Sirius XM Canada
MGT6910 – Policy and Strategy - Industry
Bambie Hayes
Shorter University

Sirius XM Canada is a satellite media company and is one of the largest subscription based companies in Canada. Sirius XM Canada has 2.5 million subscribers and a 14 percent market share in the Canadian radio industry. Sirius XM Canada offers 120-130 channels that include sports, children, news, and talk programming (Sirius XM, 2015). Sirius XM Canada’s revenues were CAD 79 million for the first quarter 2015 (Q1 2015 Sirius XM, 2015). The Federal Communications Commission approved Digital Audio Radio Service’s usage for radio frequency for satellite broadcast in 1992. Two companies, Sirius Satellite Radio and XM Radio were awarded licenses to use radio frequencies. Sirius Satellite Radio and XM Radio were originally launched in limited cities, however, by 2002, both companies offered services nationwide. In the United States, satellite radio is regulated by the Federal Communications Commission. In Canada, satellite radio is regulated by the Canadian Radio and Telecommunications Commission. Canadian subsidiaries are required to have Canadian ownership (Hitt, Ireland, & Hoskisson, 2015) Satellite radio uses original equipment manufacturer, chip sets, and receivers to provide service to customers. The receivers are plug and play or factory-installed into vehicles. However, the impairment expense to upgrade outdated equipment is costly. For example, Sirius XM spent U.S. $22.3 million to update obsolete equipment (Hitt, et al., 2015). The threat of new entrants is low in the satellite radio industry. In the U.S., the FCC only awarded licenses to two companies, XM Radio and Sirius Satellite Radio. In Canada, XM Canada was the exclusive licensed provider to XM Radio. Sirius Canada was the exclusive licensed provider to Sirius Satellite Radio. New entrants in the satellite radio industry face exorbitant start-up capital needs and arduous telecommunication regulations. Each satellite’s cost exceeds U.S. $1.5 billion. Satellite radio industry mergers in both the U.S. and Canada have made it difficult for new companies to gain any substantial market share. Sirius XM Radio in the U.S. and Canada also has long-term relationships with major automobile manufacturers and retail distributors. Therefore, new entrants into the satellite radio market would experience low economies of scale (Hitt, et al., 2015). The bargaining power is moderately high for suppliers and high for buyers. For example, Sirius XM has relationships with several electronic manufacturers. These electronic manufacturers include Kenwood, JVC, Logitech, Pioneer, and many others. Suppliers provide satellite radio companies with audio, video, and digital equipment to provide satellite radio across various electronic platforms (Sirius XM, 2015). Additionally, satellite radio companies pay automobile companies for the right to install satellite radio equipment into their vehicles (Hitt, et al., 2015). Any increase in equipment costs or decrease in the ability to produce innovative electronic technology can impair the company’s cash flows. Nevertheless, maintaining relationships with many different suppliers and automobile companies provide satellite radio companies an advantage to negotiate on price, quality, and quantity of electronic equipment. Despite selling over 2.6 million cars in 2009 with satellite radio receivers, only 260,000 new subscribers existed a year later. Therefore, customer sales can greatly impact company revenues. From 2001 to 2006, Sirius Satellite Radio and XM Radio had combined losses of U.S. $3.8 billion. Buyers could also substitute products such as the iPod and mp3 to obtain radio programming. Prior to the U.S. and Canadian mergers, rivalry was intense between Sirius Satellite Radio and XM Radio. After the mergers, both companies primarily focused on transition and integration strategies (Hitt, et al., 2015). Established in 2002, Canadian Satellite Radio Holdings, the parent company of XM Canada, was a publically traded company on the Toronto Stock Exchange. Fifty-eight percent of the company was owned by John Bitove. In 2010, XM Canada had approximately 590,000 subscribers and provided 130 channels. Service was available in 150 different automobiles, iPhones, Blackberries, and Android phones. XM Canada was still losing money despite subscriber growth. Sirius Canada was established in 2004 to provide service in the Canadian market. Sirius Canada’s market strategy included selling subscriptions to auto manufacturers and direct selling to customers. Sirius Canada provided 120 channels with 12 channels based on Canadian content. Although Sirius Canada had sufficient financial performance, a merger with XM Canada would provide strong information systems, operations, and marketing synergies (Hitt, et al., 2015). In November 2010, XM Canada and Sirius Canada agreed to merge. The new company’s ownership would be diversified with Canadian Satellite Radio Holdings and Sirius XM holding a majority of the shares. Sirius XM Canada would have over 1.7 million subscribers, twelve-month pro forma revenues of $200 million, and total debt of $150 million. CEO Mark Redmond faced several challenges with the approved merger. In addition to company integration, Redmond must address differences in management philosophies, personnel, customer and client retention, information technology integration, and shortfalls in financial and managerial performance (Hitt, et al., 2015). CEO Redmond needed to ensure that Sirius XM Canada had sufficient representation from both firms. Additionally, CEO Redmond needed to plan for possible attrition of key personnel. XM Canada developed content internally and Sirius Canada outsourced its content. There were also technological and business structure challenges. Sirius Canada supplemented coverage with repeaters and XM Canada maintained its own information technology. XM Canada was a stand-alone business but Sirius Canada outsourced supportive services to Sirius Satellite Radio. Marketing services provided one of the greatest benefits to Sirius XM Canada resulting in $20 million in synergies (Hitt, et al., 2015). In addition to management integration, financial integration proposed one of the largest challenges to Sirius XM Canada. The estimated anticipated indebtedness of $150 million could decrease funds available for research and development, capital improvements, and create opportunities for competitors with less debt (Hitt, et al., 2015). Subscribers would not experience any change in service and for a modest fee, subscribers could obtain a customized package to receive their favorite channels (Krashinsky, 2010). As of Q1 2015, Sirius XM Canada contained approximately 2.6 million subscribers. Revenue was CAD 79 million. There was a slight decline in total subscribers due to increased music royalty fees, copyright fees, transition to a new call center, and new payment system. The loss of subscribers was discount subscribers and resulted in no significant loss of revenue to the firm. Sirius XM Canada should continue to augment services to self-pay customers who are its strongest long-term market segment. Additionally, Sirius XM should continue to capitalize on existing partnerships such as sales to the new and pre-owned vehicle market segments and expand into the rental car market segment. Sirius XM Canada is well positioned to create a competitive advantage in the radio streaming industry due to its existing 2.6 million customer base. Sirius XM Canada should maintain high levels of customer service, customization, new content, better access, and new pricing strategies. Since the merger in 2011, Sirius XM Canada expects maintain a competitive edge in the satellite radio industry through a 30 percent increase in its subscriber base, the addition of 10 million Sirius XM - enabled vehicles by 2018, and CAD 13.7 million in free cash flows (Q1 2015 Sirius XM, 2015).

Reference
Hitt, M.A., Ireland, R.D., & Hoskisson, R.E., (2015). Strategic management: Concepts and cases: Competitiveness & globalization (11thed.). Mason, OH. South-Western Cengage Learning.
Krashinsky, S. (2010, November 24). The Globe and Mail. Sirius, XM Canada reach merger deal. Retrieved from: http://www.theglobeandmail.com/globe-investor/sirius-xm-canada-reach-merger-deal/article1315557/
Q1 2015 Sirius XM Canada Holdings Inc Earnings Call - Final. (2015, January 12). Fair Disclosure Wire (Quarterly Earnings Reports).
Sirius XM. (2015). Corporate Info. Arrangements: Hardware Manufacturers for Sirius XM. Retrieved from: http://www.siriusxm.com/hardware
Sirius XM Canada. (2015). Investor Relations. Our Company: Why Invest. Retrieved from: http://www.siriusxm.ca/investor-relations/