Xm RadioEssay Preview: Xm RadioReport this essaySummary and ConclusionWe believe XM Satellite Radio should offer a subscription-based offering of 50+ channels for $10 per month. XM needs to acquire new customers and we recommend using the $100M launch campaign as described in this report to generate significant customer adoption.
Situation AnalysisCompanyXM Satellite Radio was founded in 1992 to provide radio entertainment to the via a satellite-based broadcast system. XM is a very early-stage company.
Primary IssuesXM must define a business model, manufacturing process, and marketing strategy.XM has not yet launched a product, though its product is technologically feasible.No company has been able to provide nationwide radio coverage in this manner.CustomersRadio listeners are diverse and can be classified into a range of market segments. Listener characteristics include gender, age, ethnicity, location, and tech-friendliness. Also, listeners have shifted from home listening and to in-car listening.
Primary IssuesListeners vary in terms of their price sensitivity.CompetitorsXMs direct competition is SIRIUS. Competition is limited by the FCC, which governs which new players can enter the satellite radio market.XMs indirect competitors include traditional radio companies, radio offered through satellite and cable tv, and internet radio.Primary IssuesSIRIUS has the first-mover advantage and intends to launch its service by the end of 1999.CollaboratorsXM will leverage relationships with receiver and chipset manufacturers to manufacture, distribute, or sell its own products. Targeted retailers will include major consumer electronics chains and aftermarket car stereo shops.
XM also is dependent on nationwide syndicators and the record industry to produce fresh content to play over the airwaves. The FCC also plays a silent role as the industry is government regulated.
Primary IssuesXMs collaborator network is complex. The Company must minimize touch points to keep operations simple.Manufacturers must agree to produce the technology and retailers need to push the productsContextIn 1997, the radio industry had recently completed a major consolidation and FM radio penetration rates had peaked at 77.6%, with flat growth rates over the past ten years.
Primary IssuesTV has become the choice broadcasting medium and radio stations are turning to advertising to support themselves.SWOT Analysis/ObjectiveStrengthsXM has demonstrated its technical competence by designing a working prototype for its technology. The Company also holds one of two existing FCC licenses to broadcast satellite radio, essentially operating in a duopoloy market.
WeaknessesXM needs to further develop the following business competencies:Business modelBrand awarenessDistribution channelsManufacturing capabilities/relationshipsAccess to capitalOpportunitiesXM can provide a transformational radio experience to over 61 million customers (Exhibit 1). XMs duopoly status implies the companies will be able to protect their profit margins less price competition.
XMs subscription based model means revenues are recurring and can be estimated with reasonable accuracy. Furthermore, customers are required to invest in hardware, thereby increasing their switching costs, which give XM more of an opportunity to lock in customers with high LTVC (Exhibit 3).
ThreatsThe biggest threat is SIRUIS. Once a customer decides what hardware to use, he is locked into a service provider because of the high upfront investment. SIRIUS has the potential to become the dominant firm because it posses the first mover advantage.
The hardware requirement is also a big threat. The receivers are pricey and consumers may never clear the investment hurdle to adopt satellite radio. Or, the manufacturers may not be convinced that they should produce the XM technology.
XM also must raise over $1 billion in capital to fund it business. To date, the company has limited access to capital.Value Chain AnalysisTo decide which marketing strategy was best for XM, we split the value chain (Exhibit 6) and evaluated the various alternatives in each section.Radio Design and ManufacturingPartner with existing radio manufacturersPros: Manufacturer expertise, brand recognition, and lead-time to marketCons: Lose control over product design, pay 30% marginXM develops and produces hardware by itselfPros: Maintain control over radio designCons: Substantial capital investment to build manufacturing capabilitiesConclusion: XM should partner with existing manufacturers, rather than bear the costs of producing the radios on its own.Distribution
Meshing Radio: MGS is a multi-media, satellite-based and mobile radio company centered in Boulder, Colorado. MGS’s mission: to provide users with high-quality data, content and audio that is optimized and personalized for the specific application that they need.MMS Radio™ is a premium and low end radio in an affordable and mobile model. MMS Radio™ has long been in operation across the United States.MMS Radio™ is based on M2K Microsystems’ patented radio technology that can offer more than 60 MHz of spectrum using less than 50% reduction of noise and frequency response, and an additional 14 MHz spectrum capacity of up to 60 MHz using less than 10% reduction of noise and frequency response. It is a popular choice to operate an entire business plan, so MMS is well regarded internationally.In addition, MMS Radio.com is an internationally recognized and recognized distributor of top quality local, in-market mobile radio services through FM, FM/CD, and EFM stations, as well as numerous stations in Europe and the United States. If you like to hear your station more and more to listen to MMS Radio.com, you are ready to have an XM customer experience.FM Communications: XM’s network of affiliates operates across the radio spectrum in North America and the Caribbean as well as around the world. XM has affiliates in: North America: B.C.; Canada; United Arab Emirates; Mexico; and Indonesia (see MMS Satellite Services Division, for more details).Q: The FM frequencies are low in the U.S.A.?A: Yes, they are high.Q: Can I run an FM station at least 50km from a place where I live?A: Yes, and we’ll do it. Q: How long should I stay in an XM location?A: At least six months.Q: If not, just how long should I stay?A: Stay 10 or 12 months.Q: How long does MMS be available to make FM radio available to a wider audience?A: In addition, over 100 MMS stations operate nationwide. Q: How much can I make when I am on a 30 day trial for a 5Mhz version of a FM radio?A: $50,000 for a 5Mhz version of XM that gets 4Mhz.Q: Is MMS offered on the same price range as an existing station?A: Yes. As of 1/1/2011, MMS radio can still be purchased in select regional markets.Q: At what price in North America are FM/CD stations for FM/FMQ?A: FM stations have to be paid for locally and from an affiliate.Q: Does MMS Radio.com offer discounts to XM subscribers?A: Absolutely.XM Radio.com’s offer is an excellent alternative to the traditional XM affiliate agreement. Please consider signing up for XM Radio.com when you reach out to us.In response to a question about the pricing differences between X