Abstract
The primary objective of the report was to conduct a critical analysis on the case study on Sirius XM Satellite Radio. Mainly, the analysis focused on several aspects such as background information leading to the establishment of the company and problems faced by the company as presented in the case study. Besides, the analysis focused on internal and external factors affecting the company as summarized in the SWOT analysis. Finally, the analysis aimed to present several recommendations that Sirius XM Satellite Radio could use to resolve the problems. Consequently, the case study analysis presented the entire overview of Sirius XM Satellite Radio from the foundation to development of the company from the merger. Mainly, the merger between the two predecessors companies established on the entity that manages to execute different targets. However, Sirius XM Satellite Radio faced problems such as competition, strict export regulations, financial debts, and decline in the number of subscribers.
Introduction
The case study presents the Sirius XM Holding, Inc., that conducts its business as Sirius XM Satellite Radio. Thus, Sirius XM Satellite Radio is a broadcasting company that is controlled from Midtown Manhattan, New York City. Mainly, Sirius XM Satellite Radio provides online radio services and three satellite radio in the United States of America. Having been established through a merger, Sirius XM Satellite Radio has been operating to offer services in the broadcasting industry. Thus, the core purpose of this paper is to conduct a critical analysis on the case study on Sirius XM Satellite Radio. Mainly, the analysis focuses on several aspects such as background information leading to the establishment of the company and problems faced by the company as presented in the case study. Besides, the analysis focus on internal and external factors affecting the company as summarized in the SWOT analysis. Finally, the analysis aims to present several recommendations that Sirius XM Satellite Radio could use to resolve the problems identified in the case study.
Background
The background of Sirius XM Satellite Radio can be traced as a result of the merger that occurs between XM Satellite Radio and Sirius Satellite Radio in 2008. Thus, the company retains the name Sirius from Sirius Satellite Radio and XM from XM Satellite Radio thereby rebranding as Sirius XM Satellite Radio. Both XM Satellite Radio and Sirius Satellite Radio operated successfully from 2001 and 2002 by spending millions of investment to install and launch satellites for radio broadcasting. More importantly, the two predecessor companies managed to layout huge investments such as networking equipment, satellite radio receivers, performing market research feasibility tests, developing programs, and to attract subscribers. Between 2001 and 2007, the two companies had separately established a perfect market framework. In 2008, a business idea came into assessment where they merged to form one company that was rebranded Sirius XM Satellite Radio. The primary objective of the merger was to increase the target market for satellite radio services where the predecessor companies felt it would be achieved if they operated as a single entity. After, the merger, Sirius XM Satellite Radio was established and conducted businesses that raised over $3.8 billion revenue in 2013, 25.6 million subscribers in 2014, operating income of over $ 1 billion, cash flows of over $1.1 billion and net income of $337 million in 2013. Despite remarkable growth and development in the financial value, the case study presents major problems affecting Sirius XM Satellite Radio as analyzed in the context below.
Problems with the Sirius XM Satellite Radio
Several problems with Sirius XM Satellite Radio appear clearly in the case study. From a business point of view, companies merge to ease competition in the market through adopting of competitive advantage strategy. In the initial years after the merger the resulted in the formation of Sirius XM Satellite Radio, the company managed to achieve competitive advantage because the competition between XM Satellite Radio and Sirius Satellite Radio was neutralized. However, the case study identifies competition as a major problem for the company. Sirius XM Satellite Radio has monopoly advantage of providing satellite radio services in Canada and the United States. However, the company faced unfavorable competition for both advertisers and listeners from diverse sources. Besides, the company faced competition that reduced market segment for its prerecorded services and disc-based music entertainment records that were purchased by consumers.
The problem with Sirius XM Satellite Radio was compliance with government regulation. The company was regulated by the Federal Communications Commission of the United States of America. Thus, it was a problem to the company to operate smoothly as a merger because the transfers and assignments of control for Sirius XM Satellite Radio were to be approved by the Federal Communications Commission. The legal formalities delayed execution of operations for the company in 2017. Also, the company was facing international trading barriers because it was required to obtain export licenses from the U.S government. The primary objective of the merger was to expand the market to international platforms. Thus, Sirius XM Satellite Radio aimed to export ground control equipment, control services, technical data, and satellite communication to other global markets such as Canada. Thus, the problem with this target was that delivery of ground control equipment, technical data and services outsides the United States of America was subjected to trade barriers, prior approval, and strict export control requirement that affect the company negatively.
The third problem with Sirius XM Satellite Radio was the decline in the number of subscribers. The case study presents that in the fourth quarter of 2013, the company recorded a drastic decline in the number of subscribers. In the annual meeting held on 4th February 2014, Sirius XM Satellite Radio announced its operational and financial performance for the year ended in 2013. Surprising, all the other areas of business operation recorded a positive increase. However, the company recorded a decline in the number of subscribers. This decline raised a red flag thereby becoming a problem to the company and the problem quickly grabbed the attention of industry analysts and stockholders. The company justified the negative growth of subscribers by citing several problems. The company faced a decline in the number of subscribers because it started paying low subsidiary rates to automakers. This was a problem with the company because paying the low rates per satellite radio-equipped vehicle was unrealistic. Another problem with the company in the fourth quarter of 2013 was an unthoughtful shifting of a major automaker to unpaid trail subscriptions that lower the number of subscribers. Lastly, the number of subscribers for Sirius XM Satellite Radio declined as a result of the decrease in the new vehicle conversion rate from trial to self-pay.
Another problem with the company as presented in the case study was the financial debt that made the company struggle to stay afloat after three months of the merger in 2008. Thus, the company was struggling to settle down a debt amount to over $1 billion whose maturity was terminating in 2009. This was a great problem for the company because credit markets were freezing up. The company was struggling because the only asset left was the sale of the automobile that aimed to attract new subscribers in the United States of America. The company faced a problem through a legal process that was challenging its shares. In 2009, the stock price of the company declined where the board of directors, management, and leadership of the company was threatened to be removed.
SWOT Analysis of Sirius XM Satellite Radio
The Swot analysis aims to analyze the internal and external factors affecting Sirius XM Satellite Radio as presented in the case study. Thus, Swot analysis aims to examine the strengths, weaknesses, opportunities, and threats of the company in line with the case study.
Strengths
Several strengths can be associated with Sirius XM Satellite Radio. First, the company has delivered breakeven outcomes in three consecutive quarters despite meandering through the financial crisis and tacking on billions in accumulated deficits. The company is likely to generate more profits in the future. The second strength was that the company managed to record 1.1 million new subscribers in 2010. Thus, the company anticipates a positive growth of subscribers in the future. Lastly, it was a strength for the company to pull off the successful merger between the predecessor companies and that company has become a monopoly when it comes to satellite radio
Weaknesses
Despite the remarkable strengths, Sirius XM Satellite Radio has several weaknesses. First, the company has dedicated many efforts in its outstanding shares which cause unbalance recapitalization and swapping debt for low-priced shares. Besides, the retail shares for the company dwindled in recent years thereby affecting the profit margins. Lastly, it is a weakness that Sirius XM Satellite Radio continues to generate thin profit margin despite enjoying other benefits from the merger.
Opportunities
The company has potential opportunities that propel it to better financial positions. First, the company was an enviable position because billions of accumulated were carried forward. This gave the company leverage to seek acquisition of profitable firms that can assist the company to clear its future liabilities. The next opportunity for Sirius XM Satellite Radio is the ability to embrace leading smartphone platforms. The company can obtain a competitive advantage through its premium services and using the incremental platform to outdo competitors such as Apple, Inc., in the smartphone business venture. Lastly, Sirius XM Satellite Radio has more freedom and greater control to regulate its programming costs via various programming strategies.
Threats
Sirius XM Satellite Radio is subjected to several threats that may tarnish its image or lower its reputation. The company is likely to face a threat from Pandora that offers Web-streaming cronies. Thus, Sirius XM Satellite Radio may fail to match bankrolled programming that its competitors are providing. The greater number of smartphones is essential to a company that aims to possess radio broadcasting choice beyond satellite and terrestrial. Thus, Sirius XM Satellite Radio may not maintain the appropriate number of the smartphone to sustain it radio broadcasting in future. The second threat is the liberty set by John Malone through media investment of 2009 that exchange over $580 million from Sirius XM Satellite Radio. Therefore, any chance that Liberty may unload some of its stakes may affect the company negatively. Lastly, the contract entered between Sirius XM Satellite Radio and Howard Stern threatened the company. The company may feel obsessed to renew a contract with Howard Stern but it would be a threat to the company in case Howard Stern bolts, retires or scale down his obligations to the company. The subscriber ranks of Sirius XM Satellite Radio may be tested if Howard Stern leaves the company for a rival platform thereby treating the company.
Finances recommendations to Sirius XM Satellite Radio
The establishment of Sirius XM Satellite Radio through merger created a great business structure that assisted the company to increase the market venture. As a result of the merger, the value of the company increased significantly enabling the company to attract many customers from Canada and the United States of America. However, the establishment of Sirius XM Satellite Radio in 2008 was not entirely smooth. However, there are several financial recommendations that Sirius XM Satellite Radio would use to settle financial debts and to stay ahead every year. First, the company should maintain a high stock price for its shares in the first quarter to set the financial growth in the coming quarters. This strategy could assist the company to remain financially stable in a tricky quarter.
The second financial recommendation is to take the incorporation of Pandora as a financial advantage to Sirius XM Satellite Radio rather than a threat. Thus, Pandora could help the company in marketing the premium and increasing the number of radio subscribers thereby increasing the annual synergies of the company by over $ 75 million. Lastly, Sirius XM Satellite Radio should build on its reputations on under-promising and over-delivering. This will assist the company to penetrate more into the market thereby increasing its return or maintain the return at a positive trend year and after year.
Conclusion
Overall, the case study analysis has presented the entire overview of Sirius XM Satellite Radio from the foundation to development of the company from the merger. Mainly, the merger between the two predecessors companies established on the entity that manages to execute different targets. However, Sirius XM Satellite Radio faced problems such as competition, strict export regulations, financial debts, and decline in the number of subscribers. In the Swot analysis, the company has expressed the internal and external factors that have affected the business performance of the company in the past, present, and in the future. Lastly, the analysis has considered the financial recommendations on what the company needs to do to settle the financial debts.
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