XM’s value proposition to the market is to deliver diverse high quality digital radio content to consumers across various demographics and nationwide via a complex satellite and terrestrial network. A key advantage with XM’s satellite radio over AM/FM radio is the near-ubiquitous radio coverage that significantly strengthens broadcast signals outside the traditional broadcast area. Given the vast and high-growth car radio market and strong home segment demand, XM should target both submarkets. When pricing the radio and subscription fee XM needs to evaluate the potential demand for the product/service based on various revenue and cost assumptions, cost/benefit of advertising vs. not advertising, and the profit implications for various scenarios. Based on expected consumer response and an analysis of the above factors over a five yr. customer lifetime, we determined that XM should start offering a $100 radio with ad-free service of $10/mo. (SIRIUS price) and with-ad service of $5/mo to attract customers ($9.2 bn profit). As XM builds its customer base over time, it can raise the product/service prices to generate higher profits. By doing so XM could reach out to potential consumers who desire satellite radio but are not willing to pay the high $10/mo. ad-free fee. Furthermore, XM could differentiate itself from SIRIUS and retain customers by offering exclusive programming. The benefits of including advertisements are expected to outweigh the costs and can provide funding to other segments in need of additional capital. If the customer lifetime is longer than five years the optimal subscription/radio price can be lower, and vice-versa. By providing both ad-free and with-ad services at different prices, XM will be able to offer consumers more options which could help attract them from SIRIUS’ one-price service. However, SIRIUS is expected to respond by altering its pricing and service mix to further differentiate itself from XM. Acker should recommend that XM focus on the car and home radio markets and include advertisements on some of its channels. Furthermore, XM should focus on educating the marketplace about its services to manage consumer perception, providing incentives to attract subscribers and auto radio manufacturers, and working with retail chains to broadly distribute its products. From a manufacturing perspective XM should incentivize after-market and OEM players with cash flow from advertising to invest, produce and implement the company’s radio systems in existing and new vehicles. This strategy is expected to help integrate XM into most of the car radio systems in the U.S.