XM has taken a more target product strategy, attempting to increase depth of programming services over the pervasive offering of devices. Industry analysts have commented that Sirius is now competing with Apple and their iPod series based on the breadth of their devices (Sirius Satellite Radio Investor Relations and SEC Filings 2008). Sirius' approach to personal satellite players has only been marginally successful and clearly given the operations expenses shown in Table 1's analysis of Income Statements. The breadth of the product line is forcing Sirius to also develop expertise in supply chain operations and fulfillment, two series of business processes that are significantly different than broadcasting and entertainment. Having to contend with a value-based business model with entertainment channels while also concentrating on a price-based model that must focus on continual price reductions forces Sirius into multiple and often confusing accounting systems and practices. It is highly recommended that given the merger now in effect that a separate Products Division be created, with specific responsibilities for standard costing, production variance analysis, and a reliance on production-based accounting dashboards and scorecards to manage this business.
The launch in Q3, 2007 of the Xpress EZ, Xpress R, and Commander MT squarely position the company in competition with Apple and their iPod Series, and also force the dual accounting systems that have caused the company to lose focus on its cost containment objectives. The integration of XM NAV Traffic, XM Wx Weather, XM Stocks and XM Sports has continued to fuel demand for personal XM radios and receivers. One of the primary catalysts of personal XM receiver growth is the fact that 57% of all XM subscribers consider themselves to be displaced fans (XM Satellite Radio, 2008). Personal radios that are compatible with both Sirius and XM signals will require significant engineering effort, over and above the in-car systems that have the greatest amount of learned experience with them. The combined companies will need to quickly define and improve the new product development and introduction (NPDI) process that is needed for the new hybrid personal devices the company will sell, featuring sports programming. The ability to accept MP4 files from iTunes, MP3 files from many other online services, and the functionality of downloading video as video-based iPods can do today is critical to the long-term success of the Sirius/XM product strategies after the merger. The competitive threat Apple poses with video-capable iPod and iPhone families is shown in Figure 1.
Figure 1: Market Assessment of Video-Capable iPods (Apple Investor Relations, 2008)
For the combined companies and their initial experience with video content in the three-channel offering of Sirius Backseat TV there needs to be more attention given to this area, as Apple will eventually revolutionize digital entertainment as they did with music. The challenge for the combined companies of Sirius/XM is to gain access to this digital content without getting into expensive royalty arrangements as has been the case for XM today.
In assessing its future product strategies, the combined companies must focus on triangulating the costs of services and digital content royalties, standard production costs and the coordination with supply chain partners to create personal satellite players capable of receiving digital video as well. For the merger to be successful from a product strategy perspective, the future must include value-based strategies that allow for digital video and in turn, greater levels of differentiation as well through services.
Combining Marketing Messages
Today the combined companies need to step away from price competition as their primary messaging and concentrate on market development and being the catalyst of this growth. According to InStat (2007) the market will grow to 32 million units in 2011, and in 2005, 57% were aware of HD Radio, climbing to 77% in 2007. For the merged companies to be successful they must act more as market catalysts than low-price leaders. The freedom of speech inherent in satellite radio as Sirius has used as one of their unique value propositions needs to increase, and spread as a messaging component across both companies. Further, there is the need from a marketing messaging standpoint to take a more premium-channel approach to their programming and move away from such a royalty-centric business model in the case of XM. In conjunction with these changes is the urgent need to re-vamp pricing and messaging for the advertising business, an area that could, if managed from a service and costing standpoint more effectively, could turn the combined companies profitable. The bottom line is that the unique strengths of XM with its ability to generate new products and Sirius' ability to generate awareness and trial, the combined companies must define a unique selling proposition that sets high expectations for consumers and then create an organizational structure that provides for their rapid and full attainment. The concentration on video content and battling Apple must become part of the brand as consumers will increasingly also require convergence of entertainment devices. The combined companies can win market share by attacking this trend rather than waiting for the trend to come and impact them.
References
Andrew Edwards, Mike Barris. (2008, May 13). Earnings Digest -- Media: Losses Dog Sirius, XM. Wall Street Journal (Eastern Edition), p. B.7. Retrieved June 1, 2008, from ABI/INFORM Global database. (Document ID: 1477481521).
Apple Investor Relations. Investor Relations website for 2008-2008 filings with the Securities and Exchange Commission.,. Retrieved June 1, 2008, from Apple Investor Relations and Filings with the SEC Web site: http://www.apple.com/investor/
Goh Shu Fen (2008, January). Is there really true value in value-based pricing? Media, 21. Retrieved June 3, 2008, from ABI/INFORM Global database. (Document ID: 1468593981).
Catherine Holahan, Arik Hesseldahl. (2008, March). Sirius and XM Get the Justice Go-Ahead. Business Week (Online) Retrieved May 21, 2008, from ABI/INFORM Trade & Industry database. (Document ID: 1450933951).
In-Stat: Digital...
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