XM Satellite Radio
Competing in the New Digital World
______________________________________________________________________________ This case was written by Professor Michele Greenwald, Visiting Professor at HEC Paris, for use with Advertising and Promotion: An Integrated Marketing Communications Perspective – 7th edition by George E. Belch and Michael A. Belch. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
The case was compiled from published sources
When Fortune magazine named its product of the year in 2001, the winner was a new technology that many feel may revolutionize the way we listen to radio. The magazine’s rationale for its selection stated: “Of all the new technologies of 2001, XM Satellite Radio is way, way, way above the rest. It’s the first major advance in radio since FM emerged in the 1960s, and the best thing to happen to mobile music since the dashboard CD player.” After spending more than a billion dollars for programming and satellite operating expenses, as well as catchy TV commercials featuring celebrities such as David Bowie, B.B. King and Snoop Dogg; XM Satellite radio hit the airways in the Fall of 2001, claiming that it would do for radio what cable did for television. XM used “Rock” and “Roll,” its two Boeing 702 satellites stationed over the East and West coasts to beam more than 100 audio channels from the stratosphere to subscribers’ cars. While subscribers to satellite radio can still receive regular AM and FM terrestrial stations via their car antennas, by 2006 they could get more than 170 XM channels of nearly commercial-free digital radio that includes music, news, talk, sports, and children’s programming. Many industry observers noted that there was a tremendous opportunity for satellite radio at the beginning of the new millennium. There had been consolidation in the radio industry which led to repetitious, cookie-cutter formats in markets across the country. Companies such as Clear Channel had built large radio conglomerates and were paying for them by increasing the commercial load, which resulted in less programming and more frustrated listeners. XM’s chief programmer, Lee Abarams, noted that the company hoped to have the same creative effect as the FM revolution of the late ‘60s and ‘70s which brought major changes to the radio scene. FM’s superior sound and lack of commercial clutter triggered a huge audience shift away from AM radio. However, Abrams argued that FM had sprouted a potbelly, gone gray at the temples, and become the stodgy establishment - complacent and vulnerable to a hard charging rival such as XM. “Right now, we live in a very vanilla age, radio-wise,” noted Abrams. “Except for talk radio, it’s stay in the middle, don’t upset anybody, and play the big hits everybody’s comfortable with. We’re 180 degrees from that. We want to challenge people.” XM Satellite Radio first went live in September 2001 with 100 channels that ranged from commercial free music, to comedy, news, sports, talk radio, kids, women’s, and “old time radio” programming. After an initial investment of $200-$300 in equipment and installation, the cost of the service was $9.95 per month. (The upfront costs have come down considerably since.) This was the first time consumers had ever been asked to pay for a form of entertainment that had always been available free of charge. In June of 2002, Sirius Satellite Radio launched a competitive service at a subscription rate of $12.95 per month. Many doubted either service would succeed. By the end of 2005, XM had 6 million subscribers and 150 channels, and Sirius had 3.3 million subscribers and 130 channels. XM reached four million users faster than MP3 players, CD players, cell...