Porter’s five forces model provides an important tool for evaluating the strategic position of Sirius XM radio in the United States broadcasting industry. It operates under Sirius XM holdings Inc. which is an U. S’s media and information company based in Midtown Manhattan in New York that provides both online and satellite radio services. The company has observed significant transformations since the merger that brought together Sirius and XM satellite radios. The corporate restructuring in 2020 saw Sirius XM Holdings Inc. assume total ownership of Sirius XM radio. The company runs a subscription-based broadcasting business model besides commercial advertisements to generate profit. Like any other tech-based company, Sirius XM Radio Inc. is faced with serious competition and financial challenges which arguably informed the merger decision.
Sirius XM Five Forces Analysis
The broadcasting industry has observed tremendous growth over the years. However, the economic slump resulting from the Covid-19 pandemic further strained the already struggling industry that is observing fierce competition from alternative media and entertainment streaming formats. By 2020, the revenue from satellite radio broadcasting services stood at approximately $9.7 billion, a $3.1 billion cut from the previous year (Guttmann, 2022). The application of Porter’s five forces model on Sirius XM radio helps reveal the strategic position of the company as well as the attractiveness of the American broadcasting industry. The model is based on five forces that include; the Threat of New Entrants, the threat of substitute services, competition from existing rivals, the bargaining power of suppliers, and the bargaining power of buyers (Bruijl, 2018).
Figure 1: Porter’s Five Forces Model for Sirius XM Radio Inc.
Threat of New Entrants
Bargaining Power of Buyers
Bargaining Power of Suppliers
Competitors Rivalry
The threat of substitute services
The threat of New Entrants
This force captures how the entry of new rivals in the industry threatens the existing players. It shapes the competitive landscape of the market and determining its attractiveness. The entry of new competitors into the market influences profits generated by the current companies (Porter, 2008). In radio broadcasting, new entrants bring innovation and relatively newer ways of doing things. Through different value propositions, product pricing, and cost-effectiveness, there is some significant pressure on Sirius XM and other players in the industry. A high threat of new entrants makes the industry less attractive.
Challenges from the threat of new entrants are minimal for Sirius XM Radio Inc. This follows the strong barriers to entry in the market and the monopolistic features of the existing players. Firstly, the intensity of capital requirements for setting up a broadcasting studio in the United States is significantly high making it difficult for new players to enter the radio market (Thompson, 2015). Further, the loyalty cost required for purchasing broadcasting content undermines the sustainability of the business for relatively new and small firms (Porter, 2008). In addition to cost issues, stringent regulations and broadcasting policies by the Federal Communication Commission make the industry unattractive to new firms. The FCC regulates broadcasting to protect national, cultural as well as economic interests.
The threat of Substitute Services
Substitute products and services in the market introduce alternatives to an industry’s customers, significantly threatening its competitive structure. The threat of substitutes occurs when companies within a given industry are forced to compete with different industries offering alternative products and services (Chan-Olmsted, Wang & Hwang, 2019). The presence of substitutes erodes the attractiveness of an industry by limiting the potential returns it earns through the price ceilings they create. As the attractiveness of alternative price-performance for substitute’s increases, it becomes more difficult for firms to sustain their business operations due to declined profits.
The threat of substitute services is the strongest force that beats against the products of Sirius XM Radio Inc. The advent of digital technologies has redefined the entertainment sector, especially among the millennials (Porter, 2008). As such the company faces fierce competition from digital music streaming and entertainment platforms with Pandora and Spotify being the most outstanding competitors in streaming and subscription services. Besides its music streaming offer on iTunes, Apple also recently ventured into radio broadcasting with its Beast1 radio station (Perez, 2020). Most of these digital entertainment streaming platforms offer exclusive and uninterrupted music around the clock, unlike Sirius XM radio which has some occasional commercial advertisements. A millennial seeking exclusive music streaming and subscription service would probably choose to download one of the digital apps instead of radio broadcasting services.
Taking into account the evolving needs of the market, Sirius XM radio has embarked on constant strategic restructuring and revitalization to withstand the stiff competition from popular streaming services. This includes becoming less product-oriented and more service-oriented by seeking to understand the needs of its clientele. Thus, the company gives more attention to the emerging trends and increases the switching costs for customers.
Rivalry among Existing Competitors
In free-market economics, competition is a common occurrence as existing layers in the industry strive to attain an advantageous position over their rivals. Therefore, the rivalry is perhaps the strongest of the five forces enlisted by Porter in his strategic analysis model. Besides the stiff competition from the digital entertainment streaming service providers, the rivalry within American radio broadcasting is extremely intense. Although Sirius XM Radio Inc. is relatively the largest in terms of market share, the company is closely followed by its rivals such as iHeatMedia Inc, Entercom Communication Corporation, Cumulus Media Inc., and the National Public Radio Inc (IBISWorld, n. d). Most if not all of the vital players in the broadcasting industry simultaneously run satellite radio and subscription-based broadcasting. Additionally, competition for listeners especially in the traditional AM/FM broadcasting bands due to low switching costs and differentiation of products.
However, the company has adopted differentiation and diversification strategies to attain and sustain a competitive advantage. The company has several offers including exclusive music, news, talk, and sports. It also runs the traditional business commercials besides the collection of comedy programs from different outlets. The company has also built scale to enhance its competitiveness.
Bargaining Power of Buyers
The typical consumer behavior is to demand much more value at the least attainable cost. This force is high for Sirius XM radio with service consumers having an abundance of options to choose from both within the radio broadcasting industry and other digital streaming platforms. Besides many authorized satellite and AM/FM radio and audio stations, digital technologies have increased the options for broadcasting including internet streaming services (Porter, 2008). The abundance of options and free nature of terrestrial radio has little or no switching cost for listeners.
Bargaining Power of Suppliers
Suppliers of products in an industry possess the power to influence its market dynamics. With the ability to control the quantity and quality of products, they determine the profitability and the consequent attractiveness of the industry (Chen & Strebulaev, 2016). Offering services such as sports, music, news information, and programming involves some expensive talent that has high leverage over the content they create and by extension the profit margin of Sirius XM radio. The company however runs an efficient supply chain that involves comprehensive arrangements with different content creators (Sirius XM, 2022). Additionally, it actively pursues the development of dedication among its content suppliers. For instance, the company poses as an exclusive home for Howard Stern.
Historically, the radio broadcasting market has been a slow cycle industry with various players utilizing their allocated frequencies to broadcast content over the airwaves to their customers. However, the dawn of technology and the internet which introduced satellite and subscription services presented an opportunity for radio broadcasting companies to diversify and differentiate their products in such a competitive market. Sirius XM Radio Inc. is the largest broadcasting company in North America today. However, the company needs constant evaluation and revitalization of its strategy to maintain its position in the market. Achievement of this goal is through effective application of Porter’s five forces model that acts as a mirror to give it direction.
References
Bruijl, G. (2018). The Relevance of Porter’s Five Forces in Today’s Innovative and Changing Business Environment. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3192207
Chan-Olmsted, S., Wang, R., & Hwang, K. (2019). Substitutability and complementarity of broadcast radio and music streaming services: The millennial perspective. Mobile Media &Amp; Communication, 8(2), 209-228. https://doi.org/10.1177/2050157919856647
Chen, Z., & Strebulaev, I. (2016). Bargaining Power, Business Cycle and Levered Equity Risk. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2802199
Guttmann, A. (2022). Radio station ad revenues in the U.S. by source 2020 | Statista. Statista. Retrieved 4 April 2022, from https://www.statista.com/statistics/253185/radio-station-revenues-in-the-us-by-source/.
IBISWorld. (n.d). Radio Broadcasting in the US industry trends (2016-2021). Ibisworld.com. Retrieved 4 April 2022, from https://www.ibisworld.com/united-states/market-research-reports/radio-broadcasting-industry/.
Perez, S. (2020). Apple Launches Apple Music Radio with a Rebranded Beast 1, Plus Two More Stations. Techcrunch.com. Retrieved 4 April 2022, from https://techcrunch.com/2020/08/18/apple-launches-apple-music-radio-with-a-rebranded-beats-1-plus-two-more-stations/.
Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard business review, 86(1), 25-40.
Sirius XM. (2022). SiriusXM Reports Fourth Quarter and Full Year 2021 Results. Investor.siriusxm.com. Retrieved 4 April 2022, from https://investor.siriusxm.com/investor-overview/press-releases/press-release-details/2022/SiriusXM-Reports-Fourth-Quarter-and-Full-Year-2021-Results/.
Thompson, A. (2015). In 2014, On Track to Succeed After a Near-Death Experience Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies. Thecasesolutions.com. Retrieved 4 April 2022, from https://www.thecasesolutions.com/in-2014-on-track-to-succeed-after-a-near-death-experience-66218.
