BUSN620 Week 5 Case Analysis Sirius XM
SiriusXM Satellite Radio Inc. in 2014—On Track to Succeed
After a Near-Death Experience?
Before beginning this exercise, you will need to read the
SiriusXM Satellite case. You will also need to review Chapters 3, 4, 5, and 6.
The following questions will be covered in this exercise:
1. What is your assessment of the strength of competitive
pressures that SiriusXM must contend with as a provider of radio entertainment
services (principally for motor vehicle owners)? A five forces analysis should
be used to develop your answer to this question. Which competitive forces are
strongest? Weakest?
2. How is the marketplace for providing in-vehicle radio
entertainment changing? What are the underlying drivers of change? Are these
driving forces acting to make the business of a satellite radio provider such
as SiriusXM more or less attractive from the standpoint of competitive
intensity and potential for good profitability?
3. What does a SWOT analysis reveal about SiriusXM’s overall
situation as of 2014?
4. Which one of the five generic competitive strategies
discussed in Chapter 5 most closely approximates the competitive approach that
SiriusXM is employing?
5. What is your evaluation of SiriusXM’s financial
performance during the 2010-2013 period, as shown in case Exhibit 2?
1.
A. What are the competitive pressures stemming from rivalry
in the traditional radio and satellite broadcasting industry?
In assessing this competitive force, you should draw upon
the information in Figure 3.4 in Chapter 3 (and the related text discussion).
Select “” for those statements that accurately describe
competitive pressures stemming from rivalry in the traditional radio and
satellite broadcasting industry, and “” for those statements that are t
accurate.
1. Rivalry is growing stronger because of the increased
variety of listening options—local radio, satellite radio, and online
broadcasts; all rivals are actively and busily launching fresh promotional
initiatives and engaging in new marketing tactics and market maneuvers to spur
their revenues and growth.
2. Low switching costs on the part of most radio
listeners—it is incredibly easy to switch stations on a car radio when driving
or when at home (using a radio or a computer or a smartphone or a tablet
computer).
3. Rivalry increases when one or more rivals are
dissatisfied with their market position and launch moves to bolster their
standing at the expense of rivals—efforts to win over more
subscribers/users/listeners and making programming adjustments.
4. Rivalry decreases when the rate of market growth speeds
up—the total size of radio listening audiences (both in terms of numbers of
people and hours of radio listening time) is rapidly growing.
5. Rivalry weakens as the number of alternative providers of
radio services increases and market shares become more fragmented—connected car
techlogy paves the way for more providers of in-vehicle entertainment services
to attract an audience.
6. Rivalry increases as the program offerings of radio
broadcast rivals and other providers of audio entertainment become more
differentiated—satellite radio, Internet radio, and streamed entertainment have
significantly added to the differentiation in radio/audio programming and
greatly expanded and enriched the choices of radio/audio listeners.
B. What are the competitive pressures stemming from the
threat of outsiders entering the traditional radio and satellite broadcasting
industry?
In assessing this competitive force, you draw upon the
information in Figure 3.5 in Chapter 3 (and the related text discussion).
Select “” for those statements that accurately describe
competitive pressures stemming from the threat of entry in the traditional
radio and satellite broadcasting industry, and choose “” for those statements
that are t accurate.
1. There is a potentially significant entry threat with
respect to online and streaming content providers that can capitalize on the
advent of connected car techlogy—the growing ownership of “connected” vehicles
opens the door for online and streamed providers to compete for in-vehicle
entertainment content.
2. There is a strong entry threat of newcomers in the
satellite radio market segment; the window for entering the satellite radio
broadcasting business in rth America remains wide open.
3. There is a high entry threat from online broadcasters and
streaming providers into the in-vehicle segment—SiriusXM is most threatened
here because it risks losing subscribers if vehicles owners decide the
alternative programming they can access via connected car techlogy is
attractive and competitively priced compared to the cost of a SiriusXM
subscription.
4. There is a high entry threat in the local radio
segment—there are numerous candidates for new start-up ratio stations and the
market for local radio isn’t even close to being saturated.
C. What are the competitive pressures stemming from the
threat of substitutes in the traditional radio and satellite broadcasting
industry?
In assessing this competitive force, you draw upon the information
in Figure 3.6 in Chapter 3 (and the related text discussion).
Select “” for those statements that accurately describe
competitive pressures stemming from substitutes in the traditional radio and
satellite broadcasting industry, and choose “” for those statements that are t
accurate.
1. There are growing numbers of substitutes for listening to
traditional AM and FM radio broadcasts and satellite radio broadcasts of one
type or ather, such as digital music players, music channels provided by cable
TV companies, music provided via Pandora, Spotify, etc., smartphones or
built-in motor vehicle techlogy, CDs, DVDs, and downloaded music on a computer
(in a home or office).
2. There are substitutes for listening to traditional AM and
FM radio broadcasts and satellite radio broadcasts.
3. Connected car techlogy opens up an avenue for motor
vehicle owners to listen to programming from sources other than traditional
local radio stations and satellite radio (SiriusXM).
4. Buyer costs to switch to substitutes are very high.
5. There are numerous substitutes for listening to music and
radio/audio programs altogether—but some of these other entertainment and
leisure time forms may t be good substitutes for people who spend time
commuting in their car or listen to the radio at work or are avid and dedicated
fans of particular radio programs.
6. Acceptable substitutes are t readily available or are t
competitively priced.
D. What are the competitive pressures stemming from the
bargaining power and leverage of suppliers in the traditional radio and
satellite broadcasting industry?
In assessing this competitive force, you should draw upon
the information in Figure 3.7 in Chapter 3 (and the related text discussion).
Select “” for those statements that accurately describe
competitive pressures stemming from supplier bargaining power in the
traditional radio and satellite broadcasting industry, and choose “” for those
statements that are t accurate.
1. Famous personalities like Howard Stern, Oprah Winfrey,
and Martha Stewart have strong bargaining power; they can command huge fees for
their programming.
2. Groups like the NFL, the NBA, Major League Baseball,
NASCAR, and collegiate conferences have strong bargaining power since they own
and control the rights to broadcast their events and have the ability to
command huge fees for granting broadcast rights.
3. The music-related royalties that SiriusXM and other
broadcasters have to pay are significantly decreasing, thus diminishing the
bargaining power and leverage of songwriters, artists, music publishers, and
related organizations that hold or manage copyrighted content.
4. While the makers of satellites probably have considerable
bargaining power and leverage in negotiating with SiriusXM, Sirius currently
seems to have adequate satellite capability for several years to come.
5. The providers of copyrighted content and content that
must be licensed have the weakest bargaining power.
6. Radio broadcasters are relatively weak and have significant bargaining power seek to obtain
office space or broadcasting studios, utility services, office supplies, and so
forth
E. What are the competitive pressures stemming from buyers
in the traditional radio and satellite broadcasting industry?
In assessing this competitive force, you should draw upon
the information in Figure 3.8 in Chapter 3 (and the related text discussion).
Select “” for those statements that accurately describe competitive
pressures stemming from buyer bargaining power in the traditional radio and
satellite broadcasting industry, and choose “” for those statements that are t
accurate.
1. The customers of radio broadcasting enterprises include
advertisers—in the local radio segment of the industry, the advertisers that
are the revenue-producing customers of local radio stations.
2. The customers of radio broadcasting enterprises include
subscribers of SiriusXM and other providers of online and streamed audio
programs that charge subscription fees.
3. Advertisers have relatively weak bargaining power since
it is difficult to shift advertising dollars from one type of broadcast
provider to ather, or switch their radio ads from one AM/FM station to ather
AM/FM station.
4. Big advertisers may be able to negotiate discounts for
placing a lot of radio ads on a particular station.
5. Advertising rates are typically a function of audience
ratings and the number of people who might hear a given commercial at a given
time of day or on a given day of the week. Bargaining power of advertisers is
stronger if a broadcaster is selling ads for a highly-rated or much-listened-to
program, then it can demand lower rates per minute for commercials than for
lesser-rated programs.
6. An individual satellite radio subscriber has very limited
power in bargaining for a lower subscription price from SiriusXM—it would be
quite unusual for SiriusXM to negotiate with a particular individual subscriber
over terms and conditions.
7. The listeners to local radio station programs have
significant bargaining power over pricing.
8. Unlike SiriusXM subscribers, people who listen to local
radio stations, Internet radio or podcasts have switching costs to speak of—they can go from
station to station by turning the dial or making a few mouse clicks; but this
switching does t translate into bargaining power.
F. Which competitive forces in the traditional radio and
satellite industry are strongest? Weakest?
Select “” for those statements that accurately describe
competitive forces in the traditional radio and satellite broadcasting
industry, and choose “” for those statements that are t accurate.
1. Competitive pressures associated with the threat of
additional entry of traditional radio broadcasters or ather satellite radio
broadcaster is the strongest of the five competitive forces.
2. Competitive pressures associated with the threat of
additional entry of traditional radio broadcasters or ather satellite radio
broadcaster is the weakest of the five competitive forces.
3. SiriusXM faces a very minimal entry threat from
entertainment providers that are in position to benefit from the advent of
connected car techlogy, and thus potentially erode SiriusXM’s future subscriber
growth.
4. Rivalry is strong among traditional radio broadcasters,
and SiriusXM’s biggest rival in radio broadcasting is currently the free
broadcasts that motor vehicle owners can obtain from local AM and FM radio
stations.
5. Buyer bargaining power is relevant only from listeners
but t advertisers—SiriusXM is significantly impacted because a large fraction
of its revenues come from subscribers/listeners.
6. The strength of substitutes and supplier bargaining power
are both moderate to very strong, depending on the substitute and depending on
the type of supplier.
2.
A. What are the underlying drivers of change in the
marketplace for providing in-vehicle radio entertainment?
For this activity, it will help to review Table 3.3 on p. 67
in Chapter 3, and the related discussion on pp. 65-66.
Select “” for those statements that accurately describe the
driving forces affecting the marketplace for providing in-vehicle radio
entertainment, and “” for those statements that are t accurate.
1. Increase in cost and complexity of techlogy needed to
provide radio broadcasts, driving up the cost of doing business especially for
satellite radio providers.
2. Rapid emergence of connected car techlogy, which will
have a big impact on SiriusXM but probably a lesser impact on traditional AM
and FM radio broadcasters.
3. The growing propensity of people with iPods and
smartphones to listen to their own downloaded music files while driving.
4. Likelihood of entry of a major satellite radio
competitor. The likelihood that owners of copyrighted music and other
copyrighted/licensed content will charge substantially higher royalties/fees
for the broadcast of their works.
5. Government regulatory changes which are significantly
impacting both traditional and satellite radio providers.
B. Which of these statements most accurately summarizes the
effect of the driving forces for change on satellite radio providers such as
SiriusXM?
The driving forces of change will act to intensify
competitive pressures confronting SiriusXM and weaken their prospects for
improved profitability, though t necessarily to such a degree as to preclude
earning minimally acceptable profits.
3.
Award: 8 out of 16.66 points
A. Which of the following accurately characterize SiriusXM’s
resource strengths and competitive capabilities?
In order to assess SiriusXM’s strategic options, it will
help to identify the organization’s internal strengths and weaknesses, and
external opportunities and threats. Review the information on SWOT analysis in
Chapter 4 to help you answer the parts of this question.
Select “” for those strengths and capabilities below that are
accurate and choose “” for those that are t.
1. Strong, longstanding partnerships with virtually all
major motor vehicle manufacturers and vehicle dealers.
2. Longstanding partnerships with the retailers of satellite
radios.
3. Minimal long-term debt.
4. A fleet of orbiting satellites that provided clear
reception in most geographic areas of the United States and Canada.
5. Strong relationships with the manufacturers of satellite
radios.
6. Working relationships with the makers of chipsets and
other parts and components used in producing SiriusXM’s satellite radios.
7. Minimal need for subsidies and incentives to acquire new
subscribers, reducing fixed costs.
8. SiriusXM’s new capability (as a consequence of having
acquired Agero, Inc.) to develop a connected vehicle platform and begin
delivering connected vehicle services to a host of major automotive
manufacturers.
9. Sufficient financial strength to obtain new content, fund
stock buybacks, and refinance debt at lower interest rates
10. More than sufficient capital investments from General
Motors, SiriusXM’s parent company.
11. Outbound telemarketing capabilities to contact the n-subscribing
owners of new and used vehicles equipped with satellite radios and try to
convert them into paying subscribers.
B. Which of the following accurately characterize SiriusXM’s
resource weaknesses?
Select “” for those resource weaknesses below that are
accurate and choose “” for those that are t.
1. Sizable annual expenditures for subsidies and incentives
needed to win the collaboration of partners in acquiring new
subscribers—subsidies paid to radio manufacturers, distributors, and automakers.
2. Chronically poor customer care and customer service
capabilities that have t yet been resolved.
3. A very limited lineup of channels and programs in
overpriced subscription plans.
4. Poor relationships with the manufacturers of satellite
radios—SiriusXM had little control over the specifications for these radios
5. Substantial long-term debt.
C. Which of the following are attractive market
opportunities for SiriusXM?
In assessing this competitive force, you draw upon the
information in Figure 3.6 in Chapter 3 (and the related text discussion).
Select “” for the listed opportunities below that are
realistic and choose “” for those that are t.
1. Opportunities to expand the percentage of owners of new
and used vehicles equipped with a satellite radio who become SiriusXM
subscribers.
2. Acquire General Motors, Ford, or ather major automaker so
as to increase control over the vehicle satellite radio market.
3. Opportunities to develop a connected vehicle platform and
begin delivering connected vehicle services to a host of major automotive
manufacturers—providing connected car services to vehicle owners is likely to
become a major source of revenue growth.
4. Future expansion into geographic areas outside of the
United States and Canada, although unlikely to occur in the near future.
5. Expand into traditional (FM/AM) radio broadcasting to
capture additional market share.
D. Which of the following represent external threats to
SiriusXM’s future well-being and future business prospects?
Select “” for the external threats below that are accurate
and choose “” for those that are t.
1. SiriusXM might lose out to competitors in providing
connected car techlogy/services to motor vehicle manufacturers.
2. SiriusXM might be acquired by General Motors or Ford.
3. Growing numbers of vehicle owners may shift their
preferences for in-vehicle entertainment away from satellite radio to local
radio broadcasts and/or Internet streaming and/or increased use of devices
(iPods, smartphones, etc.).
4. Impending government regulations that will place severe
legal constraints on the relationship between SiriusXM and major vehicle
manufacturers.
4.
Considering all four SWOT lists, which of the following
accurately characterize the attractiveness of SiriusXM’s overall situation?
SiriusXM’s overall situation is currently attractive.
SiriusXM has a potent set of resource strengths for gaining new subscribers
that are producing gains in sales and market share. The company is correcting
its resource weaknesses, has ample market opportunities to sustain its rapid
growth, and seems capable of defending against the external threats to its
future well-being. Its future outlook for growth and profitability is bright.
On balance, SiriusXM’s overall situation is currently highly
unattractive. SiriusXM has few strengths and numerous weaknesses, and lacks the
resources for gaining new subscribers that are producing gains in sales and
market share. The company is making poor progress in correcting its weaknesses,
has few market opportunities for further growth, and does t seem capable of
defending against the external threats to its future well-being. Its future outlook for growth and
profitability is quite negative.
SiriusXM’s overall situation is only moderately attractive.
While they have some table strengths, they lack the resources for gaining new
subscribers. The company correcting its resource weaknesses, but has few market
opportunities for growth and it is dubious as to whether they are capable of
defending against the external threats to its future well-being. Its future
outlook for growth and profitability is uncertain.
5.
A. Which of the five generic competitive strategies
discussed in Chapter 5 most closely approximates the competitive approach that
SiriusXM is employing?
A broad differentiation strategy
6.
What is your evaluation of SiriusXM’s financial performance
during the 2010-2013 period, as shown in case Exhibit 2?
Select “” or “” for each of the following statements
concerning the data in case Exhibit 2. Use the key financial ratios in Chapter
4, Exhibit 4.1, to assist you in performing calculations to determine whether
the statements are or .
In addition to the financial ratios, you will also need to
calculate compound average growth rates (CAGR) for certain financial measures.
The formula for calculating CAGR (in percentage terms) is as follows:
CAGR % = [ending value ÷ beginning value] 1/n – 1 × 100
(where n = the number of year-to-year or period-to-period
changes)
1. Subscriber revenue has climbed from $2.41 billion in 2010
to $3.28 billion in 2013—a CAGR of 10.8%.
2. Total revenue has grown from $2.82 million in 2010 to
$3.80 million in 2013—a CAGR of 10.5%.
3. Income from operations has jumped from $465.4 million in
2010 to $1.04 billion in 2013—an impressive CAGR of 30.9%.
4. Net income has increased from $43.1 million in 2010 to
$377.2 million in 2013—a very impressive CAGR of 106.1%.
5. Net cash provided from company operations has climbed
significantly every year since 2010—jumping from $512.9 million in 2010 to $1.1
billion in 2013.
6. The company has done a very poor job of refinancing and
restructuring its long-term debt.
7. SiriusXM’s operating profit margin has declined from
27.5% in 2010 to 16.5% in 2013.
8. SiriusXM’s net profit margin has increased from 1.5% in
2010 to 9.9% in 2013.
9. SiriusXM’s return on equity has increased from 13.7% in
2010 to 20.7% in 2013.
10. SiriusXM’s return on assets equity has increased from
0.6% in 2010 to 4.3% in 2013.
11. Royalty and revenue-sharing costs are rising as a % of
total revenues.
12. Programming and content expenses are rising as a % of
total revenues.
13. Subscriber acquisition costs as a % of total revenues
are rising.
14. General and administrative expenses as a % of total
revenues are declining.
15. Sales and marketing expenses as a % of total revenues
are declining.
