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XM Radio

In the late 1980s, the American Mobile Radio Corporation was founded. In March 1997, it became one of two companies to receive an exclusive Satellite digital audio radio license. The company changed its name to XM Satellite Radio and contracted with Hughes Space (now Boeing Space Systems) to build and launch two satellites. XM then gave a public offering of its stock, and began signing contracts with media providers and celebrities and making exclusive broadcast arrangements with major sports.

As competition with its fellow satellite radio company, Sirius Satellite radio began heating up, the general environment for radio, which had been relatively static for the last 50 years, experienced a dramatic change. In addition to the traditional ground based stations, XM and Sirius found themselves competing with new personal music devices, like the iPod, HD radio, Internet radio, and in-car DVD players.

In efforts to attract new customers, XM began offering various free trials and discounts on its services, along with reduced rate radio installations. Low yields from subscriptions and high subscriber turnover made these methods costly, however. So, to further separate itself from the competition, XM introduced NavTraffic, a system that compiles ground based traffic information, and new XM2go devices, which could be removed from vehicles. Again, the result was not what XM had hoped for. In spite of positive feedback reviews, the devices provoked a lawsuit from record labels and also came under investigation from the Federal Communications Commission (FCC) for interfering with other nearby radio signals.

Despite years of hopeful forecasts, XM and Sirius recently reported combined annual losses of $1.5 billion. Though XM’s number of subscribers has grown continuously to 7.5 million, the company has yet to turn a profit. With rising competition and large contractual obligations, XM needed to find ways to adapt to the new environment. First, XM stopped trying to buy new radio content and began to focus more on customer acquisitions.

With obtaining new customers proving difficult, however, XM also began new cost cutting strategies. With subscriptions being low priced already, XM stopped giving away new radio receivers and began requiring purchasers of the radio receivers to sign subscriber contracts. Further, XM contracted with GM and Honda, both originals XM shareholders, to install radios in their new cars. These measures resulted in substantial reductions in acquisitions costs, from over $89 per subscriber to less than $70.

Another potential solution that XM has pursued is a merger with Sirius. When the satellite license was initially granted in 1997, specific provisions prevented a merger; however, in light of the recent major changes in the market, both companies hope that those provisions might be invalidated. The FCC would have to approve the merger, and it is possible the certain concessions might be required, such as price restraints, restrictions on carrying local radio content, and allowing other companies to lease usage of the satellites. Still, such a merger would remove competition and potentially allow for reduced costs and increased prices.

 

129.Refer to XM Radio. With the invention of MP3 players, iPods, and Internet radio, XM needs to determine how it can adapt to changes in its _____ environment.

a.technological

b.sociocultural

c.economic

d.political/legal

e.demographic

130.Refer to XM Radio. Prior to the merger, Sirius Satellite Radio was a part of the _____ component of XM Radio’s specific environment.

a.technological

b.sociocultural

c.economic

d.competitor

e.geographic

131.Refer to XM Radio. Which of the following activities would ensure that XM was aware of changes in its general environment?

a.a SWOT analysis

b.environmental scanning

c.benchmarking

d.boundary spanning

e.correlation

132.Refer to XM Radio. When XM Radio decided to reduce the costs for acquiring new consumers, the action didn’t change the company’s _____ environment because organizational strategy is not one of XM Radio’s components.

a.general

b.SWOT

c.internal

d.managerial

e.ethical

133.Refer to XM Radio. Combining XM Radio and Sirius Satellite Radio organizational cultures could conceivably call for _____ as the cultures are merged into one.

a.the total elimination of reliance on organizational stories and heroes

b.behavioral substitution and behavioral addition

c.conditioned and classical perception

d.the establishment of environmental certainty

e.the laddering of managerial hierarchy

 

 

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