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Xm Satellite Radio Market Entry Plan

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Date: 10/30/1997

To: AMRC Board of Directors

From: Robert Acker - Dir. Strategic Planning

Subject: Summary - Market Entry Plan for XM Launch


I am forwarding this document as a primer for our initial business strategy presentation next week. I have prepared a summary of our launch plan to facilitate the meeting discussions and decisions. This plan addresses all critical decisions that must be made prior to launch. These questions include:

* Value Proposition

* Target Market

* Product Positioning

* Tactical Marketing Plan

* Pricing

* Launch Budget Focus

Executive Summary XM will become the dominant Satellite Radio service provider in the US radio industry. We will use viable and relevant new technologies to satisfy strong (and growing) consumer demand for better radio - a super-high quality, ad-free, mobile, and personal listening experience. We will gain deeper market penetration than Sirius by providing products and service for all listening environments (car, home/office, and personal). We will compensate for Sirius' head start by focusing on the buying channels and allowing them to create the initial market awareness. We will dominate the customer access channels and build brand value alongside premier partners and retailers. The XM brand will penetrate the evoked set via ACCESSIBILITY. Because demand will be catalyzed by ad-free broadcast, we will adopt a subscription model. Due to inelastic demand, pricing will be premium-competitive in order to maximize short and long-term profitability.

Value Proposition Brand value is built by creating value with the customer; this can be done by developing the perception that the customer sees our product as something they created. As with the prior transition to FM radio where customer uptake was facilitated by the peoples' desire for less frequent advertisements, we will use this fact to position XM as a solution with ad-free, top-quality content and performance. We will build new value by breaking the bond of immobility; XM will be delivered to all listeners wherever and whenever they want it. XM is a revolution in radio - by the people, for the people. We will build customer value by reminding them that XM is the superior radio service that they've been waiting for - completely mobile, high quality, ad-free radio. Our message to the customer is that XM was created by their desire for a better alternative, and we deliver it through trusted partner brands and cutting edge new technology.

Target Market We will primarily target the "Tech-Seekers" (TS) segment, which is comprised of both men and women, and spans across ethnicities and various age groups. The TS segment is characterized as people who "love keeping up with and using the latest high tech products." Market research indicates that TS is a large segment, representing 73MM Americans (35% of the total US population). Moreover, the TS segment's values are closely aligned with our product and value proposition because XM is high-tech, unique, and its performance is of high value to the TS listener. The table below indicates that the TS segment holds the highest proportion of potential buyers at any price.

Product Positioning An ad-free business model is a strategic imperative for XM. In the 1970's, strong demand for less-frequent advertisements helped fuel the emergence of FM radio. Today, this trend is primed to repeat itself, and satellite radio is perfectly positioned to meet the growing demand. Already, demand is strong enough to precipitate a potential $2 billion satellite radio industry. Therefore, we will adopt a subscription pricing model to capture this demand with ad-free radio service. As the market evolves, we can introduce advertising on select, non-music channels. In addition, we will offer premium channels at marginally higher subscription rates. Finally, we will deliver XM radio in any usage environment. Even though the car-listener population is growing, the non-car listener population is larger, and is shifting more than it is shrinking (from home to work - both of which require stationary setup).

The advantages of this approach are:

1. Ad-free radio is critical for XM to differentiate from traditional radio. Steadily growing advertising frequency is priming the market for transition by driving peoples' desire for less advertising.

2. Similarity to Sirius allows us to access customer awareness that Sirius is already creating.

3. Premium channels will reinforce our value proposition of delivering radio programming that our customers desire - "by the people, for the people".

4. By offering products for car, home/office and personal use, we can capture the substantial population of home/office listeners, dramatically improving our revenue potential versus a singular focus on car listeners.



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