STRATEGY ANALYTICS: Cost Reductions Ultimately Benefit Car Buyer
The much rumored, recently announced merger between XM and Sirius comes down to just cost reduction, according to Strategy Analytics, in the recent Insight, “XM Sirius Merger: Competition Mounts for HD Radio.” The 50-50 merger gives existing shareholders in both XM and Sirius equal stake in the as yet un-named combined company, with 14 Million subscribers.
There are clear synergies between the two companies, both in terms of existing content portfolios and new services and technology planned for the future. Both companies stand to benefit from the other’s exclusive content offerings and partnership agreements, but there are significant opportunities to rationalize content, operations and reduce costs. Cost reductions can be passed onto consumers in terms of lower pricing and less advertising, as well as value added service development, such as dynamic weather and parking services, hands-free voice operation inside the vehicle, and portable device and wireless applications.
“XM and Sirius have accumulated a combined debt of $1.6 Billion. Both companies drastically need to cut operation costs, and the proposed merger is certainly one of the fastest ways to do so,” says Automotive Analyst, Clare Hughes. “According to our consumer research, US car buyers listen to radio nearly 60 percent of their audio entertainment time. There are around 160 million consumer vehicles on the road in the US, but only 14 Million satellite radio subscribers in total.”
Joanne Blight, Director, Automotive Practice, added, “While satellite radio growth has been very strong and automotive consumers are brand aware, most are not subscribing. Often for fear of making the ‘wrong’ satellite choice, it is too expensive or they are happy with their current FM radio. With improved content choices, realigned advertising levels, and targeted pricing, radio and digital audio in the car is a deep, rich opportunity stream.”
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