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					Business-to-Business Marketing
           Media Markets

      Haas School of Business
           UC Berkeley

             Fall 2008
             Week 12

             Zsolt Katona




                                 1
                   Overview
•    Week 12
    – Media Markets (Two-sided markets)
    – Second Life
•    Week 13
    – B2B E-Marketplaces
    – Industrat Decision 9
•    Week 14
    – Online Marketing and B2B
    – Industrat Decision 10
•    Week 15
    – Pricing in Industrial Markets


                                          2
             XM Satellite Radio – What Happened?
• Launched in September 2001– first operational satellite service (beat Sirius)
• Hugh Panero: “I am proud to announce that after being fully national for only
  56 days, XM has over 30k subscribers… will people pay for radio? The
  answer is a resounding „YES‟.”
• 2001: “Product of the Year” (Fortune), “Invention of the Year” (Time)
• XM fastest-selling audio product in 20 years (based on first 3 months)
       XM Satellite Radio– What Happened (cont.)
• XM launched with a $10 subscription price (combination of competitive
  pressure + advertising analysis)

• XM aired with ads:
  4-6 minutes on about half of music channels (35 channels with ads)
  7-9 minutes on talk and third-party programming, like CNN
  (XM believed other value propositions were far more important than
  completely ad free, consumers won‟t mind limited ads, will be possible to
  change)– initial research 3 months after launch:


                              AM/FM    AM/FM    The        XM Better   XM Clearly
                              Much     Better   Same                   Better
                              Better
   Rating of XM Compared to                       1%         6%          93%
   Regular Radio
                              XM Has   XM Has   About      XM Has      XM Has Far
                              Many     More     the Same   Fewer       Fewer
                              More
   Commercials on XM and                          2%         13%         85%
   Regular Radio
                       XM vs. SIRIUS
• Sirius launched in February of 2002

• 100% commercial free on all music channels

• Service price: $12.95 a month ($3 more than XM! More
  consistent with market research analysis…)

• XM secured GM, Sirius secured Ford and DaimlerChrysler

• Sirius puts emphasis on retailers – particularly Best Buy and
  Circuit City
                        XM vs. SIRIUS
At retail the sales rep had no easy way to communicate the
   difference between XM and Sirius other than:
-- “XM is cheaper on subscription but you have the ads while Sirius
   is ad free and costs you 3 bucks more”
-- didn‟t always mention that advertising was limited, didn‟t always
   remember the nuanced details, no real incentive to differentiate
-- both had 100 channels (and impossible for the salesperson to
   articulate a specific difference)

-- XM couldn‟t afford the discussion to be framed that way

• In February of 2004 XM announces: “Commercial free on all
  music channels!”

• In April of 2005 XM announces that it is raising the price of its
  subscription to $12.95 a month – at that point, no difference in
  revenue model…
                  XM Financials
       Revenue          Net Loss     CPGA
2002   $20.2m           $495.0m      $425
2003   $91.8m           $584.5m      $137
2004   $244.4m          $642.4m      $100
2005   $503m            $666.7m      $109
2006   $933.4m          $718.9m      $108
2007   $1136.5m         $682m        $121

                 Sirius Financials
       Revenue          Net Loss     CPGA
2002   $805k            $313.1m
2003   $12.9m           $437.5m      $293
2004   $66.9m           $456.2m      $177
2005   $242.2m          $567.5m      $139
2006   $637.2m          $1.1b        $114
2007   $922.1m          $565.3m      $101
  Advertising Revenue on Non-Music Channels

In 2006
   – XM $35.3m
   – Sirius $31m

In 2007
   – XM    $39.2m
  – Sirius $39.95m
  (corresponds to roughly 40cents per month per subscriber)
                         Satellite Radio Diffusion Pattern
Date    Total     XM       SIRI
01 Q4        28     28         0
02 Q1        77     76         0
02 Q2       140    137         3
02 Q3       213    202        12             Cumulative Satellite Radio Subscribers (in '000s)
02 Q4       390    360        30
03 Q1       551    483        68   20,000
03 Q2       797    692       105
                                   18,000
03 Q3      1079    930       150
03 Q4      1621   1360       261   16,000
04 Q1      2034   1682       352
                                   14,000
04 Q2      2581   2100       480
04 Q3      3178   2516       662   12,000
04 Q4      4343   3200      1143
                                   10,000
05 Q1      5219   3770      1449
05 Q2      6215   4400      1815    8,000
05 Q3      7209   5035      2174
                                    6,000
05 Q4      9250   5933      3317
06 Q1     10580   6502      4078    4,000
06 Q2     11578   6900      4678
                                    2,000
06 Q3     12305   7186      5119
06 Q4     13654   7629      6025       0
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07 Q1     14481   7900      6581
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07 Q2     15393   8250      7143
07 Q3     16237   8570      7667
07 Q4     17420   9100      8320
                       XM and Sirius Merger
• Announced February 19th 2007; needs government + FCC approval

•   When gave licenses in 1997 stipulated: “ One licensee will not be
    permitted to acquire control of the other remaining one”

• Merger approved in July, 2008. New name: Sirius XM Radio

• Regulators require: price freeze for three years; 24 channels turned
  over to noncommercial and minority programming; a la carte channel
  subscriptions and cross-offering of packages

• “Best of both” subscription for $16.99

• Working on a dual-receiver
                          Media Markets
             Attention                      Attention
                             Broadcast TV               Advertisers
 Consumers

             Payment (free content)         Payment

• Media firms buy consumers‟ attention by offering free
  content
• Low content prices attract more eyeballs, which can be
  sold to advertisers
• Too many commercials may annoy viewers
                         Subsidy
             Attention                      Attention
               Content           XM Radio               Advertisers
 Consumers

                                             Payment
              Payment
              (less then w/o advertising)
                     Two-Sided Markets

  Side 1                   Platform                   Side 2




• Platform: the product or service that brings together two
  markets
• More demand on one side stimulates (sometimes hurts)
  demand on the other side
• XM Radio
   – Side 1: Subscribers
   – Side 2: Advertisers
• Typical scenario: One side is B2C, other is B2B
                                     Examples
Market                   Side 1              Side 2                Providers
Web Search               Searchers           Advertisers           Google, Yahoo
PC OS                    Consumers           Application           Microsoft, Apple
                                             developers
Online recruitment       Job seekers         Employers             Monster,
                                                                   CareerBuilder
HMOs                     Patients            Doctors               Kaiser, WellPoint
Video Games              Players             Developers            PS, Xbox, Wii
Universal Product Code   Product suppliers   Retailers             NCR, Symbol Tech.
Credit Cards             Cardholders         Merchants             Visa, MasterCard
Travel Reservation       Travelers           Airlines              Orbitz, Travelocity
Shopping malls           Shoppers (Buyers)   Retailers (Sellers)   Next week
                     Key Challanges

• How to price? Which side to subsidize?

• Winner-takes-all dynamics

• Envelopment
                            Pricing


• Take into account cross-side network effects
• Subsidize one side
• Which one?
  –   Price sensitivity
  –   Quality sensitivity
  –   Variable cost
  –   Brand value
                      Pricing
         Side 1                    Side 2
Demand




                          Demand




                  Price                     Price
             Winner-Takes-All Dynamics


• How many platforms can the market support?

• User switching costs

• Network effects

• No strong preference for special features
                       Envelopment

• Multiplatform bundles as threats (convergence)

• Sell or

• Change business model or

• Sue
                      Summary


• Two-sided markets are common in high-tech
  industries

• Usually one side is B2B, but

• Cannot be treated separately from B2C side

				
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