Title of the Case: Satellite Radio (B)

Time Context or Period: 2005-2008

Summary of the Case:

Late 2005 proved to be the high point of expectations for satellite radio due to the unexpected increase of subscriptions for Sirius and XM Radio that even surpassed forecasts made a year earlier. As 2006 progressed, the growth rate started to decelerate and both companies have continued to lose money. Competition in the market became stiffer because of the rapid growth of technology which led to the birth of new gadgets used in consuming music. Also, a sharp downturn was also experienced by the auto business due to the crisis felt the by the United states. Because of these factors, Sirius and XM Radio have decided to undergo a merger agreement because of the benefits that the merger offers. However, the proposed merger faced regulatory hurdles with the Department of Justice and the FCC, and oppositions from the National Association of Broadcasters (NAB). Later on, in March 2008, the Department of Justice and the FCC gave their “go signals” to the merger provided that the new company, which is named Sirius XM, to offer more content a la carte pricing which gave a huge impact on its revenue. Despite positive cash flows that the forecasts stated, Sirius XM continued to have difficulties, especially in funding current liabilities, because of the crisis felt in the automobile industry, and by late 2008, the stock of the new company was traded under $0.40 a share.

Mission/Vision Statement:

SiriusXM offers The Best Radio on Radio™ by hiring the best people to work in a creative, fast-paced, and entrepreneurial company. When you work at SiriusXM, you are surrounded by passionate and results-oriented people, world-class technology, and some of the best programming in the world. As SiriusXM continues to grow, the opportunities to contribute and make a difference are endless.

Honors/Awards Received by the Company:

SIRIUS Recognized by Men's Fitness, New York and Cargo as Having the Best Programming in Satellite Radio. XM wins top honors at the 2006 Consumer Electronics Show in Las Vegas for their two new portable units that offer live programming on-the-go.

I. Statement of the Objective(s):

To come up with a way on how Sirius XM can continue with the operation of its business and avoid bankruptcy.

II. Central Problem:

How can Sirius XM continue with the operation of its business and avoid bankruptcy?

III. Areas of Consideration:

Strengths | Weaknesses | Opportunities | Threats | 1. Monopoly in the Satellite Radio industry.2. Cost reduction due to merger.3. Trusted and well-established name.4. Capability of providing wider range of channels because of the merger.5. Unified strategical planning. | 1. Costly equipments for operations.2. Dependence of sales on the automobile industry.3. Core demographic for satellite radio seemed to be the middle aged people.4. 13% of the population actually wanted satellite radio.5. Stock trades under $1.6. Requirement of the FCC to offer more context a la carte pricing scheme, which gave a great impact on the company’s revenue.7. Duplicate channels were eliminated because of the merger. | 1. Expansion of market with the help of the internet.2. Adoption of new technologies.3. Coming up with new features that can gain public interest.4. Avoidance of bankruptcy.5. Having positive earnings for the next years. | 1. Threat of technology.2. Changing customers’ tastes and preferences.3. Increase in costs for equipments and materials.4. Continuous opposition of the NAB.5. Birth of more gadgets to consume music.6. Possibility of being delisted in the stocks exchange.7. Continuous losses.8. Bankruptcy. |

IV. Alternative Courses of Action:

ACA | ADVANTAGE(S) | DISADVANTAGE(S) | 1. Equity Financing | - Additional Capital- The company does not have to pay anything back to the investor.- Outside investors expect the business to deliver value, helping you explore and execute growth ideas.- The right business angels and venture capitalists can bring valuable skills, contacts and experience to your business. They can also assist with strategy and key decision making.- In common with you, investors have a vested interest in the business's success.- Investors are often prepared to provide follow-up funding as the business grows. | - Depending on the investor, you will lose a certain amount of your power to make management decisions.- You will have to invest management time to provide regular information for the investor to monitor.- There can be legal and regulatory issues to comply with when raising finance. | 2. Stock Split | - Buying frenzy- Many investors are prone to buying stocks at lower prices.- It gives a perception that the company is doing well. | - It does not increase a company’s value.- It does not assure an increase in stock price. | 3. Issuing Bonds | - Additional Capital- Can attract customers with interest rates. | - Additional liability for the company.- No assurance that liabilities can be paid if losses continues. |

V. Recommendation:

I therefore conclude that the best solution to the problem is alternative course of action number 1, which is equity financing. The main concern of Sirius XM is its substantial funding issues, especially in this case that there are a lot of current debts to be paid. Because of the continuous decrease of its stock price in the market, Sirius XM found it more difficult to come up with additional capital that could help with the continuity of its operations. Equity financing is a great way to obtain capital because there would be no outflow of cash that would be involved. Unlike with debt financing, Sirius XM do not have to pay anything back to the investor/s. Also, because a certain percentage of equity stake is given to the investor in exchange of additional capital, he/she (investor) has a vested interest in the company’s success and may provide follow-up funding for its operations. The investors can also contribute their skills and expertise to the business and can assist the company with strategy and key decision making. Sirius XM, on the other hand, will be motivated to strive more for success knowing that there are other people’s investments that should be taken care of. Most importantly, with equity financing, the company would be most likely saved from bankruptcy.

VI. Plan Of Action

1. Look for a potential investor.
2. Communicate all necessary information to the chosen investor/s and negotiate terms. (e.g., percentage on equity stake to be acquired by the investor, amount to be invested, etc.)
3. Comply with legal and regulatory issues when raising finance.

VII. Potential Problems:

1. What if there would still be a decrease in demand for satellite radio?
2. What if future plans won’t work for the company?
3. What if new gadgets try to enter satellite radio’s target market?

VIII. Contingency Plans:

1. Continuous research and development to come up with features that can gain public interest.
2. Coming up with a number of plans for back-up in case of plan failure.
3. Advertise the product through the internet, newspapers, flyers, commercials, etc.

University of the East – Caloocan College of Business Administration

SATELLITE RADIO (B)

Submitted By: Dela Cruz, Camille L. BMG 114 – 1T Submitted To: Prof. Rosalinda Lacerona