Xm Radio vs. FTC Case Study

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XM Radio

XM's role as a media provider is as a content distributor. The company acquires content, and uses a relatively unique mechanism to distribute that content to consumers.

The FTC and FCC are two bodies that regulate media firms. The FCC's role is to oversee media companies, while the FTC is a general oversight body covering a range of trade issues. Both have enforcement authority and therefore could cause significant disruption to firms XM Radio.

The news media would find this story newsworthy for a few reasons. Satellite radio is a big new product that has made a splash in the media business. Stories about widespread consumer rip-off often make headlines. In addition, XM is a competitor for some media companies, so anything it does wrong is naturally going to receive additional publicity.

There does not appear to be evidence that XM practiced abusive advertising. Rebates and trial periods are common, and for the most part the maxim of caveat emptor should apply -- people complaining that they forgot about the end of the trial period have only themselves to blame. Complaints that the company was slow to deal with billing and rebate problems might have more weight, although the case does not cite any specific evidence against the company.

5. A ) I would immediately begin working with the FTC to resolve the situation. It does not appear to be major, but it is essential for XM to build a good relationship with regulators as they have the power to damage the business severely.

b) I would issue a press release pointing out the full cooperation with the FTC. Beyond that, no statements should be made, because their media competitors will spin the story badly if it gets picked up.

c) Stockholders would naturally fear both negative publicity and the FTC, so Panero should speak directly to them, addressing the issue and pointing out that it does not change earnings guidance and that the company is still on target for profitability down the road. Panero should address the board in the same way -- he needs to maintain the board's confidence or risk losing his job.

Part 2: Learning Objectives

2-1. Stakeholder management refers to ensuring that all stakeholders are satisfied. Shareholders are just one type of stakeholder, so shareholder management can be considered a subset of stakeholder management. For XM, the regulatory bodies (FTC, FCC) are important stakeholders, as is the Board of Directors, as are the customers and even other members of the media. Panero is faced with a significant stakeholder management issue as the interests of a number of stakeholders are colliding in this situation.

2-3. There are three phases of issues management: issues identification, issues analysis and response development. Issues identification refers to the company realizing that there is an issue and being able to define it. Issues analysis would be analyzing the issue to realize how it came about, who the stakeholders are and why it is an issue. The final is figuring out how to resolve the issue and keep the relevant stakeholders happy.

2-6 The life cycle stages are development, introduction, growth, maturity and decline. The strategic focus of development is self-evident. Introduction should focus on marketing. Growth focuses on building out production and expanding into new markets. Maturity usually sees a shift in focus to efficiency. The focus of decline is either reinvigoration or finding an exit strategy.

3-5. Corporate stakeholders are those involved in the company -- executives, managers, employees, the Board and the shareholders. Shareholders derive power by choosing the Board members. The Board hires the CEO. The executives have formal authority. Managers have less formal authority but some may have informal authority especially through direct control of company resources. Employees have little power, unless they organize.

4-1. Corporate social responsibility means whatever the company wants it to mean -- generally doing things that have positive outcomes for society and the environment. Citizenship is another way of saying the same thing. Charitable work and other altruistic behaviors are often included in citizenship. Social performance involves mechanisms to measure social outcomes of the firm.

4-2. Friedman argued that shareholders want a return on their investment, so the only CSR for a corporation is to earn profit. Many counter that investors can seek many outcomes, not just profit. Firms have legal rights, and therefore societal obligations and need to pay attention to these, not just profit.

4-6. The EEOC is a government oversight body with enforcement power regarding anti-discrimination laws. Its authority derives from the 1964 Civil Rights Act and it enforces several pieces of human rights legislation.

5-1. Community is a term for the rest o the world, in particular that with which the company interacts in a non-business capacity. The actions of community and business affect each other.

5-2. Community relations is the program for managing the community's view of the company. Involvement programs are when the company or its employees do things in the community, in a visible manner, in order to bring about positive outcomes.

5-3. Consumers are the general public -- people who buy things. In media, they are the end user. Customers are people (or businesses) who buy things from your company. Consumerism is a concept referring to the consumer-related aspects of our culture.

5-6. Warranties are promises by a company to repair or replace goods that were faulty in their design or manufacture. They are a form of insurance to the customer, and a means of increasing sales by limiting the downside to the purchase decision.

6-1. The media are companies that disseminate information and entertainment content. The customers of media are advertisers; the consumers of media are the general public.

6-2. Media entertains, informs and educates end users (consumers). They sell consumers to advertisers.

6-3. A story is newsworthy if it is likely to capture the attention of the audience. Coverage is dictated by the amount of attention the story is likely to capture. The treatment is based on editorial preferences -- media seek to cultivate specific audiences to sell to their advertisers, and they do this in the way they treat their stories.

6-4. Ethical advertising is both legal and honest. There are a number of abuses -- false or misleading statements, advertising aggressively to children, advertising to vulnerable groups and aggressive, strongarm tactics.

6-5. Seven controversial advertising issues are: illegal advertising, free trial periods, spamming, advertising dangerous products, advertising to children, use of controversial themes or imagery and making false statements about product efficacy.

Part 3. Case Analysis

Case Analysis: CASE _XM RADIO____ Ch ____ Name ____ Date

Issue Identification [1]

Interested Strategic Stakeholders [2]

[Fig 1-5, p. 28 Blue sheet: Name each Bus, Soc & Gov. Sentiment For (+) or Against (-) Business or neutral (=)

Incentive of Stakeholders What can they gain or lose?

[3]

Will they help us? Cost vs. Benefit Analysis

(C > B = No, B > C = Yes they will help us

Objective for issue and Information [4]

to be used to meet objective.

Fact (F), Assumption (A), (#s}

FTC has opened an investigation into the company's marketing practices. Should the company change its marketing practices?

Stage of Life Cycle

[Figure 2-4 p. 54 Blue sheet]

Stage One -- the company has just become aware of the issue and has neither undertaken an analysis nor formulated a response

Business:

Owners

Managers

Employees

Subscribers +

Competitors +

Society:

Sentiment +

Community and Consumerism +

Media +

Social Interest Groups =

Government:

Legislative Branch =

Regulatory Agencies

FCC =

FTC +

Revenue/Profit C>B

Jobs C>B

Employees C>B

Subscribers B>C

Competitors B>C

Less aggressive marketing, victory over corporation B>C

Chance for a story and to attack a competitor B>C

Neutral

Not part of its mandate

Not related to FCC mandate

Enforcement laws/response to consumer complaints B>C… [END OF PREVIEW]

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