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Analysis Of Xm Radio

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The concept started back in 1988 when a group of eight companies, which included Hughes Aircraft Co., McCaw Communications Inc., and Mobile Telecommunications Technologies Inc., went to the FCC for a license for satellite broadcastings of data for telephones, fax, and other similar types of information. However, the FCC ruled that they would only allow one license of such broadcasting to be permitted, forcing the eight companies to form a single venture, to be named American Mobile Satellite Corporation (AMSC). Two years later, Hughes Aircraft Co. built a satellite costing over $100 million, to be launched by the mid-1990s, while in the meantime renting out information space on other satellites for data transmission services. However it was in June of 1992 when a sect called American Mobile Radio Corporation was formed to create a satellite radio service and went public on the NASDAQ stock exchange in December of 1993.

Their first satellite was launched in 1995, from which the company offered a satellite phone at $2,000 per year satellite phone, which serviced anywhere in the United States. This was also coincidentally the era when the cellular phone service industry was beginning to explode, thus decreasing the value of the ever expensive service offered by AMSC. In only a year, it was announced that bankruptcy was near, and they received a $225 million credit line from Hughes Aircraft Co, along with a few others in order to bail themselves out. At this point the overall management team and business plan went under reconstruction, including the hiring of a new CEO, Gary Parson. After one year of getting on a new track, AMSC spent $98.9 million to buy an FCC license allowing them to broadcast digital radio signals by means of satellite. At this time, this was only one of two licenses granted by the FCC, the other going to a company named CD Radio Inc. which had also been working on the satellite radio concept for the past 7 years.

It was in 1998 that the company was renamed to XM Satellite Radio, by newly hired CEO Hugh Panero, with Gary Parsons to take the role as chairman. It was in June of 1999 that the company was given major backing after receiving a $250 million investment from a number of investors including General Motors, DirecTV Inc., Clear Channel Communications Inc. This would allow for the company to plan setting up two stationary satellites along with over 1,700 repeating towers to help ensure there would be no frequency disruption from areas with a concentration of tall buildings.

October 1999 was when AMSC officially went public on the NASDAQ with XM Satellite Radio Holdings Inc (with XM retaining majority ownership). This raised just over $110 million, with an anticipated spending of over $1 billion on the network. Their goal was to be broadcasting by 2001, marking them to be one year behind their rivals Sirius (CD Radio), planning to begin broadcasting in 2000. Later in 1999, XM made their headquarters based in Washington, DC, with a building including 82 digital studios on top of space for regular company operations to take place.

To take the popularity of the broadcasting line up to the next level, XM offered a programming position to Lee Abrams, a very well known FM radio consultant which first became famous in the world of FM broadcasting in the 1970's for showing the radio industry how to bring together peoples listening habits with their lifestyles, making radio at the time very popular. He would eventually quit over frustration with the industry's focus on the business at the cost of overall quality of programming. He happily took the position to head their programming department. XM was serious about creating quality programming, not being like every other FM station which put a play list on repeat. So much so for example, such as with the music programming for the rhythm and blues channel, they hired Bobby Bennett, a very popular R&B disc jockey from the 1960's. They wanted their format of programming to be original, as if the listener was really was in the venue of the genre of music being listened to (for example, on the classical channel, it should sounds like you're at the philharmonic in an orchestra hall).

March 18th, 2001 was the mark of their first satellite reaching orbit, the second to be on point in May. XM was now in their home stretch, seeking more funds; they sold $201 million in stock to sustain them financially until their anticipated broadcasting date of September 12, 2001, over the Dallas and San Diego areas. After the attacks of September 11th, the official debut was set back to the 25th of the month, and by October coverage was over the entire southwest region of the U.S. By November 12, coverage had reached the entire contiguous 48 states. In the meantime, XM had not only signed over 30,000 subscribers by the end of 2001, they also gained first-mover status, as Sirius' debut date had been pushed back due to microchip errors. This allowed for XM to gain major recognition, with huge coverage by the media, being called "The Invention of the Year" by Time Magazine, and "Product of the Year" by Fortune Magazine, worthy gain for a $1.4 billion investment. To help promote their product, XM used 'Pull' theory advertising, marketing directly to the consumer, while selling their radios to local retailers such as Wal-Mart, Best Buy, and Circuit City. The company even agreed to pay for part of each installation. XM even reached agreements with DirecTV to offer their radio programming as part of the television program services by February, 2002. Only four months later, XM subscription had shot straight up to 135,000, by the end of 2003 they had reached 1.36 million, only to reach 3 million 12 months after that, three times more than their major competitor Sirius.


Of all the resources and capabilities that XM has, only one seems to be a potential source of a sustained competitive advantage over Sirius: XM's signal intensity. Their signal intensity is a result of the company's more than 800 terrestrial transmitters. These transmitters receive a digital signal from one of XM's four Boeing satellites and then pass the signal on to the satellite radio receivers. These terrestrial transmitters are most valuable in large cities. They provide XM customers with uninterrupted coverage where tall buildings would otherwise disrupt the signal (if the signal were coming directly from the satellite, instead of being resent by the transmitters). Sirius satellite radios do not have this luxury. Instead, Sirius radios have a 4-second buffer built into them in order to help avoid the problems with their coverage "dead spots." However, a 4-second dead spot buffer will not help a Sirius customer if he is sitting in his car at a red light



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