WASHINGTON, DC — The success of XM Radio in the United States indicates that satellite radio is here to stay. But Global Radio in Europe has a long way to go before it reaches that level of success.

While Global Radio is targeting a potential market of 400 million Europeans, it could be another seven years before it reaches cashflow positive.

Joe Ragan, senior vice president at Global Radio, told a panel at Satellite 2003, “We are developing the satellite radio market in Europe … We are working on closing another round of financing. We will make commitments shortly in terms of satellite and launch contracts. We will begin satellite construction in 2004 and develop content in 2005. We plan to hit a million subscribers in 2008 and cashflow positive in 2010.”

With its linguistic and cultural diversity, Europe could prove to be a tougher market to crack. Initially, Global Radio will target the large markets such as the United Kingdom, France, Germany, Spain and Italy. At the same time, research indicates that the markets in Eastern Europe such as the Czech Republic, Hungary and Poland, could see high levels of demand for satellite radio, Ragan added.

Global Radio is in discussions with car manufacturers in Europe as it gets ready for commercial launch within the next two years. Ragan said, “We have started negotiating with the European manufacturers. The smaller manufacturers are more willing to take on the risk. We are focused on the distribution channels. You have to have a much more distributed in-country approach to go after the markets. We have not got a lot of traction with the larger car manufacturers in Europe. They are adopting a ‘wait and see’ approach.”

Where Global Radio can take heart is in the performance of XM Radio, and to a lesser extent Sirius Satellite Radio, in the United States. Lon Levin, senior vice president of regulatory affairs at XM Radio, which has already broken through the 350,000 subscriber barrier, said, “It is the fastest growing audio product in the last 20 years. It is just the beginning. We have funding to cashflow breakeven, which we expect in 2004. We have 360,000 subscribers and are on track for a million subscribers this year. Consumer awareness is still a major issue. This has to be a mass market and that means millions and millions of subscribers.”

Stan Kozlowski, senior vice president of retail distribution at Sirius, added, “When there are a million subscribers in the marketplace, [satellite radio] will really start to accelerate. We are looking to go from 30,000 to 300,000 subscribers. Research indicates a market of 10 to 20 million. We think this industry is huge.”

Sirius’ hopes have been raised by the finalization of its recapitalization plan, which will provide an extra $200 million in cash. The operator, announced on March 5, that approximately $636 million in debt and $519 million in preferred stock is to be converted to common stock. Sirius announced that 91 per cent of debt holders have agreed to participate in the recapitalization process.

But, it has to be pointed out that the dynamics in the United States are particularly well suited to satellite radio. As Roger Rusch, president of satellite consultancy TelAstra pointed out, most workers in the United States use their cars to commute to work. In Europe, there is a much greater reliance on public transport, which could ultimately lead to slower growth for satellite radio. Also, content will need to be shaped to national markets, which is a not a major problem for U.S. satellite radio operators.

While the numbers posted by XM Radio are undoubtedly impressive, they are still less than what some leading industry analysts predicted not so long ago. “XM Radio has one million subscribers, which is only 10 per cent of what reports by Merrill Lynch and the Yankee Group predicted for digital satellite radio at this time in 1998. Each system will need about eight million subscribers. This compares with digital broadcast television. It will take 7-8 years to become profitable,” Rusch said.

One of the themes of the panel is that satellite radio will soon be a global industry. Right now, the success stories are confined to the United States, but with operators like MBC in Japan and WorldSpace in Europe, Africa and Latin America, looking to develop satellite radio systems, the whole industry could rapidly become a success story in the second half of the decade.

–Mark Holmes