MGT 527 Homework 1 Sirius XM Satellite RadioAngel Herron, Brent Malone, Joseph Miller, Amanda Porter, and Matthew TurnbullTexas A&M University-CommerceFebruary 6, 2012Company History and Industry OverviewIn 1992, the world of radio was preparing to take its next big step as four corporations were in a bidding war over the two available licenses from the Federal Communications Commission. These licenses would allow the winning companies to offer satellite radio, free of the restrictions that non-satellite radio broadcasts were controlled by ("The history of," n.d.). In the end, American Mobile Radio and CD Radio were the lucky recipients of the eight year licenses for around $90 million apiece. Nearly a decade later, in 2001, American Mobile Radio satellite radio was introduced ("The history of," n.d. ). AMR would eventually come to be known as XM Radio. In less than a year, this market grew to include CD Radio, which eventually became known as Sirius Satellite Radio. Both companies broadcasted music, news, sports, talk, entertainment, traffic, and weather channels in the United States to subscribers for a monthly fee ("What is siriusxm?", n.d.). Subscribers for both XM and Sirius continued to grow with a combined total of 4.2 million subscribers at the end of 2004 ("The history of," n.d.), but despite continuous growth in customers, the two companies were continuing to lose money. The substantial losses prompted a merger of the former competitors in 2007 (Ellis & La Monica, 2007). The merge was finalized on July 29, 2008, and Sirius XM satellite radio made its debut.Since the merge, things have improved for the company. Despite their competition of services offered for free or for a lower service charge through mobile applications or via personal computer, the once struggling pair of competitors has been successful at forming a radio powerhouse. Sirius XM has over 1400 employees and in 2010 the companys revenue topped $2.7 Billion (Reuters, 2012). Their biggest competitors continue to include CBS Radio, Citadel Broadcasting Corporation and Clear Channel Communications, which currently stands as the number one radio broadcasting company in the U.S. (Hoovers, 2012). The company still has the advantage of being able to provide a specialized service in automobiles.Sirius XM Radio, Inc. continues to offer the same variety of programming in its now 300+ channels. Whether it be the variety of entertainment or the celebrity broadcast like Howard Stern, Oprah Winfrey, Martha Steward and Barbara Walters, Sirius XM Radio, Inc. has figured out a way to be prosperous even in the economic downtime ("Sirius, xm merger," 2008). Good introSTEEP AnalysisIt is imperative for a strategic manager to monitor and evaluate the external environment to identify possible strategic factors and respond to critical threats and opportunities. The following sections identify and evaluate, in detail, key variables in the societal and natural environments that will have a strong impact on Sirius XM Satellite Radio. Specific insights as to potential extensions of the trends of each variable are provided, and the potential impact that the trends of the variables will have on the organization are examined. You are one of the only groups to offer an intro paragraph to each sectionSociocultural EnvironmentSince Sirius XM Satellite Radio is a provider of audio entertainment with satellite coverage presently restricted to North America, it is clear that demographic trends in the U.S. sociocultural environment will have a significant influence on the firm yes. Three key variables are identified: age, ethnicity/cultural leanings, and population distribution/migration. perfectAge. Chadwick (2011) and Mathews (2008) find that music tastes change as people get older, and that there are pronounced differences in music and radio programming preferences between different generational cohorts. Data from Statistics Canada (2007) reveals a stark contrast in the average hours per week of radio listening between different age groups, with those aged 50+ listening to approximately three times as much radio as teens aged 12 to 17. Clearly, Sirius XM Satellite Radio must monitor American population trends concerning age and generational cohorts in order to ensure that it continues to appropriately represent consumer tastes in the variety and depth of its radio programming.Wheelen and Hunger (2010) provide some insight on the trends of current U.S. generations, noting in 2005 that there were 70 million Generation Y (age 11-27, born 1978-1994), 45 million Generation X (age 28-40, born 1965-1977), 77 million Baby Boomers (age 41-59, born 1946-1964), and 32 million WWII/Silent Generation (age 60-73, born 1932-1945). If we extend that information to 2012, we find the market for Americans aged 48+ has become increasingly important, totaling over 1/3 the current U.S. population with 109 million individuals. Additionally, the 70 million Generation Ys will all be adults by the end of 2012, and this cohort will have a strong impact on products and services due to their increased purchasing power (Wheelen and Hunger, 2010). Data directly from the U.S. Census Bureau reinforces a clear trend in the maturing of the U.S. market. Figure 1 provides detailed historical population data and Figure 2 provides projections based on the 2000 Census. The projection for 2010 agrees well with the actual data from the 2010 Census, and new projections based on the 2010 Census are scheduled to be released May 2012 (U.S. Census Bureau, 2012). Figure 1Age and Sex Structure of the Population for the U.S., 1900, 1950, 2000 (in millions, historical).Source: U.S. Census Bureau, 2000.Figure 2 Age and Sex Structure of the Population for the U.S., 2010, 2030, 2050 (in millions, projected).

Source: U.S. Census Bureau, 2009.The most recent available projections indicate that the percent of the U.S. population aged 65+ will increase from 13% in 2010 to 14.4% in 2015, 16.1% in 2020, 17.9% in 2025, and 19.3% in 2030 (U.S. Census Bureau, 2009). While different projections can be obtained through varying assumptions about births, deaths, and net international migration, in all plausible cases it is evident that seniors in the U.S. will have an increasing impact on the demand for products and services. Sirius XM Satellite Radio will have to respond to this trend and ensure that its programming options reflect and cater to the interests of older demographics. This will involve accurately segmenting and profiling the generational cohorts and monitoring how their tastes change with age. Marketing, advertising, and content providers will be affected. Specifically, Chadwick (2011) and Mathews (2008) argue that the percentage of channels that play pop, hip-hop, and urban/rap should decline as radio services adapt to the broader tastes of a maturing audience excellent. Additionally, it is reasonable to speculate that there will need to be an increasing variety of news and talk radio channels that relate to the world events and general issues that are important and influential to older generations.Ethnicity/cultural leanings. Ethnicity/cultural leanings is a second variable in the sociocultural environment that will have a strong impact on Sirius XM Satellite Radio. African-Americans and Hispanics spend 21% and 13% more time, respectively, listening to the radio each week than the national average (Nielsen, 2010), and differences in radio and music genre preferences between ethnic/cultural backgrounds have been identified (Carlson, 1997; RIAA, 2010; Yin, 2002). Detailed U.S. data on Blacks, Hispanics, Asians/Pacific Islanders, and White Non-Hispanics is available and the differences between each group in shopping needs, habits, preferences, and consumer behavior such as affinity to discounts and premium subscription services are well studied (Becerra and Korgaonkar, 2010; Dimofte, Johansson, and Bagozzi, 2010; Lee, Fairhurst, and Dillard, 2002; Ozcgalar-Toulouse, Beji-Becheur, Fosse-Gomez, Herbert, and Zouaghi, 2009; Pearson-McNeil and Hale, 2011). For example, Pearson-McNeil and Hale (2011) find that Asians/Pacific Islanders watch the least amount of TV and are the most active PC and internet users, spending approximately 45% more time on the PC and visiting approximately 28% more websites in February 2011 than the national average. Becerra and Korgaonkar (2010) find that Hispanic Americans who may listen to radio in English often prefer to read print advertisements in Spanish. Sirius XM Satellite Radio will use this kind of information to ensure that targeted ads and promotions have the right message and effectively reach their intended audience through the most appropriate communication channel. If the American population changes, the buying power of various ethnicities and their differences in taste must be reflected in advertising, marketing, and in the type and quantity of radio channels offered. Therefore, U.S. population trends concerning ethnicity/cultural leanings must be examined. Wheleen and Hunger (2010) note that minorities will drive nearly 90% of the population growth in the United States between 2010 and 2050, and provide some insight on the increasing ethnic diversity of the American consumer base with population percentages from 1950 (partial) and 1995, and a projection for 2050. Their data for 1950 and 1995 is graphed in figure 3, along with data and projections from the U.S. Census Bureau (2008) for 2008, 2015, 2020, and 2050.

Figure 3Percent of the Population by Race and Hispanic Origin for the U.S

Source: Adapted from Wheleen and Hunger (2010) and the U.S. Census Bureau (2008).Once again, while different projections can be obtained through varying assumptions about net international migration, in all plausible cases it is evident that minorities will have an increasing impact on the demand for products and services in the U.S. Of particular importance is the Hispanic population, which is estimated to grow from 46.7 million in 2008 to 132.8 million in 2050 (U.S. Census Bureau, 2008). In the short-term, Hispanics will be responsible for over 50% of population growth in the U.S. between 2010 and 2015 and their buying power is projected to increase by 25%, from a little over $1 trillion in 2010 to $1.3 trillion in 2015. (Packaged Facts, 2011). Sirius XM Satellite Radio will have to respond to this trend and ensure that it accurately profiles and caters to the expanding Hispanic and, to a lesser extent, Asian populations yes. Therefore, marketing, advertising, and radio content will be impacted. It is reasonable to speculate that there will need to be an increasing variety of Spanish-language music, news, and talk radio channels. Population distribution/migration. Full coverage across North America is a clear strength of satellite radio, and arguably increases its attractiveness to Americans who move frequently or live in rural areas with limited radio content and coverage. A significant change in the number of Americans who live in rural areas or who move frequently can strongly impact the growth and profits of Sirius XM Satellite Radio. Therefore, population distribution/migration within the U.S. is an important variable to monitor. Using IRS data, a study from the University of Kansas, Center for Applied Economics, uncovered three broad trends in population distribution/migration: out-migration from the Great Plains, in-migration to areas with more pleasant weather and more scenic natural amenities (i.e. coastal regions), and out-migration from large urban centers (Hall, Moody, and Warcholik, 2009). The third trend, out-migration from large urban centers, is relevant to Sirius XM Satellite Radio. Hall et al. (2009) found that over the 10 years prior to their study, taxpayers have consistently migrated out of inner-city counties. The most significant unidirectional flows have been from the largest urban centers, i.e. mega and major metropolitan areas, to non-core based statistical area counties, i.e. counties with no urban cluster above 9,999 individuals (Hall et al.). Additionally, the migration to relatively small metro counties and rural counties has been dominated by higher-income taxpayers (Hall et al.). It is reasonable to speculate that this trend will continue, as advances in communications technology, increasing rural broadband, telecommuting, expanding suburbanization, and online shopping, entertainment, and education have enabled people to live comfortably in a rural community while enjoying amenities that were formerly restricted to big cities (USDA, 2009). Another trend, noted by Physorg News (2009), is that Americans remain frequently on the move, with approximately 14% of the U.S. population continuing to move every year. It is important to note that Hall, Moody, and Warcholik (2009) only examined county-to-county migration and, therefore, omitted international migration which has been shown to predominately increase populations in big cities (USDA, 2009). Nonetheless, the increasing out-migration from large urban centers and continued mobility of the American population are positive trends for Sirius XM Satellite Radio. If the trend for increasing rural growth is accurate and persists, it has the potential to have a very positive influence on the growth and profits of satellite radio service. Commercial radio reception is limited in many rural areas throughout America, and satellite service is often the best source of diverse radio programming in smaller communities (Moya, 2007).Technological EnvironmentSatellite radio works similarly to satellite television. Broadcasting stations here on earth transmit signals to 2 satellites in orbit around the earth (Watson & Fuller, n.d). These signals then bounce back to designated receivers for subscribers. In areas of taller surroundings, such as downtown areas with many tall buildings, they use terrestrial repeaters to reach the subscribers receivers. The receivers/antennas send the signal through the satellite enabled radio.

Source: Watson & Fuller, n.d.Satellites. There are a total of four satellites currently in orbit for satellite radio in the United States (Bonsor, n.d.). The more recently launched Rhythm and Blues continue to transmit signals back to the earth, while satellites Rock and Roll remain in orbit to serve as backups should they be needed. All of these satellites are in geosynchronous orbit, meaning they are parked in the same spot, which is 22,223 miles above the earths surface along the equator (Brown, n.d.). Due to the numerous satellites in the same area, they must remain in precise locations to avoid interfering with other satellite signals including television, weather, and communications. They are able to control this by using light sensors on the satellite which transmit signals back to the earth.Terrestrial/Broadband. Satellite radio is successful at covering a large area with its signal, but in metropolitan areas with tall buildings there were issues with loss of signal. This coupled with the expansion of wireless broadband and the availability of tens of thousands of high quality internet radio stations presented a problem for Sirius XM (Satellite radio reviews, 2011). These stations were available to consumers regardless of their location which provided a convenient way to stay connected to their favorite stations. As consumers become more aware of what the internet has to offer in radio station selection, satellite radio will become less important in the consumer entertainment industry (Satellite radio reviews, 2011, p. 1). This of course posed a potential threat to Sirius XM. However in visiting the Sirius XM website they have now taken noticeable steps in changing this potential threat into an opportunity. On their website the most noticeable items that you will encounter include images of multiple technical devices with the following statement: Enjoy anywhere access to the unparalleled content of Sirius XM. Whether on your computer, Smartphone, Tablet, Lynx, Portable Radio, or compatible Internet-connected device, you dont need to be in your vehicle to enjoy Sirius XM (Sirius XM). This statement shows that Sirius XM has moved away from a product that is exclusively available in vehicles to one that has the same accessibility as many of their competitors in the radio broadcasting market. This move has reduced some of the barriers that Sirius XM has faced in attempting to gain access to a broader and more profitable market going into the future (Figure 4). Mainly because when consumers are comparing substitute products or services they are now able to add ease of access to the list of features that Sirius XM offers. In addition, Sirius XM is able to use the service of terrestrial repeaters or ground based antennas to booster the performance of receiving antennas on cars, computers, or phones (Bonsor, n.d.). This also gives them an advantage in the broadband market. Figure 4 Digital Media Growth Projections

Source: Bridge Ratings (2007). Digital Media Growth Projections.

Receivers. In the United States, Sirius XM subscribers can receive signals a variety of ways with the most common being through a special small satellite radio antenna on their vehicle (Bonsor, n.d.). These antennas can be purchased aftermarket, but there are some automakers including GMC and Honda who install these at the factory. The integrated circuits in the receiving antennas chipset unscramble the signal and allow the music to play on your satellite enabled radio, as well as specific information including the songs title and artist, to display on the radios face.Despite the merger between Sirius and XM, the hardware and software still remain different (Bonsor, n.d.). For this reason, the compatibility of a Sirius antenna with an XM radio or vice versa is not always reliable ("Re: Antenna differences," 2006). It is recommended that for a clear and reliable signal that XM antennas are paired with XM radio and Sirius antennas are paired with Sirius radios.Another option for Sirius XM radio is internet streaming. This doesnt require anything other than a computer, an internet connection, and a subscription package ("How to listen, n.d.). Customers who subscribe to services for their car are able to stream online at no extra charge for the 32 Kbps stream, but the CD quality 128 Kbps is a few dollars more. The company also offers internet only streaming for those only interested in streaming online.Sirius XM has developed its own app for use on smart phones and tablets. This app allows streaming and can be downloaded for free through the companys website, but the actual streaming does require a subscription as well. Like all other listening approaches, the variety of channels will depend on your subscription package ("Listen to siriusxm," n.d.).

Economic EnvironmentWhile critical economic factors such as foreign exchange rates, trade, and conditions in developing nations can influence Sirius XM Satellite Radio and its supply chain to some extent, the vast majority of the firms revenue and growth is driven by U.S. operations (Sirius XM Radio Inc., 2011). Therefore, it is clear that economic variables and trends in the U.S. will have the most significant influence on the firm in the short to medium-term good. Within that context, the following key issues are identified: trends in the automotive market, inflation, interest rates, consumer debt, and unemployment. Some consideration of developing nations will be provided in the analysis of the automotive market, to illustrate potential strategic opportunities. Trends in the automotive market. According to Sirius XMs Nov. 3, 2011 10-Q report, their primary source of revenue is from subscription fees (Sirius XM Radio Inc., 2011). Figure 5 shows that, historically, Sirius XM subscriber growth has been heavily tied to new car sales, and their recent 10-Q report indicates that this trend continues (Sirius XM Radio Inc., 2011). Figure 5Sirius XM Subscriber Growth vs. U.S. New Car Sales, Q1 2007 to Q4 2009.

Source: Adapted from Frommer (2010).In Q1 2009, Sirius XM nearly went bankrupt due to the dramatic decline in new car sales stemming from the financial crisis, and their stock plunged to $0.11 (Kharif, 2009; MicrostockProfit, 2011). Rebounding auto sales led to a recovery, and their stock has since risen to a high of $2.44 in 2011 (MicrostockProfit, 2011). Clearly, the performance of the U.S. automotive market is an important variable to monitor.The chief economist at the National Automobile Dealers Association recently forecasted a 10% rise in U.S. auto sales in 2012, citing the following positive trends: low interest rates, better credit availability, improved sales incentives, and an increase in the average age of vehicles since the recession (Hart, 2012). This outlook has been supported by an independent auto report by Scotiabank Group (2011), which predicts that 2012 will yield the best performance in U.S. auto sales since 2007, stating that the average age of vehicles in the United States is approaching a record 11 years, with many vehicles needing to be scrapped (p. 2). Based on Sirius XMs most recent filings, Trefis (2011) notes that 65% of new vehicles sold in the U.S. are equipped with factory or dealer-installed satellite radios, which include a promotional trial to Sirius XMs subscription service. This is up from 56% in 2009 and 62% in 2010 (Sirius XM Satellite Radio, 2010). Therefore, with a 10% rise in new auto sales and a 65% penetration rate trending upward, Sirius XM will obtain at least 6.5% gross subscriber additions in 2012 if the forecasts are accurate. Demitrius (2010) finds that 46% of new car buyers choose to keep their Sirius XM Satellite Radio subscription after the trial runs out, which we can use to estimate that there will be a net gain of at least 3% subscriptions in 2012. This is a conservative estimate because additional subscriptions would be obtained from smartphones, retail radio sales, and the pre-owned vehicle market. By carefully monitoring these variables and trends, Sirius XM is better able to plan ahead, allocate resources, and manage debt. Another important trend in the automotive market is the rise of auto sales in developing markets. Figure 6 contains a forecast from Scotiabank Group (2011) that, using sales data from 2000 to 2011, projects developing markets to overcome mature markets in auto sales in 2012. Figure 6Auto Sales (millions) in Mature and Developing Markets vs. Year, from 2000 to 2012.

Source: Adapted from Scotiabank Group (2011).The surging industrialization, urbanization, and economic growth of emerging markets presents an opportunity for Sirius XM Satellite Radio to launch or purchase new satellites and pursue subscriptions outside of North America. Scotiabank Group (2011) notes that Indias working age population, people aged 15-64, is estimated to expand by 131 million by 2021. This is over 10x the increase expected in China, and represents 27% of the estimated growth in the global workforce during that period (Scotiabank Group, 2011). Sirius XM can capitalize on these trends to mitigate its reliance on U.S. auto sales for growth, and there may even be an opportunity to expand its brand prior to satellite investment by developing and aggressively marketing internet radio service in emerging markets.

Inflation, interest rate, consumer debt, and unemployment. Paid subscription radio service and vehicles with satellite radio and are discretionary spending items. Therefore, economic variables that affect discretionary spending should be monitored. High inflation, as measured by the consumer price index, can put pressure on individuals and families to cut unnecessary spending, and is often correlated with high interest rates. High interest rates can increase the cost of buying a vehicle and, therefore, can reduce the demand for new and used vehicles. Consumers who are highly in debt may find it difficult to make their payments if interest rates rise or if they become unemployed. Unemployment can necessitate a reduction in spending and reduce the demand for a radio service that would normally be listened to during a commute to and from work. All of these economic variables are interrelated and their cumulative effects are very relevant to the growth of a firm whose profits are derived from a premium subscription service. Therefore, the trends of these variables should be monitored collectively, frequently, and consistently. Figures 7-10 illustrate the trends for inflation (CPI-U), interest rate (U.S. prime rate), consumer debt, and unemployment over the last 11 years.Figure 7Consumer Price Index, U.S. City Average (Base Period: 1982-84=100) vs. Month, 2001-2012

Source: Adapted from Bureau of Labor Statistics (2012).Figure 8U.S. Prime Rate Charged by Banks vs. Month, 2002-2012. Source: Adapted from Bank of Canada (2012).Figure 9% Unemployment in the U.S. vs. Month, Jan 2002-2012.

Source: Adapted from Bureau of Labor Statistics (2012).

Figure 10Consumer Debt in the U.S.: Financial Obligations Ratio vs. Quarter, Q1 2001 - Q3 2011.

Source: Adapted from The Federal Reserve Board (2012).The trends paint a positive picture moving into 2012. Over the last 11 years, other than a small blip in 2008 that became corrected by 2009, there has been no significant change to yearly inflation, as measured by the consumer price index, despite significant economic stimulus. The U.S. prime rate has held steady at 3.25% since 2009, and the Federal Reserve recently pledged to keep interest rates low to the end of 2014 (Torres and Gage, 2012). While the unemployment rate is still higher than it was pre-recession, it has generally trended downward since Q3 2009. And consumer debt, as measured by the total financial obligations ratio, has been on the decline since Q1 2009, which means that consumer payments on outstanding mortgage, consumer debt, automobile leases, property rentals, homeowners insurance, and property tax have declined relative to disposable personal income (The Federal Reserve Board, 2012). All of these trends collectively imply that the conditions for increased consumer discretionary spending have improved since 2009. The extensions of these trends support the optimistic outlook for the automotive sector in 2012. Therefore, Sirius XM can be optimistic about its own near to medium-term growth. The acknowledgement of these trends will allow for additional flexibility in strategic planning and impact how the firm decides to allocate resources, and the persistence of these trends will improve firm performance, as measured by net subscriber additions.Ecological EnvironmentIn the performance of a STEEP analysis one looks for trends in the Societal and Natural environments that would either have an effect on the focus of the analysis or be effected by it. In analyzing Sirius/XM the first task would be to examine the effects of all broadcast media, then determine what is different in respect to Sirius/XM. All broadcast media have the same basic requirements that are addressed specific to their media format. First there needs to be a source of information, this is generally obtained in either a generating studio where recorded or via live field transmission. These two sources can either be housed internally in the company or be leased as an inbound feed from the originating source. These sources require a building to house the processing and transmitting equipment and receivers. This is the first environmental impact in the building footprint and power requirements. In earlier days of broadcast media, each station had its own offices which could be in a shared building and a dedicated transmission site and antenna tower. One drawback was that due to the limitations of Amplitude Modulation (AM) and Frequency Modulation (FM) the stations had a limited range based on their license granted by the Federal Communication Commission (FCC). For example, a terrestrial based broadcaster using FM might be licensed to transmit at 50 kw, they could place their antenna at 492 feet above ground level they would reach a 52 kilometer radius from the tower or 30 miles (Federal Communications Commission, n.d.), please note these are line of site distances and many commercial FM stations in large metropolitan areas are in the 100 kw range. Satellite radio does not have these same exact limitations as the transmissions come from an orbiting satellite changing the line of site issues found with terrestrial transmission. This reduces their physical footprint. There is one major limitation however in that buildings in major cities create narrow canyons that can effectively block the signal. Anyone who has used a GPS to travel in downtown areas surrounded by high rise buildings has experienced this effect. To get around this Sirius uses terrestrial repeaters in the 1800 - 2000 mw range which can be mounted using rented space on existing towers and poles which meet height and clearance requirements. Here is a second environmental concern, studies in 1972 demonstrated that microwave emissions within certain ranges have both short and long term effects on humans and therefore there are regulations governing the exposures to theses wavelengths (McRee, 1972). According to McRee the frequencies which have the most hazard to humans are in the 300 MHz to 3 GHz range. FM and Television use 30 - 300 MHz which fall under the very high frequencies (VHF) ranges. Radar, microwave ovens, and some medical treatments fall into the 300 MHz to 3 GHz or dangerous ranges termed ultra high frequency (UHF). Satellite to earth transmission occurs in the extra high frequencies (EHF) ranges of 30 - 300 GHz. This places satellite transmissions well above the hazard range to a zone where the body is transparent to the waves (McRee, 1972). With the proliferation of these repeater stations in 50 major cities across the US, it may be time to perform a new study. There seems to be a growing concern over electromagnetic forces being added to our living environments of which long term results have yet to be fully identified. In addition to health related concerns from these emissions. There are other major environmental concerns with satellite radio. With standard terrestrial broadcasting, an antenna tower is erected that, if properly maintained, can last well over 50 years. Satellites however have a limited lifespan and have hazards unique to their environment. As far back as the early '60's when the space race was taking off, the hazards to satellite as well as orbital patterns were under study. J.R. Pierce wrote of such hazards quoting Arthur C. Clarke, an early pioneer into this industry. One of the first concerns of course is just surviving launch, as all the delicate equipment will need to survive ten's of G's force for orbital insertion. Critical to the satellites survival the components will only have radiation cooling available and, in the alternate environment from sunlight to shadow, temperature variations are large (Pierce, 1961). You also have radiation effects on the components to contend with along with potential strikes by meteors and cosmic dust particles. The annual Leonid meteor shower often looks spectacular observed from earth. Imagine sitting out in orbit without the protection of the atmosphere. And finally there is the potential for a decaying orbit and the satellite or pieces thereof striking the earth such as Skylab or the more recent Soviet satellite. The amount of debris currently in orbit around our planet is getting large. In his article on Space waste (Modiglani, 2011), Modigliani pointed out that we have been putting stuff into orbit for 54 years. In 2007 China tested a new missile by blowing up an old weather satellite creating thousands of pieces of debris. With the US contributing to 31% of the junk in space how much will come from commercial satellites that are no longer serviceable? One last point of environmental concern, the Sirius satellites get into orbit by being launched by International Launch Systems (ILS) from the Baikonur Cosmodrome in Kazakhstan (Sirius XM Radio Inc., 2011). The rockets use monomethyl hydrazine (MMH, N2H4) as the primary fuel with nitrogen tetroxide (N2O4) as the oxidizing catalyst. MMH is a flammable, caustic liquid and nitrogen tetroxide is a very reactive, toxic oxidizer (Encyclopedia Astronautica - N204/Hydrazine). The facility has complete decontamination and containment facilities for the compounds but last year there was a failed launch causing both a catastrophic crash of the rocket and payload as well as contamination of the crash area by the volatile fuel and oxidizer (International Launch Services, 2012). ILS launches between 5-6 commercial payloads a year. While this environmental impact is part of another companies launch system, it is part of the risk Sirius accepts in order to launch their satellites into orbit. Political Legal EnvironmentBroadcast communications in the US in any form is regulated by the Federal Communications Commission or FCC. In addition, other government business guidelines come into play with Sirius/XM radio Inc. There are extensive regulations governing broadcasters outlined by the FCC in 43 CFR Part 73.Presented below are brief comments from two separate congressional hearings on the proposed merger between Sirius and XM. The congressional hearing shows the extent that both Sirius and XM went through in order to become a single business providing satellite radio services.On February 28, 2007 the House of Representatives Committee on the Judiciary met at 3:05 with the Honorable John Conyers presiding. This was an Antitrust Task Force on the purposed merger between Sirius Satellite Radio and XM Radio. In the opening statements it was noted that the companies would have the obligation to convince the Congress, the regulators, and the American people that this combination would improve the competitive playing field and benefit consumers. In addition, the critical issue of whether the relevant market is all forms of digital music, retail music, and radio or simply satellite radio was identified. Mel Karmazin CEO of Sirius Satellite represented both Sirius and XM Radio. Other witnesses included David Rehr, president and CEO of the National Association of Broadcasters, Ms GiGi Sohn, president and founder of Public Knowledge, Mark Cooper, director of research at the Consumer Federation of America, and Charles Biggio Attorney at Law and who has served as Deputy Assistant Attorney General in the Antitrust division in an earlier Administration (Competition and the Future of Digital Music, 2007).In initial testimony David Rehr outlined 5 points that NAB determined identified this merger as a monopoly and detrimental to public good such as violating terms of their FCC licenses (FCC, 2007). Gigi Sohn's testimony acknowledged the dilemma under investigation and stated that if the merger cleared the Antitrust scrutiny that consumers would be better off if the merger was approved subject to specific conditions (FCC, 2007). Mark Cooper argued against the proposed merger based on current FCC licenses and existing antitrust regulations (FCC, 2007). Charles Biggio argued, in this hearing, that the merger raised important policy and law enforcement considerations that would be reviewed and discussed by the FCC and the Antitrust Divisions (FCC, 2007). He contested that the FCC and Antitrust Divisions would be better equipped to find the relevant facts of this case and therefore no firm conclusions should be formed until these agencies performed their reviews. The minutes of this hearing covered 126 pages of discussion and testimony.Next, on March 20, 2007 the US Senate Judiciary committee held Senate Hearing 110-135 to review and decide on the proposed merger of XM Radio with Sirius Satellite Radio Inc. (The XM-Sirius Merger: Monopoly or Competition from new Technologies, 2007) with the Hon. Herb Kohl presiding. A key point in the hearing was to determine if the merger of the only two national satellite radio services should be authorized. At question was not just whether a monopoly would be formed, but whether satellite radio is a distinct market and therefore consumers will have no real alternative should the combined company raise its price (FCC, 2007). Throughout the process of this hearing defendants provided examples of existing competition including free over the air radio, internet radio, and the iPod or MP3 player options. Countered was that over the air radio did not come close to providing an impressive array of offerings, and that iPod and other new technologies were either too new, too expensive, or too different to be considered in the same market definition. During the hearing, the burden of proving the case that merging would not form a monopoly was placed on Sirius CEO Mel Karmazin. Also presenting during the hearing were Mary Quass, CEO of NRG Media, representing the National Association of Broadcasters (NRB) against the merger under antitrust aspects, Gigi Sohn President of Public Knowledge, who felt it was a public interest dilemma and only should be supported if specific criteria be met, and David Balto, Attorney at Law, presenting against the merger under antitrust aspects.The Honorable Orrin Hatch identified that there were three antitrust laws applicable to the type or horizontal merger under consideration. First Section 6 of the Clayton Act which prohibits mergers that substantially lessen competition, second section 1 of the Sherman Act prohibiting mergers that constitutes an unreasonable restraint of trade and section 5 of the Federal Trade Commission Act prohibiting unfair methods of competition. The briefs and running minutes of this meeting cover 125 pages of discussion, accusation, and defense by Sirius/XM.In addition to these two Congressional Antitrust hearings, this case was reviewed by the Department of Justice, the Federal Trade Commission, and the Federal Communications Commission in further separate hearings. On March 20, 2007 after the Senate hearing, Sirius Satellite Radio Inc. submitted applications seeking consent to transfer control of Commission licenses and authorizations held by Sirius, XM and their subsidiaries with the FCC as outlined in MB Docket No. 07-57 (FCC, 2007). The FCC process for reviewing requested mergers or acquisitions can be reviewed on their web page at http://www.fcc.gov/mergers. The FCC radio and television broadcast rules are documented in the Code of Federal Regulations (CFR) and can be found in 47 CFR Part 73 covering telecommunications. In addition to the government regulations and hearings Sirius faces the same potential litigation challenges as most companies. For example, in the case of Joel Broida, et al. v. Sirius XM Radio, Inc., Case No. 11-CV-1219 LAB RBB, United States District Court, Southern District of California a class action lawsuit is brought on Sirius under the internet tax fairness act. The charge is that despite prohibition on taxation of internet access, Sirius XM charged and continues to charge their customers fees and taxes based upon, in part, the cost of internet access (Holter, 2011). In a complaint filed in 2009 in the US District Court in Manhattan, the claims filed alleging antitrust actions against Sirius/XM for raising prices 30%. The suit specifically targets so called royalty fees Sirius charges on top of subscription fees (Van Voris, 2011). A second class action antitrust suit was settled August 25, 2011 in Blessing verses Sirius XM Radio Inc. (Sirius XM Radio Inc, 2011). And from an article in the Wall Street Journal online, Howard Stern is suing Sirius XM over alleged stock options and money owed to Howard, his agent, and his production company (Ovid, 2011).

Industry AnalysisWhen developing a strategy or auditing a company, industry forces need to be considered. We identify six forces driving industry competition: 1. Threat of new entrants, 2. Rivalry among existing firms, 3. Threat of substitute products or services, 4. Bargaining power of buyers, 5. Bargaining power of suppliers, and 6. Relative power of other stakeholders. The following sections analyze and explain in detail how each of the six forces influence industry competition for Sirius XM Satellite Radio. Force #1: Threat of New EntrantsBecause satellite radio is still considered a new exploratory industry it could be assumed that the threat of new entrants into the market would be high. However, there are entry barriers related to either opening up new operations or collaborations that could make entry challenging. One example could be with the Canadian Radio Television approval of the XM Radio Canada and Sirius Canada merger. This collaboration has dominated the satellite radio market to a point that new entrants attempting to break into that market would prove to be difficult and costly. One such barrier would be the issue of the Federal Communications Commission (FCC) and the ability to obtain approval to get up and running. Prior to the merger the FCC would only offer two licenses, one for each company (PBS, 2004). After the merger the FCC required that one of the licenses be given up and placed back into availability. If a new entrant is seeking to enter into this market they would have to bid and get approval to use a license to operate. If they are able to obtain approval and because they are entering into a market with no existing customers, they would have to quickly gain market share to make their mark and to stay afloat. In order to gain market share they would have to provide an advantage or distinction between their product and the one that is already on the market or better known as having a product differential. This being stated, in order for a new entrant to survive they would more than likely need to have extensive capital backing or the brand name of a major existing corporation. This would give them easier access to distribution needs and a cost advantage. This is supported by Professor Michael Porter who suggests that when reviewing the risk level of new entrants you have to also consider switching costs, product cost, and the quality and performance of the substitute product (Wheelen & Hunger, 2010). Another factor to consider would be customer loyalty. Many consumers have annual contracts with Sirius XM and the equipment is installed into their vehicles. A new entrant would have to make the switch or change process easy for the consumers by providing them a cost advantage for switching. All things considered, it appears that the entry barriers into the satellite radio industry are relatively high and, therefore, the threat of new entrants into the market would be considered low. Sirius XM has what is known as a first-mover advantage in which they were able to move into this market and achieve near-monopoly status (Marketing Terms, 2001). With this status and a low new entrant threat, the opportunities for Sirius XM to capitalize on being one of few in its market are relatively high. This position will remain high for Sirius XM until a new entrant is able to position itself to provide an advantage that has not been provided before or that has been provided but at a greater expense. Force #2: Rivalry among Existing FirmsAlthough Sirius XM may have the advantage in satellite radio programming it doesnt necessarily guarantee that listeners would prefer to listen to their favorite radio personality on AM/FM radio instead. This is one of many reasons why a whole new pathway of Sirius XM competition is revealed. With this revelation it puts the company in a pack amongst dozens of other competitors who are vying for the number one market share in radio broadcasting. Porters intensity of rivalry for determining factors suggests that if an industry consists of numerous competitors that rivalry will be more intense (Wheelen & Hunger, 2010). In addition, if the only thing that is separating one competitor from another is pricing or ease of service then rivalry would also be intensified. The commodity or product characteristic that Sirius XM has is that they offer a satellite radio service that is conveniently available. This service can tailor to the specific needs of consumers that some competitors do not offer. While they have enjoyed being dominate specifically to satellite radio, in order for them to achieve a higher profit margin they are seeking to gain an advantage in the radio broadcasting market as a whole. Because of the high level of competitors in this market, they are closely watching each others moves and anticipate if a counter move would be required. For example, when competitors offered podcast services to their subscribers, Sirius XMs next move was to make their service also available on mobile devices and personal computers. Porter suggests that a change in prices can also increase rivalry and force competitors to react (Wheelen & Hunger, 2010). For example, when Apple Computers launched its iTunes music in 2001, it allowed users to download songs for 99 cents with no monthly subscription fee. Rhapsody.com responded by lowering their price for burning music from 99 cents down to 79 cents apiece (BBC News, 2003). Creative use of channel distribution can also boost competition. For instance, Clear Channel Communications is a major conglomerate specializing not just in radio broadcasting but television as well. This resource could be used as a threat to other competitors in promotion of their other products, or what is known as co-branding (Beem, 2010). This being stated, the rivalry among existing firms is a high threat for Sirius XM. Radio broadcasting is a market that they are still working to gain an advantage over. Granted they have the advantage of providing satellite radio services; however, being able to get consumers who are otherwise satisfied with their current internet mobile radio provider to switch to theirs proves challenging. Force #3: Threat of Substitute Products or ServicesSirius XM, for the most part, has not reached the same level of availability as AM/FM radio. In some cases Sirius XM could be considered a luxury product for people who can afford to have it installed into their vehicles, those that could buy the required applications for mobile devices, or consumers who have access to a computer. In other words, why would a consumer pay for this service when they could go with the alternative for free? Granted they may not be able to hear some of their favorite celebrity broadcasting, but this feature does not reach a level of necessity for some consumers. As indicated previously, in regards to rivalry among existing firms, Sirius XM has the difficult task of trying to break through a competitive market with a product in which viable substitutes are available. The problem for Sirius XM is in determining how they are to compete with a substitute product that is free or one that is offered at a substantially lower price. For instance, Sirius XM recently announced a plan to increase their membership prices by $1.50 per month, starting in the year 2012, which would bring their average monthly fee to $15.95. Sirius XM CFO David Frear stated that when you raise prices you suppress demand however he further states that he believes that they would end up with more subscribers, revenue and free cash flow in the end (Szalai, 2011). Meanwhile, one of their radio broadcasting competitors Slacker is offering their basic service for $3.99 per month with a free service option as well. Although there could be a differentiation between the type of customers that these two companies have, Slacker has a broader serviceability market which is a disadvantage to Sirius XM who is attempting to gain a bigger share in that same market. Sirius XM caters to a specific type of consumer while Slacker caters to those same consumers, as well as all consumers who are interested in radio broadcasting. All things considered, the threat to Sirius XM of substitute products or services is high. They have the option to offer same or similar services as their competitors all while maintaining their specific market of core consumers. Force #4: Bargaining Power of BuyersMain categories of buyers. To better understand the bargaining power of buyers, we must better define Sirius XM buyers. The company has two main categories of buyers. Commercial buyers make up the first major category of Sirius XM buyers and consumer buyers encompass the second category.Commercial buyers bargaining power. The first category involves commercial companies, which integrate Sirius XM radio into their products. These companies include smartphone manufacturers such as: Apple, Research in Motion (Blackberry), and Google (Android). The Android system alone can be found in major smartphone producers like Samsung, LG, Motorola, and Apple. Samsung has a 16.3% market share with LG capturing a 5.7% market share and Apples iPhone controlling a 4.6% share of the smartphone market (Darlin, 2011). Sirius XM offers an app for the above mentioned cell phone manufacturers products. The question becomes does these smartphone market giants need Sirius XM more than the satellite radio supplier needs them? With numerous smartphone music download options, such as iTunes and Rhapsody, Sirius XM is faced with formidable challenges. This intense competition gives smartphone companies a great amount of bargaining power over Sirius XM. The Sirius XM app is found on many of the major smartphone products; however, competitor apps also appear on many of these phones. This fails to give Sirius XM a stronghold on the smartphone app market, like it has on the satellite radio market, and also gives the smartphone companies increased bargaining power. Since Sirius and XM merged in 2008, the new company dominates the satellite radio market, but has yet to build the same dominance in the smartphone music market. Another commercial buyer is the automobile industry. Sirius XM has reserved the right to integrate their satellite radio product into every major car makers product (Sirius XM, 2012). Although Sirius XM has some influential bargaining power in the automobile industry, it still lacks dominate bargaining power. The main reason is that substitutes are built into virtually every automobile on the road. Substitute products include standard AM/FM radios, compact discs players, and smartphone capabilities. The obvious alternative, AM/FM radio, is free. One report stated that ninety percent of adults listen to AM/FM radio on a weekly basis and revenues for AM/FM radio grew a total of 6% from 2009 to 2010 (Olmstead, Mitchell, & Rosenstiel, 2011). Compact discs players still pose a threat to Sirius, although, 330,000 cars will be manufactured this year without a compact disc device mainly due to the surge in smartphone music apps (Schmitt, 2012). Nevertheless, compact discs are still a relatively popular item and they still pose some competition for Sirius XM. The comparative advantage for Sirius is that the cost of one compact disc nearly covers the cost of a one-month Sirius XM subscription, which runs $199 for one year (Sirius XM Pricing, 2012). Cars that integrate smartphone technology, on average, would potentially have a Sirius app, but they would also probably include apps from iTunes and Rhapsody. The bargaining power, for Sirius XM commercial buyers, within the automobile industry is quite high. Automobiles are now integrated with other alternative options from smartphones to compact discs, as well as the traditional free AM/FM radio. This allows auto manufacturers numerous options and features to offer their customers. Car manufacturers arent bound solely to Sirius XMs satellite radio option.Consumer buyers bargaining power. A second category of buyers, which has a great deal of bargaining power, is the consumer. Ultimately, the consumer must make the decision of what products and services they desire and companies must look to produce and integrate these products into their offerings. Similar to commercial buyers, consumers have a wide range of product options. An individual can choose to satisfy their music needs by way of iPods, Mp3 players, smartphones, compact discs, AM/FM radio, pad devices, satellite radio, or internet radio options. Buyers have many choices and a number of items that can be directly substituted for one another. This gives the buyer a great deal of bargaining power. Buyer bargaining power is the main reason that Sirius XM radio must keep its pricing down even though it holds a near monopoly on the satellite radio industry. Buyers simply have other choices that can fulfill their wants and needs and this leads to the power being in the hands of the consumer.Low switching costs. Buyers also encounter low switching when dealing with Sirius XM. A customer can sign up for a month-to-month subscription and cancel with minimal resistance. This makes it easier for consumers to switch to alternate products and services. The greatest costs incurred would involve consumers who have purchased a Sirius XM radio. These customers must take into account the cost of the switching to a new service. These costs may involve purchasing new equipment from another brand and may deter the customer from making the switch. However, these costs are minor in the long run and the bargaining power of buyers is strengthened by the low switching costs incurred from leaving Sirius XMs services.Force #5: Bargaining Power of SuppliersSirius XM utilizes a wide range of electronic suppliers. Many of the companies they use are brand names in their own right and able to handle large volume orders. Sirius XMs electronic suppliers include: Apline, Arcam, AMX, ADA, Audiovox, Autonomic, Cambridge Audio, Clarion, Control 4, Creston, Denon, Dual, Elan, Frontier Silicon, Fusion, Grace Digital, Harman/Kardon, Integra, JVC, Kenwood, Logitech, NAD, Niles, Niveus, NuVo, Onkyo, Pana Pacific, Pioneer, Reciva, Russound, SMSC, Sonos, Sony, Sunfire, The Rotel Company, and Yamaha (Sirius XM Hardware, 2012). These electronic companies can benefit from a relationship with Sirius XM. Not only does it give them a good amount of business, but also many suppliers gain greater name recognition when the products they manufactured are integrated into Sirius XMs offerings. The wide variety of suppliers gives Sirius a good amount of bargaining power. If one supplier will not budge on a given price, Sirius XM can simply send their business to another electronics company. Suppliers must offer Sirius XM the best pricing or they will risk losing valuable business. An exception to this is the unique celebrity talent that Sirius XM employs to run popular programs that drive subscription sales, such as The Howard Stern Show. Certain actors, radio personalities, role models, athletes, and other individuals who can attract and retain a loyal audience will be in a great bargaining position during contract negotiations. Sirius XM will need to provide them with fair incentives to secure exclusive contracts.Force #6: Relative Power of Other StakeholdersWheelen and Hunger (2010) list two major groups as stakeholders in a company, these groups include: those who can directly influence the company such as employees, customers, suppliers, shareholders, and creditors; and secondly, groups related to environmental organizations, competitors, trade associations, and governments. Sirius XMs employees seem to have only a small influence over the direction of the company, especially in the face of a potential power shift to Liberty Media Group. As before mentioned, customers have a large amount of influence over the company and its programming. Suppliers lack any real sway over Sirius XM due to the large number of electronic manufacturers that Sirius XM has employed. One of the most influential groups is the shareholders, namely one shareholder named Liberty Media Corp. Liberty currently holds a 40% stake in Sirius XM and has the option to increase its stake to over 49.9% in March of 2012 (Saba & Lauria, 2011). If Liberty would elect to increase their stake over the 49.9% mark, this would give Liberty Media Corp. the controlling interest of Sirius XM. This could place Sirius XMs CEO, Mel Karmazin, and Sirius XMs current leadership team in a secondary role. Liberty, in a very real sense, has the power to control Sirius XMs future decisions as a company. A final group who can directly affect Sirius XM involves creditors. In 2009 Sirius XM needed a 530 million dollar loan from Liberty Media Corp. in order to prevent the company from going into bankruptcy (Saba & Lauria, 2011). This has allowed Liberty to become a main stakeholder in Sirius XM and virtually control the companys direction moving forward. Other groups and organizations have indirect influences over Sirius XM, these include: governments, trade associations, environmental groups, and competitors. The United States government had a major influence over the Sirius XM merger. The government approved the 2008 merger between Sirius and XM despite the accusations that the merger could create a monopoly. The National Association of Broadcasters (NAB), a local television and media trade organization, opposed the merger between Sirius and XM because they felt it was anti-consumer (Ellis, & LaMonica, 2007). The trade organization showed little influence as the government approved the merger that made the two major satellite radio companies one. On the environmental front, Sony is the only Sirius XM electronics manufacturer listed on Greenpeaces top 15 green electronic companies list (Greenpeace, 2011). Electronic companies are always scrutinized for their manufacturing and disposal practices. Sirius XM must realize that their suppliers, from a green perspective, are a direct extension of their companys green efforts and reputation. Finally, Sirius XMs competitors have an indirect influence over their activities and offerings. The company does not face satellite radio competition as much as it faces close substitute competition within the iPod, MP3, and internet radio industries. Sirius must provide products and services that can compete directly with these various substitute products or run the risk of loosing crucial market share.

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