XM, Sirius Eye Pristine Radio Market In Canada
By Steve Blum, Tellus Venture Associates
Canadian initiatives by the two U.S.-based satellite radio companies – Washington, D.C.’s XM Satellite Radio [XMSR] and New York City’s Sirius Satellite Radio [SIRI], could play a vital role in maintaining subscriber growth and momentum as the U.S. market matures during the next five years. The Tellus Venture Associates subscriber growth model for satellite radio in the United States shows rapidly accelerating subscriber counts during the next three years. There then will be a leveling off as the category passes through its rapid uptake phase and enters a period of sustained but more moderate growth.
Both XM and Sirius hope to enter the Canadian market sometime in 2004. However, the final decision regarding if and when service can begin is up to the Canadian Radio- television and Telecommunications Commission (CRTC). The CRTC is considering applications submitted by the Canadian partners of both companies. Unlike the United States, the Canadian process is confidential in its initial stages, so there is no early read on how the CRTC might rule or on the specifics of the applications.
Because there are no prospective homegrown satellite radio players in Canada, XM and Sirius would seem to have a better chance of gaining regulatory approval than U.S.-based satellite television companies did in the 1990s. Back then, efforts by DirecTV and others to extend service to Canada were denied as Star Choice and ExpressVu emerged as truly Canadian service providers.
Sirius is pinning its hopes on a joint venture between itself, CBC-Radio Canada and Standard Broadcasting. Canadian rules require that any satellite-broadcasting venture be based in Canada, and that such foreign partners as Sirius only hold a minority stake. The joint venture would run its own business in Canada, determining its own programming lineup and negotiating its own deals with consumer equipment manufacturers, distributors and retailers, including car manufacturers. The Canadian venture would, however, make use of the same satellites and consumer equipment as its U.S. counterpart.
Sirius’ existing relationships with car manufacturers and such mobile electronics aftermarket retailers as Best Buy [BBY] would not automatically roll over to the Canadian joint venture. However, Andy Gregor, vice president of business development for Sirius, said he expects his established company could make “beneficial” introductions for the joint venture.
The programming lineup on Sirius’ satellites largely will be available to the Canadian joint venture, although it will be making its own programming decisions. Even though listeners in the United States and Canada will be accessing programming via the same satellites, programming can be limited to one country or the other via the conditional-access system. Both the CBC and Standard Radio have extensive radio programming assets, and the CBC already has announced plans to distribute its flagship national English and French language services via Sirius to listeners in both the United States and Canada.
XM’s Canadian hopes are pinned on Canadian Satellite Radio Inc. (CSRI), a joint venture with John Bitove, a Toronto-based entrepreneur whose interests include such sports franchises as the Toronto Raptors and Maple Leafs. CSRI is looking at a more integrated approach to the North American market. XM’s Canadian partner is proposing to offer a common XM programming line up to subscribers in both the U.S. and Canada. “We would like to create one North American service,” said Stewart Lyons, executive vice president of CSRI. “It’s a great opportunity to broadcast Canadian content south of the border.”
Where possible, CSRI also intends to bring to the Canadian market existing relationships that XM has established with car manufacturers and mobile electronics manufacturers, distributors and retailers.
The CRTC currently is working its way through the application process. The first application was filed by CSRI in August 2003, with the Sirius-led venture following later that year. A third company filed an application in time to meet the Feb. 15, 2004, deadline; however, that proposal is believed to be a terrestrial-based digital audio broadcasting (DAB) initiative. There is no hard timetable for a decision, but the general expectation is that the CRTC will issue a ruling sometime this summer. If the green light is given, both satellite radio companies expect to be up and running quickly in Canada.
With about 11.6 million households, 20 million registered motor vehicles and new sales of about 1.6 million motor vehicles per year, Canada is about one-tenth the population of the contiguous U.S. market. Although the country extends far to the north, about 85 percent of the population live within 300 kilometers of the U.S. border. Tests have shown the S-band signals used by XM and Sirius satellites extend far beyond a nominal U.S. footprint, and they can reach nearly all of Canada’s population.
Sirius and XM have different satellite strategies, with Sirius’ design giving it an advantage in northern latitudes. XM’s two Boeing satellites are located in standard, geostationary, Clarke-Belt orbits, which means look angles drop significantly in the far north and could be problematic for mobile listeners who have to contend with terrestrial obstructions. CSRI is following XM’s lead by including terrestrial repeaters in its application to the CRTC as a way of offsetting low look angle problems in urban areas.
On the other hand, Sirius’ satellite orbits are tailor-made for Canadian geography. It employs the Soviet-designed Molniya orbit, which puts satellites on an inclined path that significantly raises look angles in northern latitudes. However, the birds do move relative to listeners on the ground. Sirius uses three Space Systems/Loral-built satellites. Any two of those three Sirius satellites are always in position to serve North America.
The Tellus Venture Associates’ subscriber growth model for satellite radio in the United States has accurately predicted take-up rates during the past two years, in line with announced expectations for 2004. It indicates the U.S. market will more than double to 3.8 million subscribers by the end of this year, and that it will grow at a rate of approximately three million subscribers a year during the following two years.
However, by 2007, growth will taper off. The venture then will enter a sustained period in which subscriber counts will increase by close to one million a year. If at least one of the pending satellite radio applications is approved by the CRTC in time for a market launch in the last half of 2004, Canadian subscriber numbers will enter the rapid growth phase just as U.S. numbers level off for the long haul. A total North American satellite radio market of 20 million subscribers within 10 years of XM’s September 2001 launch of commercial service to bring satellite radio to the continent is a clear possibility.
Steve Blum is a satellite-broadcasting consultant who heads Tellus Venture Associates of Marina, Calif. He can be reached by e-mail, email@example.com , or by phone, 831/582-0700.