While satellite radio companies continue to lose money, Canada's two providers are feeling a little chuffed as they approach their second Christmas selling season and, Dec. 1, their first anniversaries. Instead of fighting regulatory appeals from sore losers and Canadian-content proponents ? who are still upset that the two satellite services offer only 10% homegrown content as opposed to the 35% traditional radio must have ? Sirius Canada Inc. and XM Canada can get down to the business of battling each other for subscribers. It's a clash that is being simultaneously fought on three fronts: signing equipment deals with the automakers, getting retailers onboard and trying to convince consumers that paying up to $15 a month for something they've always received for free is a good deal.
The early winner? Well, it's not XM, even though it has charged $2 less per month, offers the better selection of special receivers needed to pick up satellite signals and signed exclusive deals with the top three automobile sellers in the country ? GM, Toyota and Honda. Instead, it's Sirius claiming victory, with more than 65% retail market share. That translates into roughly 200,000 paying listeners, given that XM had 120,000 subscribers as of Aug. 31. While those numbers might sound a little underwhelming, they are well ahead of projections for both companies ? and on track for the four million subscribers the industry believes can be signed up by 2010. That leaves plenty of time for XM to catch up.
On the surface, there seems to be little to choose from between the two services. They cost the same now, as XM raised its monthly fee for new subscribers to $14.99 on Sept. 1. They both offer 100 channels or more. And they both have similar hardware to pick up satellite feeds.
Behind the front lines, it's a different story. On one side, XM Canada is owned by a publicly traded company, Canadian Satellite Radio Holdings Inc. (TSX: XSR), led by John Bitove, a flashy exec with a family history in the food business and a high-profile resumé that includes KFC, real estate and a failed bid for the Olympics. On the other side of the dial, Sirius Canada is a private company with three owners: Standard Broadcasting Corp., CBC and Sirius Satellite Radio Inc. Its top exec is Mark Redmond. Never heard of him? That's OK. He's not much of a spotlight hog. Although he spent 18 years at global electronics giant Thomson, in a variety of roles ? and it was two of his former colleagues who suggested he join Sirius ? there's little in Redmond's background to suggest the kind of entrepreneurial flair needed to get a media startup off the ground. But he's done it.
True to form, Redmond isn't taking credit for his company's quicker start. “The content is what separates us from our competitor and separates us from most of the competitive platforms, products or services,” says Redmond. “What's really exciting is that we have 110 channels. What's really daunting is that we have 110 channels.”
Redmond says he's only recently been able to come up for air, having been parachuted into Sirius Canada a month after the CRTC issued its final approval for both services. With just a few months spent learning the satellite radio game at Sirius in the United States, Redmond had his work cut out for him. “I've never been a media guy,” he admits. “But I love the challenge of looking at new products and technologies and figuring out how the average consumer will understand it, make it work, and how we should take it to market.”
As an industry neophyte, Redmond quickly figured out that while traditional radio is a direct competitor to satellite radio, there are many others: the iPod and similar MP3 devices, the Internet, digital TV, even cellphones come with music capabilities. But the competition is even broader than that. “Any place you can get entertainment is technically competition,” says Redmond. But if satellite radio has one saving grace, it's that there is something for everyone. Want politically incorrect humour? Sirius has Howard Stern; XM has Jeff (Jean-François) Fillion. Looking for feminine inspiration? Tune into Oprah & Friends on XM or Martha Stewart Living on Sirius. Both services broadcast a variety of music, talk and sports shows as well. Indeed, the beauty of satellite radio is that listeners can get what they want, and they can now hear it anywhere, any time, with sophisticated new portable devices (see sidebar). “If I can give you 110 channels of great content and it'll cost you less than the price of a Tim Hortons coffee a day, you're going to be pretty satisfied,” says Redmond. “And it's our job to get out there and convince the masses that the service is that compelling.”
That's required tough hand-to-hand combat for retail customers, with both companies spending millions on marketing. During the summer, Sirius criss-crossed the country in trucks equipped with individual listening stations. On the retail side, Sirius set up live feeds in thousands of stores to ensure consumers could check out the service, employs three full-time product trainers and hired a third-party marketer to do in-store merchandising and staff training. And that's likely just the beginning. “I don't foresee us in the next three years laying off any of that stuff,” says Redmond. “If anything, we're going to be stepping it up, where we're trying to educate on the category and business in total, but clearly making sure they understand the benefits of Sirius.”
Sirius's retail efforts have evidently paid off, but the battle for automobile subscribers is just beginning. “Where we get the majority of subscribers from retail today, that's going to shift and advantage XM,” says radio veteran Stephen Tapp, XM Canada's president and CEO. “We're going to have 60% of the autos sold in this country under exclusive licence. It's a much easier conversion to sale when you've got it in your car and you're on a free trial.” While XM has the Top 3 auto sellers in Canada, Sirius has Ford, Chrysler and BMW. In fact, most car companies have signed exclusively with one side or the other ? except for Subaru, which deals with both.
Unfortunately, auto subscriber sales haven't helped the U.S. satellite radio players. Both Sirius Satellite Radio (Nasdaq: SIRI) and XM Satellite Radio Holdings (Nasdaq: XMSR) have burned billions in the past five years. In its first nine months of operation, XM Canada, through its parent Canadian Satellite Radio Holdings, reported revenues of $3.5 million, with $3.2 million coming from subscription sales, but a net loss of roughly $79 million. Those figures reflect the startup nature of satellite radio in Canada, and marketing costs alone ate up $20.2 million during that period. As a private company, Sirius Canada doesn't divulge its numbers, but Redmond admits it's been a costly exercise to this point, even though his company has had to use fewer “repeater” towers because the satellite it uses covers Canada better than XM's does. “Unfortunately, our business requires a lot of capital upfront, and there's no hiding that,” says Redmond. “We're spending a lot to get customers.”
Expect both companies to spend even more this Christmas. Most consumers have been exposed to satellite radio's message, and retailers are better educated, so this could be make-it-or-break-it time. If sales don't come through, don't expect either Sirius or XM to fade away. Instead, look for them to explore other platforms ? such as Telus Mobile Radio, which offers 20 radio channels in a revenue-sharing agreement with XM ? or develop some of the sideline capabilities that are possible with satellite radio equipment. For example: back-seat video feeds for cars, or front-seat data functions such as telematics, including automatic collision notification. These services are possible because each radio has an individual serial number, which is how Sirius or XM activate them. The tough part is getting the device integrated into the car's electronics. “Once we're in that deep, we have the ability to add more services in the future,” says Redmond. Getting that deep into the auto consumer's mind might just be the tougher proposition.