After nearly six years of operations, Worldspace Inc. became the fourth satellite operator to go public in 2005 and perform an initial public offering on the NASDAQ market in August.
The move generated little interest from investors and analysts, as the company, which launched service in Africa in 1999 and Asia in 2000, continues to struggle to gain traction with its satellite-based subscription radio service. Worldspace claims that its two geostationary satellites can provide service to more than 5.2 billion people, but many consumers in the company’s target markets cannot afford the service.
Worldspace reported only 63,930 subscribers as of June 30 but is showing signs of growth, generating $2.3 million in revenue in the second quarter 2005, a 21 percent improvement over the same period a year ago. Subscriber revenue jumped from $200,000 to $800,000 over the same period.
Worldspace hopes to improve those numbers with an expanded marketing campaign in India following the rollout of services in key cities in the country during the second quarter 2005. The company also is looking at China, Western Europe and the Middle East as potential growth areas in the coming years, said Worldspace founder and CEO Noah Samara.
Samara talked with Satellite News Editor Gregory Twachtman about the company’s long-term plans.
Satellite News: Can you be specific about the kinds of growth you are looking at from your targeted markets?
Samara: Millions and millions of subscribers ultimately. When you look at our coverage area and if you were to pick just India, China and Western Europe, you are looking at something like 185 million viable consumers in this marketplace. The question is what percentage of this marketplace could we capture.
Satellite News: What is the definition of a viable consumer?
Samara: These would be the right disposable income for whom the value proposition we offer is meaningful and who would be interested in the kinds of services we are contemplating on a market-by-market basis. To us, it is a function of how you address each of these markets, how you segment them properly, how you deliver a service that is a unique experience driven by a variety of content that has not been available in those markets, and what we are able to address that is currently not technologically possible [by other means].
Satellite News: What are the key challenges facing you in your targeted markets?
Samara: The marketing, sales and distribution infrastructure; getting the right people in place and getting the right kind of on-the-ground support [are challenges]. From country-to-country, we vary our approach. So in one country, we might have a local partnership or, as in the case of India, we might have a fully owned subsidiary implementing our service and creating the infrastructure that we need to accommodate the targeted growth in each of these markets.
Satellite News: How do you balance the different content needs of the individual markets you are targeting?
We don’t look at all aspects of the market. We don’t look at all countries that we necessarily can cover. We look at the segment that will give us the maximum number of subscribers and we create the content around that subscriber base. … We’ve really created a fantastic coverage infrastructure. We can cover 75 percent of the world’s population, but the way we do it is we use six beams that enable us to tailor content by geography, by format and by language. Say each one of our beams looks at a market that might enclose 22 different countries. You look at those 22 countries and our objective is to deliver a subscription service to not all of the 22 countries, that will give us a maximum “bang for our buck.”
Satellite News: Are the economics different from market to market in terms of what you need to be profitable?
Samara: Absolutely, because you are looking at cost structures that are different. Our cost structures in India are very much different from what they would be in Western Europe, where the cost structures for doing advertising or creating distribution infrastructures, all of the things that you need to grow your subscriber base, are different. For the most part, we have found that countries like China and India have similar cost structures for us, so our business model becomes much more exciting in that it costs us a lot less to actually grow our subscriber base than it would cost us in Europe to do the same thing, or it would cost, for example, XM and Sirius to do in the United States.
Satellite News: How much lower are subscriber acquisition costs in China and India than in Europe?
Samara: Something in the order of 20 to 30 percent or 40 percent of what it would cost us in Western Europe to acquire subscribers. In certain markets like India, we also are looking at lower ARPUs (average revenue per user). Our ARPUs might be a third or a half of the U.S. or European ARPU. The cost structures in some of these markets is at sometimes a fifth of what we are looking at.
Satellite News: What are you seeing in terms of competition in these markets?
Samara: In much of our markets, we have the advantage that the radio industry is not highly developed. It’s still at a fairly nascent stage, so it gives us an opportunity to create a wide variety of formats and wide variety of content architecture in terms of news, in terms of information and education content in addition to your general entertainment content.
… Generally, the fact is there are 25 megahertz of frequency allocated on a global basis for satellite radio. We currently occupy these frequencies for satellite radio. Unless additional frequencies are allocated it is difficult to have other players in this space. Obviously, there is quite a lot of room for others to participate with us in certain markets and we look at these opportunities on a case-by-case basis.
Satellite News: You helped start XM Satellite Radio. What is Worldspace’s relationship with XM, given its investment in Worldspace earlier this year.
Samara: It is a strategic relationship that is important. XM has been an important part of Worldspace from [XM’s] earliest days. After we sold our interest in XM, we licensed our technology to XM and they took that and made incredible improvements. This recent investment by XM allows us to bring back some of that technology, specifically in the area of receiver technology and terrestrial repeater technology.
Satellite News: How much does that save Worldspace on development costs?
Samara: It saves development costs, but more important, it saves the time cycles for us to get to these new technologies. It saves a lot of learning curve issues. Things that they have gone through and fixed, we are able to get there much quicker.
Satellite News: Do you plan to roll out terrestrial repeaters?
Samara: Our terrestrial repeater networks are being manufactured even as we speak. We hope to deploy these starting sometime next year in India. We don’t want to get into much of the Western European markets, even though we currently have one of our satellites providing service to those markets and we have subscribers in certain European countries. We want to fully launch that service as soon as our terrestrial repeater network has been deployed.
The most important thing in Europe is getting the terrestrial repeater licenses on a market-by-market basis. We are working to do that. We are currently in talks with local partners and regulatory authorities about exactly how to go about getting terrestrial repeater licenses deployed so that the service can be available in Europe.
Satellite News: How is the health of your satellites?
Samara: We had some issues with the Afristar satellite, which were corrected on the Asiastar satellite. We think those [solar power] degradations have stabilized, but even if they don’t stabilize, we have other mitigating measures in place in case something happens. Generally, we have confidence that our Afristar satellite will take us through 2013 and the Asiastar satellite will take us through 2015.
Satellite News: XM and Sirius are talking about video, as well as some interactive features and portable receivers. Are your satellites equipped to handle that kind of technology or would that come on the next generation of satellites?
Samara: We actually tested video in 1998. We know how this works. As compression technology gets better and better, our ability to deliver all kinds of digital services becomes better. Our strategy has always been to deliver both audio and multimedia. Accordingly, if you look at any Worldspace satellite radio, one of our fundamental specifications is to enable the satellite radio itself to have a data port so that you can connect it to computers or other terminals such as PDAs, so that you are able to deliver other kinds of multimedia formats. This has been in the works. We currently do some multimedia activities on our satellites. This is something that we’ve always considered as important, particularly for our markets that are information deficient in certain cases. So our ability to deliver different kinds of information becomes even more important.
Satellite News: Worldspace stock has yet to return to its $21 offering price. How much attention do you pay to the stock price?
Noah Samara: The main issue for us is the long-term issue. We are not focused on the daily fluctuations. We are also in a quiet period so we really are not supposed to be commenting on these price issues or what happens. But even as a general policy, we don’t comment on that because who knows what causes all of these activities in terms of markets as well as stock prices.
