Satellite Radio - Term Paper Example

Executive Summary Satellite radio is the wave of the future. Although the satellite radio market is dominated in the United s by only two companies who actually are offshoots of one dominant company, there are still opportunities within that market. One of the opportunities is to export the product. Of particular interest are the Middle Eastern countries. These countries represent fantastic potential, as they are modernizing and many countries are just now welcoming western companies. Thus, it is a way to get in on the ground floor with many of the countries, and be a part of the first wave of pioneers, so to speak. While there are many pitfalls to this strategy, in that there are political, religious and social landmines in each country, there will also be many great rewards if the exporting is handled sensitively and correctly. Industry Review Satellite radio began as an alternative to traditional radio, that was limited by spotty coverage in rural area and questionable sound quality. (Gosselin & Gregg, 2003, p. 1). Satellite radio promised "fewer commercials, enhanced sound clarity and uninterrupted signals to this segment of the radio audience." (Gosselin & Gregg, 2003, p. 1). Working similarly to satellite television, satellite radio produces, record and mixes programming in a broad studio, which is then sent to satellite that orbit the earth, reflect the signal back and disperse it throughout the United States. (Gosselin & Gregg, 2003, p. 1). Satellite radio began in 1997, when the FCC granted licenses to XM Satellite Radio and Sirius Satellite Radio. (Gosselin & Gregg, 2003, p. 2). Satellite radio is currently in the hands of only two providers, Sirus and XM Satellite Radio Holdings Inc. (XM) The two companies merged in or around 2007, and became known as Sirus XM Radio. (Stockment, 2009, p. 2159). The two companies have been trying to compete with the rest of the radio market since 2002, and each have invested over $5 billion in an attempt to market and develop their products. (Satellite Radio Monopoly, p. 424). Despite their best efforts, however, they each face $2.4 billion in long term debt. (Satellite Radio Monopoly, p. 424). XM was the first into the market, in September 2001, and in February 2002, Sirius entered into the market. The two were operating, by 2006, seven satellites that served over 13.6 million subscribers, and offered three hundred channels of diverse programming, and the subscribers to these companies also gained the ability to access streaming audio content through the Internet, and also they were able to install their satellite radios "in homes, automobiles, boats, aircrafts, and even portable radios." (Satellite Radio Monopoly). Subscribers of satellite radio pay two costs – the one-time cost of activation, and monthly subscription dues. All major automobile manufacturers currently offer the option of satellite radio, therefore subscribers do not necessarily have to purchase the receiver. The activation and subscription fees are usually low, around $15 to activate the satellite and around $13 a month as subscription dues. (Satellite Radio Monopoly, p. 436). The fees are attractive to consumers, as satellite radio is commercial-free. (Satellite Radio Monopoly, p. 436). Additionally, if a consumer wants to have the radio installed in an older car, the equipment costs range from $19.00 to $329.99, depending on features. The Sirus Stiletto 2 is on the high end of this range, and provides the most features, including "Wi-Fi connectivity, a multicolor liquid crystal display screen, MP3 playback ability, and records up to one hundred hours of satellite radio music." (Satellite Radio Monopoly, p. 437). Additionally, it is completely portable, making it comparable to the iPod touch. “Business Idea” The idea is to export satellite radio around the globe, especially in the Middle East. This will be a start-up export company, which means that the business will be selling the satellite radios to other countries. (Nelson, 2009, p. 4). Overview of the Market While the goal of this company is to export the satellite radio around the globe, for the purposes of this proposal, only the Middle East will be examined. The Middle East is made up for fourteen nations – Cyprus, Gaza Strip, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Oman, Qatar, Saudi Arabia, Syria, Turkey and the West Bank. Cyrprus is a Republic whose economy is “dominated by the service sector, which accounts for 76 percent of GDP.” (Nelson, 2009, p. 320). Its growth rate has been erratic, and this is why it relies upon tourism, which, along with financial services, are the most important sectors. Its 3.7 growth rate in 2004, 2005 and 2006 were healthy, well above the European Union average. Cyprus operates on the Euro exchange. The Gaza Strip is a land whose economic conditions are degraded, due to its “high population density, limited land access, and strict internal and external controls.” (Nelson, 2009, p. 321). Its economic downturn was also sparked by the second intifada in September 2000, which was largely the result of israel closure policies that were imposed because of Israels security interests. Private sector layoffs and good shortages have resulted from Hamas violent takeover in June, 2007. Iran is a nation that has often been at war and through revolutions and is trying to rebuild. Irans growing need for hard currency and foreign business has lessened the countrys religious fervor and has encouraged the country to focus on strengthening its economic situation, which has, in turn, opened the door for industrialized nations to do business with the country. (Nelson, 2009, p. 321). Its economy is a mix “of central planning, state ownership of oil and other large enterprises, village agriculture, and small-scale private trading and service ventures.” (Nelson, 2009, p. 321). The recent high oil prices has enabled the country to “amass nearly $70 billion in foreign exchange reserves. Despite this, the country is still in economic hardship, which includes double-digit inflation and unemployment. (Nelson, 2009, p. 322). Iraq is a country whose economy is dominated by oil. Despite the ravages of war, the countrys economic activity is beginning to pick up in areas that US military has secured. Like Iran, the government revenues have benefited from high oil prices. It has been integrate into the regional and global economy by the International Compact with Iraq, which was established in May 2007. Additionally, the government is seeking to pass laws that will strengthen its economy. (Nelson, 2009, p. 322). Its future economic success depends upon if it can successfully reduce corruption and implement structural reforms such as bank restructuring, and can develop the private sector. (Nelson, 2009, p. 322). Israels market economy features substantial government participation. Crude oil and natural resources are what the economy is dependent on. The leading exports include “diamonds, magnesium, high-technology equipment, and agricultural products (fruits and vegetables).” (Nelson, 2009, p. 322). The United States is its major source of economic and military aid, and roughly half of its external debt is owed to the USA. (Nelson, 2009, p. 323). Jordan had serious economic problems before the Persian Gulf war in 1990, and this war exacerbated them. Thus, the country “has restructured its tax and intellectual property rights laws and loosened investment restrictions,” in an effort to recover. The country is also clearing the way for greater foreign commerce activity by liberalizing trade, adopting ambitious investment plans and fostering close business relationships with Europe and its neighboring countries. (Nelson, 2009, p. 323). Kuwait is small and rich, and has 10 percent of the worlds oil reserves. The GDP of Kuwait is 95 percent reliant on petroleum export revenues, and petroleum export revenues comprise 80 percent of government income. (Nelson, 2009, p. 323). For food, it relies completely on imports, with the exception of fish. Lebanon is recovering from the 1975 civil war that cut it national input in half. In 1990, a peace agreement allowed it to restore control in Beirut, regain access to key government facilities and port, and collect taxes. It has also dealt with infrastructure damage from the Israeli-Hizballah conflict in July-August 2006, which prompted international donors to pledge nearly $1 billion in recovery and reconstruction assistance, and over $7.5 billion for development projects and budge support in Lebanon. Tourism and retail continues to be dampened by Lebanese political tension. (Nelson, 2009, p. 324). Oman is a “middle income economy with notable oil and gas resources, a substantial trade surplus and low inflation.” (Nelson, 2009, p. 324). Its markets are increasingly liberalized, and joined the World Trade Organization in November 2000. (Nelson, 2009, p. 324). Qatars GDP is 60 percent made up on oil and gas revenues. Oil and gas make up around 80 percent of export earnings and 70 percent of government revenues. Higher gas prices has allowed it to consistently post trade surpluses. (Nelson, 2009, p. 325). Saudi Arabia is oil-based and the government has strong control over major economic activities. With 20 percent of the worlds oil reserves, it is the largest exporter of petroleum. Private sector is encouraged by the government, in an effort to lessen the countrys dependency on oil and to increase employment opportunities for its citizens. Private sector and foreign investment participation in power generation and telecom sectors have recently begun to be permitted. Saudi Arabia is a part of the World Trade Organization (WTO), as it needs to attract foreign investment and diversify the economy. (Nelson, 2009, p. 325). It has plans to establish six “economic cities” that will be situated in different parts of the country, and will be used to promote development and diversification. (Nelson, 2009, p. 325). Syria is reliant on agriculture and petroleum, which, together, account for one-half of its GDP. (Nelson, 2009, p. 325). Like the other countries who are dependent upon oil, the higher gas prices has helped the country, leading to “higher budgetary and export receipts.” (Nelson, 2009, p. 325). The economy is highly controlled by the government. In the long-run, constraints are expected to include “declining oil production, high unemployment and inflation, rising budget deficits, and increasing pressure on water supplies caused by heavy use in agriculture, rapid population growth, industrial expansion, and water pollution.” (Nelson, 2009, p. 326). Turkey is a Republic, and is considered secular democracy that adheres to the principles of separation of church and state. Its focus is on the West, as it has become a member of various European and world bodies in its bid to become a full member of the European Union. Because of where the country is geographically situated, its people are equally comfortable with European, Middle Eastern and Asian visitors. It has been designated, by the United States, as on of the worlds “big emerging markets.” (Nelson, 2009, p. 326). Its economy is dominated by manufacturing (27 percent), agriculture (15 percent), and transportation and telecommunications (12 percent). (Nelson, 2009, p. 326). Investment and joint venture opportunities that exists are in “power generation and distribution, telecommunications, automotive, and tourism sectors.” (Nelson, 2009, p. 326). Turkey is business and tourism friendly due to its world-class hotels, modern airports and network of superhighways. (Nelson, 2009, p. 327). Business Niche for this Business Idea There is a great untapped market in the Middle East. Turkey, with it Western ideals and an economy dominated by telecommunications seems like a natural fit for the product. Iran is just starting to liberalize their markets to invite Western businesses, so establishing a niche there would be basically getting into the country at the ground floor. Israel is targeting high-technology niches, so this would be an excellent country to explore as well. Saudi Arabia, which is trying to diversify its economy, and is just beginning to permit foreign telecom companies, would also be an excellent country to market to. As with Iran, Saudi Arabia is just starting to allow western companies into their country, so, as with Iran, it would be like getting in at the ground floor. While these countries are the most attractive countries to explore, all of the Middle East represent untapped potential as it modernizes and attempts to become less dependent upon petroleum imports for their GDP. As the Middle East liberalizes, it represents an excellent opportunity for western countries to tap the market potential at the ground floor. Business Set up The first thing that needs to be done is to incorporate. I will be the company officer, and, initially, the only officer. The ultimate goal will be to go public. Also, because of the dominance of Sirus XM Radio, it would be beneficial if this new company could seek franchise opportunities with this company. This might be the only feasible way of setting up this company, as the two companies paid between $80 and $90 million per license, and the FCC does not plan to issue another license for satellite radio. (Gosselin & Gregg, 2003, p. 2). Political/Legal Environment The Middle East is almost uniformly Muslim, and because of this, Westerners must know the customs associated with this religion, or else they will get into trouble. For instance, one must adhere to the Muslim work week, and observe all Muslim holidays. (Stanat, 1998, p. 290). Other protocol that must be observed is to not use ones left hand for dining, passing documents or greeting; never allow the sole of ones shoe to be exposed to someone, as when sitting; avoid touching the head of anybody, even small children; do not drink alcohol or eat pork; always respect the religion. (Stanat, 1998, pp. 292-293). Also, it is important to examine the laws of each country before exporting to them, as one might get in trouble without even knowing it. (Stanat, 1998, p. 293). As for the political systems, they run the gamut. "Personalized one-man authoritarian regimes have coexisted in the region with Marxist regimes, monarchies, religiously oriented systems, and democratic regimes." (Goldschmidt & Telhami, 2006, p. 5). While there are differences in individual regimes, there are also similarities, such as the common religion of Islam; leadership is concentrated in the upper and middle classes; the presence of foreign influence; and "the rise of new elites of technocrats and military officers." (Goldschmidt & Telhami, 2006, p. 5). The other similarities across regimes and countries is that they are shifting from traditional to modern activity, as "the traditional family-based elites are eight declining in power or have already been replaced in many of the political units in the area." (Goldschmidt & Telhami, 2006, p. 5). The middle class is rising in the Middle East, becoming an active social, economic and political force in the area, and taking the reigns of leadership in the process. This class is politically conscious and interested in modernizing the region, and consists of university students, government and private-sector technocrats, and middle-grade university officers. (Goldschmidt & Telhami, 2006, p. 5). Target Customer Segments As the middle class is the emerging class in the Middle East, and are leading the way to modernizing this region, this would be the most obvious segment that would be targeted. Obviously, the more traditional segments of the population might not be the most advantageous in terms of marketing the product, so they would not be targeted. Also, it would depend upon the country as far as the target goes. Some countries, such as Saudi Arabia and Iran, have tight governmental controls over private companies, so in these countries, it would be the government that would be targeted. Other countries, such as Turkey and Israel, are more liberalized and democratic, so the people, especially the middle-class, would be the target of those countries. Also, the youth market would be excellent targets, as they tend to be more modern than the older segment of the population, and I would imagine that this would be especially true in the Middle East, as the region is trying to modernize. Competition Satellite radio has some competitors that exist outside the niches of satellite radio, but are related. One such competitor to satellite radio include terrestrial radio, otherwise known as the "old-fashioned" AM/FM radio. In 2008, there were 232 million radio listeners, and, of the 232 million radio listeners, 14 million were satellite radio listeners. Other competitors include HD Radio, which offers traditional broadcasts with HD quality; MP3 players, which are in competition with satellite radio due to their ability to "be connected to online music subscription services, home stereo and theater systems, alarm clocks, computers, and essentially anything else that can play music," and can also be connected to a car stereo (Satellite Radio Monopoly, p. 440); and Internet radio, which is radio that is accessed through the Internet, and is a competitor to satellite radio due to the fact that the listener can listen to a "variety of niche programming...including such varied offerings as breakbeat, old-time radio, soundtracks and Middle Eastern." (Satellite Radio Monopoly, p. 442). These are the direct competitors to satellite radio. The indirect competitors are "broadcast TV, cable TV, satellite TV, DVDs, video-on-demand, online newspapers, the endless array of magazines, Internet websites, search engines, computer software, video games, and so on." (Thierer, 2007). In other words, any kind of media entertainment is a competitor to satellite radio, and is therefore a threat. Marketing Strategy As this is a start-up company that might not have a large inflow of cash right at the first, the best market strategy in the beginning would be to market the product over the Internet. A web page will be designed by an expert designer, and a blog will begin. Also, a professional search engine optimizer must be hired so that the web page will be optimized in the searches in the search engines. Some the techniques that will be used are 1) setting up a chat area; 2) selling advertising on the web page; 3) creating contests for the customer; 4) building customer lists; 5) offering a free catalog; 6) offering coupons; 7) providing information about satellite radio; 8) publishing a newsletter; 9) selling access to the products and services and 10) creating an annual report and uploading it. (Nelson, 2009, p. 87). Also, since the youth market is one of the targets, marketing the product through Facebook, MySpace, Twitter and other social peer-to-peer sites will be another strategy. Of course, this is assuming that these sites are used and available in any given country. As different countries might have different peer-to-peer sites, this must be explored and utilized. Another marketing strategy would be to offer the services to car manufacturers in the Middle East. If the car manufacturers would partner with our satellite radio venture, this would be an excellent thing. Pricing Strategy As this operation will conceivably be a franchise of the larger satellite companies, the pricing would have to be dictated by those companies. If that is not possible, and this company will be competition to the other countries, then the strategy will be to offer the service for no up front costs, in exchange for a one-year contract, then offer the monthly subscription dues for $10 per month. This would be less than the competition, and will be attractive, in that the up front fee would be waived. Next Steps The next step will be to conduct in-depth market research on each country in the Middle East to determine the feasibility of marketing this product in each country. Included will be a study of the individual regimes laws regarding importing goods, and any kind of restrictions that might be faced. Also included in the study will be a demographic study, as well as an in-depth analysis of each countrys political and economic situation. Also, a partnership or franchise opportunity must be sought with the Sirius XM Radio corporation, as they are currently the only companies in the US who have licenses to sell satellite radio. As these licenses were prohibitively expensive to acquire, and the FCC does not intend to issue any new licenses, and these companies have struggled to combat the traditional media market as it is, establishing an entire new company does not seem feasible. It would be feasible, however, to enter into an agreement with these companies to determine if this new company can simply market and export the radios in a partnership with them. Also, an individual who is familiar with Middle East culture will be hired to help with the marketing strategy and web page development. This is especially important in view of all the potential pitfalls that may occur when marketing to these countries. Recommendations Further study is needed to determine the feasibility of the project in each individual country. This is the first thing that will be accomplished. Then, after certain countries are studied and it is feasible to export to those countries, steps will be taken to begin marketing to these countries. Bibliography Goldschmidt, Arthur, and Shibley Telhami. The Contemporary Middle East. Boulder, CO: Westview Press, 2006. Nelson, Carl A. Import/Export: How to Take Your Business Across Borders. New York, NY: McGraw Hill, 2009. “Satellite Radio Monopoly.” Delaware Journal of Corporate Law 33 (2008): 423-449. Stockment, Andrew. “Internet Radio: The Case for a Technology Neutral Royalty Standard.” Virginia law Review 95 (2009): 2129-2173. Thierer, Adam. “XM+ Sirius=Good Deal (for the Companies and Consumers).” (February 2007) 16 June 2010 “XM Satellite Radio.” Darden Business Publishing: University of Virginia. (2003) 14 June 2010 Read More