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The concept of economies of scope is based on the premise that a collective production of goods that use the same raw materials or constituents decreases the average total cost of production. According to Towse (2018), a business can benefit from the opportunity of cost advantages when a range of products are produced at the same time. Organizations often focus on their core competencies to maximize production. It is worth noting that any inaccuracy in the process of aligning production with specialization in economies of scale approach can result in tremendous losses. On the other hand, the economy of scale is achieved when a company purchases raw materials in bulk to manufacture the same product. Given this discussion, this essay examines the business concept used in the acquisition of Pandora by Sirius XM.
In 2019, Sirius XM Holdings, an online channel for streaming music, completed an acquisition of Pandora Media for $3.5 billion in a move that was believed to leverage economies of scale, giving rise to numerous synergies. The merger gave rise to the world’s largest audio entertainment company (Aswad, 2019). Today, the company has more than 36 million subscribers only in North America, and over 23 million users are already enrolled in Sirius’s annual subscription plan. Active users on Pandora radio have exceeded 70 million, and 6 million subscribers have already paid for the entertainment service. Within the context of this merger, the companies benefitted from offering similar services; hence, pulling together enabled them to integrate technology and offer a large number of tracks to music lovers (Aswad, 2019). The scenario satisfied an economy of scale as opposed to scope since the merger was focused on the streaming of music from diverse artists and genres. However, the combination of two companies in the same line of entertainment business resulted in a large volume of music tracks and types, boosting the number of subscribers.
References
Aswad, J. (2019). Sirius XM completes acquisition of Pandora. Variety. Web.
Towse, R. (2020). Dealing with digital: the economic organization of streamed music. Media, Culture & Society.
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