirius network. In
addition, Sirius XM can use the internet radio aspect of their business as a way to give customers
with old receivers access to the other network’s programming. As mentioned above, internet
radio is a fast growing, nearly costless to provide service which provides an easy platform for the
initial bundling of content. It is clear that by combining the content originally found on only one
of the two networks, Sirius XM can unlock hidden value as well as remove the consumer
dilemma related to choosing which companies programming was more appealing to them. By
taking these important steps, Sirius XM can become a much stronger business moving forward.
Bridging the Gap to Rapid Growth
Strategic Partnerships
Moving forward, Sirius XM will be looking to compete in a much broader industry then has been
its focus in the past. The audio entertainment industry is a massive industry with a number of
large competitors. As such, an important strategic recommendation is for Sirius XM to focus on
their core business, which is providing Satellite radio programming. By focusing on their role as
a content provider, Sirius XM can put all of their effort into producing the best quality
programming possible. In putting their resources towards programming, Sirius XM will need to
shift resources away from other areas like hardware sales. This includes the personal portable
radios that Sirius XM sells to compete with mp3 players. As an alternative strategy, Sirius XM
should consider building strategic partnerships with firms that specialize in other aspects of their
business, for example portable music players. Sirius XM has already begun to move in this
direction by creating an application for the iPhone, which allows users to access Sirius XM
programming. While this is a great first step, it is important that Sirius XM continue in this
direction. An example of this would be if they could have Sirius XM receivers built in to every
Apple iPod or any other popular portable music player. In addition, by switching focus towards
content, Sirius XM can expand their offering of non-music programming so as to differential
themselves from the content already being offered on most people’s mp3 players. In this way
they will add value to the both their content as well as the complimentary product (i.e. Ipod).
Doing this would further push Sirius XM capable devices in people’s hands which will result in
the sale of more subscriptions.
Another very important aspect of Sirius XM’s future is their current partnerships with car
manufacturers. These have been extremely important drivers of satellite radio’s growth over the

12. past number of years. The majority of these deals include the installations of an XM or Sirius
capable radio in newly manufactured vehicles. Moving forward, it is important for Sirius XM to
push for not only the inclusion of the radio but also a subscription (possibly lifetime) in the sale
of new cars. By doing this Sirius XM can make their product the standard in the market place,
much like the inclusion of an AM/FM radio is standard today. The key to this strategy being
successful is the support of the car manufacturers, which can best be achieved through sharing
the revenue that is generated from these sales. While in the short run this may have a negative
impact on profits, if Sirius XM can become the new standard in in-car audio entertainment it will
be more than worth the investment.
Influential Niche Market
From a theoretical perspective, it appears that Sirius XM is at a very important time in any new
technology’s growth. This is the period between the early growth stage and the rapid growth
stage. During this time, firms have a tendency to do what is called “falling into the chasm” which
results in the failure of the new technology to move into the rapid growth stage. Before the recent
economic downturn, satellite radio as a technology looked poised to cross the chasm with little
trouble. Over the past 2 years however, much has changed. As a result, Sirius XM is faced with
the possibility of falling into the chasm with the other side just out of reach.
To combat this, Sirius XM can apply a simple model to their current position. The bowling alley
analogy is the idea that a firm must focus their attention on an influential niche market that will
then cause a chain reaction until a product reaches the rapid growth or “tornado” stage. In the
case of Sirius XM, there are a number of these niche markets that they have attempted to reach
but have just fallen short of pushing satellite radio to the next level. Moving forward, Sirius XM
should consider using some of the possible strategic partnerships mentioned above to appeal to
specific technology savvy people who tend to have a large influence on the broader market. The
concept of a partnership with Apple would have the potential to be a tremendous success in
reaching an influential group. If that specific partnership was not a possibility Sirius XM could
look into a partnership with Microsoft to include Sirius XM receivers in Microsoft Zune music
players or even including an application within gaming consoles that allows players to listen to
satellite radio while playing their favorite Xbox or PlayStation game. The possibilities are
endless but the important thing is that Sirius XM finds a way to reach the influential segments of
the market to create the mass appeal that they are so close to achieving.
Sirius XM is currently in an extremely vulnerable state, however as shown above, they are also
dripping with potential now that they have complete control over the satellite radio industry.
Moving forward it is important that they survive this difficult economic time and then take steps
towards their future success. To survive, it is clear that they must take advantage of the
significant cost saving opportunities available to them in a timely manner. While moving

13. towards this, Sirius XM must carefully analyze how to best combine each of the individual
companies programming in a way that will maximize value for customers. Once all aspects of
the merger have been completed and the company is operating in an organized and unified
manner, it is important that they find ways to advance their technology over the chasm and into
the rapid growth stage. To do this they must focus on their core business and find strategic
partnerships. These partnerships will help get Sirius XM devices in the hand of potential
customers and develop Sirius XM as the standard in non-mp3 audio entertainment. By following
these recommendations, Sirius XM can insure their success for years to come.
Conclusion & Limitations of Analysis
The limited successes of XM and Sirius as corporate rivals and the unrealized success of Sirius
XM as a single entity have been a cause of concern over the profitability of the satellite radio
industry. Given the costly internal resources and dynamic nature of the external environment, it
is evident that XM and Sirius have ventured into an unforgiving market where penetration and
retention of listeners has been more difficult than first perceived. With a mission to deliver
diverse programming that appeals to a variety of listeners and is advertisement free, XM and
Sirius consumed tremendous amounts of debt in signing a variety of artists and talent to attract
customers. XM and Sirius’ strategies were not the most effective in integrating and capitalizing
on its various tangible, intangible and human resources, including its various technologies,
partnerships, brand reputation, and diversity of programming talent.
An analysis of the companies through a Porter’s Five Forces lens provided various insights into
the broader broadcast and satellite radio industries. These include a low threat of new entrants
due to high set up costs of satellite infrastructure, a large threat of substitutes from other
industries, and an overreaching importance of collaboration with competitors and suppliers to
expand the current distribution network.
However, this framework is best applicable for analyzing companies in a more competitive and
defined environment; thus, given the monopolistic nature of the satellite radio industry following
the merger, our analysis includes many presumptions that might not be completely accurate. In
addition, the sources utilized in our analysis were compiled mainly through various secondary
sources readily available to the public and without tremendous insight from past and current
management.
All told, Sirius XM’ business model and strategy has caused the company to become a channel
and program aggregator, which has sustained as its primary method of creating and conveying
value to customers. Sirius XM is at a pivotal and fragile stage in its history and with the lack of
success XM and Sirius have achieved as separate companies, it must ensure that it maximizes all
of the possible synergies that are now available to them as a single company in a single industry.

14. Solution
Analysis of XM & Sirius Prior to the Merger
ECC: Evolution of Technology
FM and AM radio was first launched in the early 1900s. The basic design of FM and AM radio is
based on the creation of radio waves. However, there are several constraints to radio wave
technology. First, it is susceptible to the limitations of weather conditions. Second, it gets highly
disruptive in some circumstances. For example, the presence of metal structures, elevated
buildings, and electronic noises obliterate the presence of radio waves. Lastly, FM and AM radio
have low geographic coverage. In order to overcome these aforementioned problems, satellite
radio was introduced (Oborny, 2007). Furthermore, the introduction of portable internet devices
helped to further evolve radio technologies. Internet radio services became widely available as
internet was successfully integrated into a prominent aspect of life. Given the growing demand
for internet radio services, it is a wise decision for XM and Sirius to invest in internet radio
technology instead of focusing solely on satellite radio as it might become obsolete in the near
future.
ECC: Evolution of Market
Radio was once the sole venue for interactive entertainment. However, the emergence of
television has severely diminished the demand for radio. Fortunately, the main complimentary
asset of radio, automobiles, secures the demand for radio. Nonetheless, satellite radio services
fluctuate with economic conditions. While consumers are willing to pay more for radio services
in an economic boom, they are less likely to pay for satellite radio services given that there are
abundant supplies of free radio services. Additionally, the growth in portable media players such
as mp3s, Apple iPods, and even cell phones, decreases the demand for satellite radio services
(Vardera, 2005). The growth of substitutes, combined with the recent economic downturn, make
the radio communication a less profitable industry as it is.
ECC: Competitive Forces
It is insufficient to examine just the satellite radio industry since it is a minor portion of the
whole public broadcasting industry. In the public broadcasting radio industry, there are few
competitors with each competitor having its own competitive advantages (Worth, 2005). AM and
FM radio are government owned, and they are free and widely available to everyone (Worth,
2005). Internet radio streams stations worldwide and is largely free (Worth, 2005). Satellite radio
offers a variety of commercial-free channels with a monthly fee. Given all these advantages of
each type of broadcasting, Sirius and XM ought to focus on differentiation strategy rather than
simply cost cutting.
Internal Analysis of XM

15. One of the advantages that XM radio has over its competitors is that federal regulation exerts less
force and rules over the contents of its broadcasts (Tavernise, 2004). XM is capable of offering
many channels including comedy, news, business, sports and a variety of music genres.
However, unlike AM and FM, XM does not offer localized services, such as local weather or
road conditions (Maines, 2007). However, XM hopes to brand with AM and FM, the two most
well known types of radio communication in order to get recognition from the similarity in the
names (Reuters, 2009). In addition to branding with famed radio telecommunications, it has
developed strong alliances over the years. XM has collaborated with GM, Clear Channel
Communications, DIRECTV, and American Honda. Most of all, XM possesses invaluable
human capital such as Howard Stern, a media personality who is known for being “The King of
All Media.” He is considered one of the most influential people in the world and ranked the
seventh “Most Powerful Celebrity” in the world (“Howard Stern”, n.d).
Internal Analysis of Sirius
Much like XM, Sirius also has the advantage of having very little federal regulation. However,
Sirius is much more successful in financial terms as it has technology that significantly reduces
costs. For example, Sirius builds only 105 repeaters because its satellites are on orbit. XM,
however, had to build approximately 1700 repeaters due to the undesirable position of its
satellite (Reuters, 2009). Additionally, Sirius is able to offer 65 commercial-free channels. In
fact, one of the channels features a well-known celebrity, Oprah Winfrey. Oprah, signed to a
three-year contract, is one of the most influential women in the world. Aside from partnerships
with celebrities, Sirius has also collaborated up with car companies such as Daimler Chrysler,
Ford, and BMW to install their radio devices onboard (Reuters, 2009).
Benefits of Merger
Given the significant and paralleled problems XM and Sirius faced, there are many reasons why
their merger could benefit both sides individually and cohesively. First, the merger eliminates
duplicating costs including the redundancies of requiring multiple mainstream programs to stay
in business. Second, both companies hold important technological information that synergize
with each other, which reduces the cost of technological investment (Banks & Mingarelli, 2008).
With all these cost reductions, the merger is also able to bring benefits to consumers by lowering
the service fee. Prior to the merger, both companies charged $12.95/month for the basic
subscription (Palmer, Hemley and Breyley, 2009). However, after the merger customers are now
able to get access to both full services for less than $25.90 ($12.95 x 2). Third, it eliminates all
the competition in the satellite radio industry, thereby transforming the industry from a duopoly
into a monopoly. Lastly, the merger would allow the company to provide more programming
choices such as foreign language broadcasts, children’s programming, minority and underserved
population-based programs, and public-safety and homeland security channels (Banks &

16. Mingarelli, 2008).
Detriments of Merger
Despite the aforementioned benefits of the merger, there are also some risks that must be
considered, including technical compatibility, customer petition, cannibalism, and Federal
Communication Commission (FCC) approval. With the merger, the company is required to
develop a radio that is capable of receiving signals from both XM and Sirius’ satellites (Banks &
Mingarelli, 2008). This would require more manufacturers to be involved in the technology
engineering. In addition to developing the new radio, the customers will be required to buy the
new radio set or else the customers will only receive half the services they paid for by using
earlier models. In fact, discontented customers started a petition on Facebook called “Anti
XM/Sirius merger.” The main reason for this disappointment is that customers have developed
brand loyalty. Being competitors for three years, many loyal XM users despise Sirius and vice
versa. Therefore, loyal customers view the act of merger as betrayal. Cannibalism is another risk
associated with the merger. Some customers use both Sirius and XM and thus the merger will
reduce profits since customers originally paying two times will now only need to pay once.
Lastly, the merger requires FCC approval, which is especially costly and time-consuming since it
grants monopolistic power in the satellite radio industry (Reuters, 2009).
Post-merger Strategic Issues & Problems
Still, the merger came about despite all the aforementioned detriments, and that may result in
many issues for the newly named Sirius XM Satellite Radio. The dreadful auto sales during the
recession damaged Sirius XM’s revenue heavily (Kharif, 2009).To counteract the decrease in
auto sales, Sirius XM decided to offer its services as software for the Apple iPhone. However,
the listeners who have downloaded Sirius XM’s iPhone application have been mostly existing
subscribers who were able to use the application free of charge (Kharif, 2009).
While Sirius XM faced a decline in subscription from auto sales, the emergence of internet radio
services is also cause for concern for Sirius XM. Companies like Pandora are offering customers
the ability to stream music into wireless-enabled cars, such as certain Ford models. Moreover,
new upstarts that broadcast cheaper mobile content are replicating current Sirius XM programs
(Kharif, 2009).
In addition to the growth of imitators, Major League Baseball is offering an iPhone mobile
application that stream baseball games live from all 30 teams and offer video clips and score
updates for $10 for the entire season (Kharif, 2009). This new mobile phone practice is in turn
substituting the traditional outlets of radio broadcasting (Kharif, 2009). According to market
research conducted at Barrington Research Associates, Sirius could lose approximately 1 million
subscribers this year, ending 2009 with only 18 million overall (Kharif, 2009).
The newly merged company has also retreated to old methods of staying afloat as it recently

17. negotiated $530 million worth of financing from Liberty Media to avoid going into bankruptcy
in February 2009 (Mintz, 2009). Despite the ‘bailout,’ Sirius still faces an uphill battle with
another $250 million in notes due in May and $228 million in December (Mintz, 2009). Sirius
XM’s reliance on performers like Howard Stern will also be jeopardized as his contract runs out
in 2010 and he claimed that he might retire afterwards. Amobi calculated that Stern contributes
to nearly 2 million of Sirius XM’s 19 million subscribers (Kharif, 2009).
Analysis Subsequent to the Merger
Competitive Rivalry
Sirius and XM Satellite Radio were the only two firms in the satellite radio industry. Upon the
merger between the two, the industry is presumably monopolized. If Sirius XM were truly a
monopoly, it would be reasonable to conclude that Sirius XM has no competitors. However, this
is far from the facts. A major reason why the merger into a “monopoly” was approved was that
Sirius CEO Mel Karmazin argued that satellite radio is in the same market as conventional
AM/FM radio and internet radio, and that satellite radio listeners only account for 3.4 percent of
all radio listeners (Broache, 2007). Therefore, traditional radio and internet radio must be
considered as competitors of Sirius XM.
Traditional radio has a major advantage over satellite radio: it is readily available and free of
charge. Moreover, an FM radio receiver can be purchased for a coffee’s worth of money. Given
the low cost on the consumer side, it is not surprising that conventional AM/FM radio accounts
for the vast majority of all radio usage. With this in mind, AM and FM broadcastings are
aggravating competitors who possess a major portion of the market share.
Internet radio is quickly increasing in popularity in recent years, most likely driven by the
booming Internet usage. Aforementioned services like Pandora, Foneshow, Stitcher, and Slacker
are expanding quickly, taking up market share in the radio industry. The major advantages of
Internet radio include cost-free usage and the diversity in programs available. Hundreds, if not
thousands of channels are available 24/7 for the end user, from soft rock to classical, talk shows
to news, everything is available. The limitation, however, is immobility, where internet radio
requires an internet connection. In essence, the force of competitive rivalry is high.
Threat of New Entrants
If Sirius XM is viewed as a company operating in the satellite radio industry, it is easy to
conclude that Sirius XM faces very low threats of new entrants due to the entry barrier of setting
up the satellite infrastructure. Prior to the merger, XM and Sirius had four and three satellites in
orbit respectively. Currently, cross-compatibility between satellites of the two companies is not
possible, but many analysts believe that combining the two satellite networks is inevitable. This
upgrade will bring Sirius XM’s satellite fleet to a total of seven; with each satellite worth roughly
$300 million, the entire fleet values to approximately $2 billion (“Sirius XM Radio”, n.d). New

18. entrants will be required to launch their own satellites, costing them large sum of money that
many would not be willing to invest.
However, it is impractical to include only satellite radio industry competitors in this analysis
since it has very little market share in the overall broadcasting industry. In the perspective of the
broadcasting industry, Sirius XM faces much higher threats from new entrants. New AM and FM
radio stations can utilize pre-existing radio infrastructures, thus largely reducing the high setup
costs a start-up satellite radio company will need to spend. In addition, because AM and FM
radio stations often have a limited broadcasting area to their local regions, it is difficult to detect
new entrants. Internet radio is even easier to setup: all that is required is an internet connection
and a network server to broadcast multimedia content to end users. Setup cost is almost zero; in
fact, setup is simple enough that tutorials such as “Creating Your Own Internet Radio Station”
are available to the public (Creating Your Own Internet Radio Station, n.d.). This is particularly
true as computers become increasingly powerful. Increasing numbers of periodic audio
programs, including recorded radio programs, talk shows, and recorded lectures, are made
available in the form of podcasts, in which end users can download these contents to their
electronic device and listen to them later. This is very similar to Sirius XM’s offerings of
downloadable content to their satellite radio devices. Once again, the threat of new entrant is
high.
Threat of Substitutes
Sirius XM satellite radio offers audio entertainment for the end user; therefore, all audio players
can be viewed as substitutes to satellite radio. They are not direct substitutes, as they all lack the
ability to receive information directly from satellites. Nonetheless, it cannot be ignored that
many consumers enjoy listening to their own selection of music, preloaded into their own music
players with songs to their likings. The expanding capabilities of portable music players account
for most of the threats of substitutions. Currently, a typical music player can easily hold a day’s
worth of music with many currently equipped with an FM radio tuner. In addition, modern
versions of popular devices such as the Apple iPod and many mobile phones are equipped with
Wi-Fi; this allows users to gain access to internet radio services such as Pandora whenever Wi-Fi
is available (Kharif, 2009). Finally, many of these devices also have podcast capabilities,
allowing them to download periodic or episodic audio content ahead of time. It is evident that the
line between a radio and a music player have blurred, since technological enhancement have
pushed the two to converge and be bundled into one device. In this way, portable music players
have become an increasingly powerful substitute for Sirius XM. In other words, the bargaining
power of substitutes is moderately high.
Bargaining Power of Customers
There are two segments of buyers identified – B2B and B2C. In B2C commerce, the consumers

19. are those who subscribe to the service for the sole purpose of entertainment. For those buyers,
the switching cost is low to none because most substitutes are widely available such as terrestrial
radio. On the other hand, in the B2B context, a significant amount of Sirius XM’s sales comes
from automobile radios. Prior to the merger, it was expected that satellite radio would become a
standard component of automobiles (Bussey, 2006). Arguably this is somewhat achieved today,
as many higher end versions of numerous car models are starting to have satellite radio included
as the standard audio system. However, for those automobiles without the feature built-in, car
buyers often have the choice to add this feature as a purchase option. This is where the
bargaining power of customers evidently shows to be high: customers have the option to
different subscription length, and even the choice whether to subscribe at all. Having a satellite
radio reinstalled does not guarantee that the purchaser will subscribe to satellite radio services
and utilize that feature. If they decide to subscribe, the consumer can choose a subscription
length. What can happen is consumers will subscribe for a short period as their “trial” period,
and then discontinue subscription if they find the services to their dissatisfaction. Decline in
subscribers in evident in Q1 of 2009, where Sirius XM lost 1.7 million subscribers, gained 1.3
new customers, settling at a net decline of 404,000 subscribers in Q1 2009 (McBride, 2009).
Finally, the availability of substitutes gives customers more bargaining power, as Sirius XM
knows that customers have a wide variety of options available to them. Combining the
bargaining power of both consumers and business users gives united bargaining power that is
high.
Bargaining Power of Suppliers
The suppliers to Sirius XM are not limited to but include electronic components of the physical
radio. Manufacturers are required to get licenses from both Sirius and XM to make the radio
devices, thus the cooperation between the two companies result in high collective bargaining
power to press the material cost down. Nevertheless, being responsible for hosting their own
radio channels, the suppliers of media content are just as important. Each year, Sirius XM spends
millions into acquiring unique content to establish competitive advantage over conventional and
internet radio. In 2008, Sirius XM spent $446.6 million on programming and content alone
(Kharif, 2009). As previously mentioned, $100 million was paid to radio celebrity Howard Stern
and his team, and $60 million paid to Major League Baseball for exclusive broadcasting rights
for play-by-play commentaries. Knowing that their content differentiates them from competitors,
Sirius XM is therefore willing to spend such huge sums of money to keep these contents
exclusive. Other valuable programs included Oprah Winfrey channel, Martha Stewart Living
Radio, and Sirius NASCAR Radio, all of which represents Sirius XM’s competitive advantage.
Combining the physical asset and human capitals, the collective bargaining power is moderately
high.

20. Competitor Analysis
In order to develop a differentiation strategy, competitors must be analyzed in order to assess the
incompetency of the competitors. For example, Apple iPod can be both a competitor and a
complimentary asset. While Apple iPhone offers Sirius XM services, it offers other competitors’
services too. Therefore, in terms of network effects, Apple iPhone is considerably a rolling stone
to satellite radios. However, Apple iPhone can only replace the music function of the radio
aspect thereby allowing Sirius XM to focus on other aspects of radio such as sports or news.
Another feature of Apple iPhone is that it offers internet services. Therefore, other internet radio
providers may soon be bothersome competitors. In order to prevent future competition, Sirius
XM should soon tap into the internet radio market to capture a portion of the growing market
shares. Currently, the demand for Apple products is still growing; therefore it is important that
the differentiation strategy is used to make Apple products a complimentary asset rather than a
competitor.
Another major competitor is FM and AM radio. In Canada, FM and AM, the two conventional
approaches of broadcasting are owned by the Canadian Radio Corporation (CRC), a crown
corporation. CRC has many subsidiaries located in different regions and provides local services,
while the headquarters provides national services (Reuters, 2009). As a crown corporation, the
CRC is naturally subsidized by the government and is provided aid and protection when it
endures financial difficulties. In other words, CRC is a competitor that cannot be eliminated.
Additionally, many people argued that there is an unfair advantage of tax practices for crown
corporations. Nonetheless, public media are restricted by many regulations such as content to
suit the public.
While FM and AM are owned by the government in Canada, they are mostly owned by private
firms in the United States such as Citadel Media. Like Canadian Radio Corporation, Citadel
Media has many subsidiaries in various regions in the United States. The company has
established many business relations that strengthen their programs and advertisements; some
clients include Walt Disney, ABC, and ESPN. However, the company has faced hundreds of
complaints due to technological malfunctions. Due to the current economic state, the company is
suffering from severe financial problems and a large debt (Reuters, 2009).
Internal Analysis of Sirius XM
Resources and Capabilities
Sirius XM radio differentiates itself from its competitors by providing a variety of programs
which are uncensored and some of which are advertisement-free. As previously mentioned, they
also ventured into other channels of distributing their programs, such as automobiles, to capture
more market share. This allows Sirius XM to focus their competitive advantage of program
accumulation rather than allocating resources to manufacturing XM satellite radio hardware.

21. Furthermore, Sirius XM is able to minimize costs by combining programs and human talent after
the merging the two companies.
Target Market and Market Shares
With 130 digital channels, Sirius XM radios offer its listeners a variety of programs. The two
main groups of customers the company target to are music-lover and sport fans. There are over
70 pure music channels ranging from decades themes to rock music. Many customers enjoy
Sirius XMs radio music channels’ because they are commercial-free. Sirius XM satisfies sport
fans by offering over 15 sport channels including play-by-play reporting on most teams. They
are the exclusive satellite radio provider of MLB and the NHL, and they feature every team and
every game throughout each league’s respective seasons (Kharif , 2008). With Sirius XM radios
installed in cars, the company also provided programs for family entertainment such as the
Disney channel.
With the merger of the two companies, Sirius XM radio eliminated some of the niche
programming that made their company unique. Although it helps the company to reduce the
costs of production, many fans are dissatisfied with this decision. For example, they have
eliminated punk and early hip-hop music channel. Charley Steiner’s “Baseball Beat” was signed
off. These changes in programs caused some customers’ dissatisfaction, which has affected
Sirius XM radio market share as many listeners decided to unsubscribe after their favorite
programs have been cancelled. Rick, a user of Sirius XM radio, posted on The New York Times
paper, “If a company were to set out with a plan to lose subscribers they couldn’t have done a
better job than what they’ve done to channel 175, especially cancelling Baseball Beat with
Charlie Steiner. I too am seriously considering cancelling my subscription, especially now that
mlb.com has live games and programming” (Kepner, 2009).
Channels of Distributions
Sirius XM partnered with many automotive manufacturers to install radios to increase awareness
of their products and capture a larger audience. With the recent economic downturn, Sirius XM
decided to penetrate into the used-car market as well hoping to capture more market share before
the automotive industry rebounds. Starting in June 2009, the company has launched “a
promotion to offer service to owners of certified pre-owned Volkswagens” (Kepner, 2009). The
used-car industry is especially important for Sirius XM as it could potentially offset the loss of
revenues resulting from too few subscribers in new car sales.
In addition to the traditional method of listening to Sirius XM programs from a portable or car-
installed radio, the company also offers broadcasts of its programs online. Subscribers of Sirius
XM radio can listen to their program online free of charge (What is XM, 2009). This has created
easy access for its listeners for Sirius XM services. With this feature, customers also have the
option to enjoy Sirius XM services without purchasing the XM radio hardware, which is an

22. additional cost for most customers (MarketWatch, 2009).
As Apple iPhones, iPod Touches and smartphones became more popular, Sirius XM launched an
application that allows users to streams Sirius XM content on these devices. Subscribers to an
Internet-radio package are able to listen to about 120 channels (Gilroy, 2009). However, some of
the popular programs such as Howard Stern’s are not available to these users. If users want to
enjoy all programs provided by Sirius XM, they must subscribe to the full package.
Pricing and Promotion Strategy:
Sirius XM promotes its subscription by offering one to three months of free service depending
on the length of subscription. This strategy helps to secure subscriber for a short period.
Aeroplan Miles are also offered to new subscribers, which might be appealing to Aeroplan
Members and customers who enjoy travelling. By being a subscriber to Sirius XM, music lovers
can also download more than 1.5 million songs from Napster’s catalog with no additional charge
(What is XM, 2009). In addition, to attract more subscribers for Apple iPod and iPhone users, the
company has offered a 7-day free trial. Free trials can create awareness of Sirius XM product and
potentially increase the number of new subscribers (McBride. 2009).
Human Resources
As previously mentioned, Sirius XM has signed top talents such as Howard Stern, Martha
Steward and Oprah Winfrey to draw in large numbers of subscribers. These celebrity programs
and endorsements have increased the competitiveness of Sirius XM as many customers subscribe
to Sirius XM solely to listen to these talk shows and programs. However, these talents come with
huge costs. As mentioned, Howard Stern and his team alone cost $100 million for Sirius XM
annually (Kharif , 2008).
Recommendations
Sirius XM is at a pivotal fragile stage in the company’s history. Their current position makes
their strategy moving forward crucial to their long-term viability in the audio entertainment
market. Now that the company has merged management, they must ensure that they maximize all
of the possible synergies that are now available to them. This should include an in depth cost
cutting analysis as well as a strong marketing focus on the new collaboration of content available
due to the merger. Sirius XM must also focus on turning satellite radio from an early growth
product to a rapid growth product. Doing so will involve finding a niche market that will
eventually influence mass-market appeal. Sirius can do this by forming new strategic
partnerships and continuing to focus on those strategies that have been successful in the past.
Cost Cutting
The merger of XM and Sirius has made way for a number of cost saving opportunities. Sirius
XM’s CEO, Mel Karmazin, believes the combined company will realize savings of 400 million
dollars within the first year (“Tuning in a Post Merger Strategy”, 2008). While many of these

23. savings opportunities are far more technical than the scope of this report, there are a number of
basic opportunities for cost savings. The first of these is in relations to advertising and new
subscriber costs. Before the merger Sirius and XM each spent extremely large sums of money in
advertising. In the case of Sirius, sales and marketing totaled 12% of their total expenses
(Wikiinvest, n.d.). The major benefit of the merger in relation to marketing is that the combined
company can focus their marketing dollars on competing with the broader industry rather than
each other. By focusing their marketing on competing with one another, Sirius and XM may
have been doing a disservice to satellite radio’s ability to compete with other audio
entertainment.
The second area where Sirius XM will be able to cut costs is in their programming. Previously,
the two companies were competing for the likes of Howard Stern and Oprah Winfrey to join
their company; as a combined company, they will now have a much stronger position from a
bargaining perspective with their major suppliers of programming. While this cost saving may
not be realized until the current contracts expire it is still a very valuable aspect of the merger.
Another example of the type of cost saving moves that Sirius XM can now make is the removal
of redundant employees. Since the two companies operated in a very similar manner, there are a
number of opportunities to retain the most talented employees from each company and release
the lesser talented employees performing the same or similar tasks. These examples of cost
saving measures that can be taken are by no means exhaustive as the opportunities for removing
redundancy between these two companies are nearly limitless. These examples do however give
a clear idea of the types of cost savings that the merged company should focus their strategy on.
Collaboration of Content
As individual companies, Sirius and XM spent a great deal of time and money on providing the
most popular programming possible. Because of these efforts, the combined company has a very
extensive list of extremely popular programming. An important part of their strategy moving
forward is how they will combine this programming. The second important factor is the
combining of programming bundles. Sirius’ programming is headlined by Howard Stern, Martha
Stewart, as well as a full line up of sports programming. XM’s programming includes Oprah
Winfrey and a somewhat more limited sports line-up. Sirius XM could also increase their growth
by bundling with DirecTV of which Liberty (the company that recently granted them a $530
million loan) holds an ownership interest (Kharif, 2009).
There are a number of benefits that come with combining this programming. To begin, Sirius
XM can combine programs that complement one another into bundles, which they are able to
charge higher fees for. As an example, it may be advantageous to combine Sirius’ Howard Stern
with XM’s Major League Baseball package as it could be argued that both programs appeal to
men. As another example, Sirius XM could combine Sirius’ Martha Stewart program with XM’s

24. Oprah & Friends program in a package geared towards woman. The main point is that from a
customer’s perspective it is no longer a one or the other situation when it come to their favorite
programming but rather they can choose from all of the programming that they may want.
Another programming advantage of being merged is that they can simply arrange for each
companies original programming to be aired on both networks in order to reach those customers
who do not yet have a receiver capable of receiving both signals. This can already be seen in the
Oprah programming originally found on XM now also being available on the Sirius network. In
addition, Sirius XM can use the internet radio aspect of their business as a way to give customers
with old receivers access to the other network’s programming. As mentioned above, internet
radio is a fast growing, nearly costless to provide service which provides an easy platform for the
initial bundling of content. It is clear that by combining the content originally found on only one
of the two networks, Sirius XM can unlock hidden value as well as remove the consumer
dilemma related to choosing which companies programming was more appealing to them. By
taking these important steps, Sirius XM can become a much stronger business moving forward.
Bridging the Gap to Rapid Growth
Strategic Partnerships
Moving forward, Sirius XM will be looking to compete in a much broader industry then has been
its focus in the past. The audio entertainment industry is a massive industry with a number of
large competitors. As such, an important strategic recommendation is for Sirius XM to focus on
their core business, which is providing Satellite radio programming. By focusing on their role as
a content provider, Sirius XM can put all of their effort into producing the best quality
programming possible. In putting their resources towards programming, Sirius XM will need to
shift resources away from other areas like hardware sales. This includes the personal portable
radios that Sirius XM sells to compete with mp3 players. As an alternative strategy, Sirius XM
should consider building strategic partnerships with firms that specialize in other aspects of their
business, for example portable music players. Sirius XM has already begun to move in this
direction by creating an application for the iPhone, which allows users to access Sirius XM
programming. While this is a great first step, it is important that Sirius XM continue in this
direction. An example of this would be if they could have Sirius XM receivers built in to every
Apple iPod or any other popular portable music player. In addition, by switching focus towards
content, Sirius XM can expand their offering of non-music programming so as to differential
themselves from the content already being offered on most people’s mp3 players. In this way
they will add value to the both their content as well as the complimentary product (i.e. Ipod).
Doing this would further push Sirius XM capable devices in people’s hands which will result in
the sale of more subscriptions.
Another very important aspect of Sirius XM’s future is their current partnerships with car

25. manufacturers. These have been extremely important drivers of satellite radio’s growth over the
past number of years. The majority of these deals include the installations of an XM or Sirius
capable radio in newly manufactured vehicles. Moving forward, it is important for Sirius XM to
push for not only the inclusion of the radio but also a subscription (possibly lifetime) in the sale
of new cars. By doing this Sirius XM can make their product the standard in the market place,
much like the inclusion of an AM/FM radio is standard today. The key to this strategy being
successful is the support of the car manufacturers, which can best be achieved through sharing
the revenue that is generated from these sales. While in the short run this may have a negative
impact on profits, if Sirius XM can become the new standard in in-car audio entertainment it will
be more than worth the investment.
Influential Niche Market
From a theoretical perspective, it appears that Sirius XM is at a very important time in any new
technology’s growth. This is the period between the early growth stage and the rapid growth
stage. During this time, firms have a tendency to do what is called “falling into the chasm” which
results in the failure of the new technology to move into the rapid growth stage. Before the recent
economic downturn, satellite radio as a technology looked poised to cross the chasm with little
trouble. Over the past 2 years however, much has changed. As a result, Sirius XM is faced with
the possibility of falling into the chasm with the other side just out of reach.
To combat this, Sirius XM can apply a simple model to their current position. The bowling alley
analogy is the idea that a firm must focus their attention on an influential niche market that will
then cause a chain reaction until a product reaches the rapid growth or “tornado” stage. In the
case of Sirius XM, there are a number of these niche markets that they have attempted to reach
but have just fallen short of pushing satellite radio to the next level. Moving forward, Sirius XM
should consider using some of the possible strategic partnerships mentioned above to appeal to
specific technology savvy people who tend to have a large influence on the broader market. The
concept of a partnership with Apple would have the potential to be a tremendous success in
reaching an influential group. If that specific partnership was not a possibility Sirius XM could
look into a partnership with Microsoft to include Sirius XM receivers in Microsoft Zune music
players or even including an application within gaming consoles that allows players to listen to
satellite radio while playing their favorite Xbox or PlayStation game. The possibilities are
endless but the important thing is that Sirius XM finds a way to reach the influential segments of
the market to create the mass appeal that they are so close to achieving.
Sirius XM is currently in an extremely vulnerable state, however as shown above, they are also
dripping with potential now that they have complete control over the satellite radio industry.
Moving forward it is important that they survive this difficult economic time and then take steps
towards their future success. To survive, it is clear that they must take advantage of the

26. significant cost saving opportunities available to them in a timely manner. While moving
towards this, Sirius XM must carefully analyze how to best combine each of the individual
companies programming in a way that will maximize value for customers. Once all aspects of
the merger have been completed and the company is operating in an organized and unified
manner, it is important that they find ways to advance their technology over the chasm and into
the rapid growth stage. To do this they must focus on their core business and find strategic
partnerships. These partnerships will help get Sirius XM devices in the hand of potential
customers and develop Sirius XM as the standard in non-mp3 audio entertainment. By following
these recommendations, Sirius XM can insure their success for years to come.
Conclusion & Limitations of Analysis
The limited successes of XM and Sirius as corporate rivals and the unrealized success of Sirius
XM as a single entity have been a cause of concern over the profitability of the satellite radio
industry. Given the costly internal resources and dynamic nature of the external environment, it
is evident that XM and Sirius have ventured into an unforgiving market where penetration and
retention of listeners has been more difficult than first perceived. With a mission to deliver
diverse programming that appeals to a variety of listeners and is advertisement free, XM and
Sirius consumed tremendous amounts of debt in signing a variety of artists and talent to attract
customers. XM and Sirius’ strategies were not the most effective in integrating and capitalizing
on its various tangible, intangible and human resources, including its various technologies,
partnerships, brand reputation, and diversity of programming talent.
An analysis of the companies through a Porter’s Five Forces lens provided various insights into
the broader broadcast and satellite radio industries. These include a low threat of new entrants
due to high set up costs of satellite infrastructure, a large threat of substitutes from other
industries, and an overreaching importance of collaboration with competitors and suppliers to
expand the current distribution network.
However, this framework is best applicable for analyzing companies in a more competitive and
defined environment; thus, given the monopolistic nature of the satellite radio industry following
the merger, our analysis includes many presumptions that might not be completely accurate. In
addition, the sources utilized in our analysis were compiled mainly through various secondary
sources readily available to the public and without tremendous insight from past and current
management.
All told, Sirius XM’ business model and strategy has caused the company to become a channel
and program aggregator, which has sustained as its primary method of creating and conveying
value to customers. Sirius XM is at a pivotal and fragile stage in its history and with the lack of
success XM and Sirius have achieved as separate companies, it must ensure that it maximizes all
of the possible synergies that are now available to them as a single company in a single industry.