Question 5 - 29273
Connie Sallie, CFA, is a media and entertainment analyst for ABC Investment Research, Inc. In recent weeks, Sallie has been researching a relatively new trend in the entertainment industry ・satellite radio. The following are excerpts from Sallie痴 report. Exhibit 1: Satellite Radio Industry Report Satellite radio is seeking to do for the radio business what cable has done for the TV broadcasting business. Satellite radio allows listeners to have access to multiple music, news, and talk stations, all without the commercial interruption that is common with traditional FM and AM radio. The general business model for satellite radio operates on a subscriber basis. Customers contract with the satellite radio company, and pay anywhere from $6.95 to $10.95 per month for content. The business model is a significant departure from the traditional radio business model where content is free, but radio stations make money by selling advertisements which are broadcast along with the radio programming. Some are skeptical if consumers will actually be willing to pay for something that they are used to getting for free; however, the cable TV industry has definitely shown that consumers are willing to pay for a wider variety of content. Since the concept痴 introduction, the number of subscribers in the satellite radio industry has grown at an annualized rate of 25 percent over the last 3 years. Because of the novelty of satellite radio, some customers are willing to pay a premium price in order to try the new technology. Profit margins are currently 44 percent, compared with profit margins of 12 percent for the cable TV industry, and 8 percent for the average media company. Firms coming in to the satellite radio industry must be licensed with the FCC. The licensing process consists of filing an application and paying a nominal application fee. Currently the radio receiver equipment used to receive satellite radio is broadcasts is specific to each firm. However there are some efforts to create a standard method of broadcasting which would mean that any receiver could receive any satellite broadcast. Most firms produce their own proprietary receiver equipment, as the technology used to manufacture receivers is not complex and has existed for decades. The satellite radio industry consists of three main companies. · Galileo Radio (Galileo) is the largest company in the industry with over 2,000,000 subscribers and 100 channels comprising a broad mix of news, talk radio, and music. Galileo charges a monthly fee of $8.95 per month and often provides the equipment customers need to receive Galileo痴 broadcast signal for no additional charge as part of a 2-year subscription agreement. In a meeting with Galileo痴 management, they have said that they are actively trying to add stations in all three major categories (talk, music, news) to increase economies of scale in their operations and appeal to a wider array of customers. They are also constructing a new factory that will allow them to produce radio receiver equipment at a cost that is 20 percent less than their current cost. · Copernicus Radio (Copernicus) has 1.2 million subscribers and offers 86 channels of news, music, and talk radio. Monthly subscriptions are $10.95 per month with a 1-year minimum, and signal receiving equipment is sold at a discounted price when customers subscribe. Copernicus has the exclusive rights to talk radio shows from Henry Grim and Benjamin Scmeck, two of the most popular talk radio hosts in the U.S. They also have an exclusive agreement with FNN, a popular financial news network. In a meeting with management, Copernicus stated that they will actively pursue exclusive agreements in the music industry despite the lucrative fees to the talent involved. · Columbus
Radio (Columbus) is the smallest of the three companies with only 60,000 subscribers and only 42 channels. The firm charges $50 up front to consumers for the radio signal receivers and a subscription fee of $8.95 per month with no minimum commitment. Of the 42 channels offered by Columbus radio, 35 of them are news stations which include Asian news, South American news, and European news stations not offered by the other companies. Sallie is being assisted in her research by Nathan Munn, a junior analyst who recently joined the firm. Sallie wants to make sure Munn understands the concept of the industry life cycle. Sallie believes that asking Munn to identify which stage of the industry life cycle satellite radio is in would be too easy of a question, so instead, she asks him to provide a brief report containing two statements regarding industry life cycle phases. A copy of Munn痴 report is below. Exhibit 2: Munn痴 Report on Industry Life Cycle Phases A) The growth phase is the earliest stage of the industry life cycle during which sales and earnings are accelerating at a rapid pace. B) The mature stage is characterized by decelerating growth and consolidation among participants. Part 1) Given the information in Sallie痴 report, which of the following best describes the generic competitive strategies being employed by Galileo and Columbus? Galileo
| Columbus | | A) | Cost Focus | Differentiation |
| | B) | Differentiation | Cost Focus |
| | C) | Cost Focus | Differentiation Focus |
| | D) | Cost Leadership | Differentiation Focus |
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Part 2) Sallie identified three potential risks associated with Copernicus・generic competitive strategy. Which of the following best describes the generic competitive strategy followed by Copernicus, and which statement(s) correctly identifies a risk of that strategy? A) | Differentiation. Not achieving differentiation parity due to cost pressures. | B) | Differentiation Focus. Failing to maintain differentiation because of a change in customer preferences. | C) | Differentiation Focus. Not achieving differentiation parity due to cost pressures. | D) | Differentiation. Failing to maintain differentiation because of a change in customer preferences. |
Part 3)
In her report, Sallie includes a section that uses Porter痴 five forces to assess the profitability of the companies in the satellite radio industry. Which combination of Porter痴 five forces will have the most impact on the pricing power of a firm? A) | Bargaining power of suppliers, bargaining power of buyers. | B) | Threat of substitutes, threat of new entrants. | C) | Rivalry among existing competitors, bargaining power of buyers. | D) | Rivalry among existing competitors, threat of new entrants. |
Part 4) Based on Sallie痴 report, which of the following best describes the current bargaining power of buyers and the threat of new entrants for the satellite radio industry? Bargaining Power of Buyers
| Threat of New Entrants | | A) |
| | B) |
| | C) |
| | D) |
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Part 5)
Which of the following is least likely to influence industry pricing practices and trends? A) | Industry concentration. | B) | Product segmentation. | C) | Government regulation. | D) | Amount of capital outlays. |
Part 6)
Which of the following regarding the statements made in Munn痴 Industry Life Cycle report is TRUE? A) | Statements A and B are both incorrect. | B) | Statements A and B are both correct. | C) | Statement A is correct, but statement B is incorrect. | D) | Statement B is correct, but statement A is incorrect. |
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发表于 2007-5-13 16:06
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