Facing an onslaught of competition from online services that offer consumers access to millions of hours of music and programming for free, Sirius XM Canada continues to bet that its satellite radio customers are willing to pay for premium product.
The company will ask its users for an extra $4 a month for enhanced access that would allow them to listen to content from both Sirius and XM networks on one device. The services merged in 2010 in a bid to save money on overhead, but until now subscribers had to choose between the two.
Despite building the service to more than 2-million subscribers in the last seven years, Sirius XM has yet to post a profit. It's also petitioning Canada's broadcast regulator for relief from the fees it must pay each year to operate – it must contribute five per cent of its revenue mandatory contributions to Canadian artists, unlike traditional radio stations that pay 0.5 per cent.
The case is currently before the CRTC, which is in the midst of renewing the service's broadcast licence.
Chief executive officer Mark Redmond said a reduction in fees coupled with the company's new premium service – which also comes with a new Internet service and enhanced apps that make it easier to listen to satellite radio outside of vehicles – is key to the company's survival in a world of free content.
Steve Ladurantaye: You have competition all over the place, many of them offer music for free. Can you survive in that world?
Mark Redmond: We really like our broadcast network and infrastructure and what it delivers – seamless and uninterrupted access across North American with 120 channels and what we believe to be a very cost effective solution. At the same time, we want to be able to make sure we give customers a chance to consume our content irrespective of the platform if they are a subscriber. We need to give you a seamless interface and access to that. That coupled with the exclusive content we have and the footprint and hold in the car really gives us an advantage.
Your quarterly reports paint a picture of a growing company, but your CRTC filing asking for a reduction in fees said your business was in a perilous position. Which is true?
We've made significant investments in the last seven years in getting the business up and running and we've paid the price for it – we haven't turned a net profit. But the combined company is in a much healthier state than the two independent companies would have been on their own.
Your argument is that you shouldn't pay more than traditional radio stations to help produce Canadian content, right?
If I'm going to compete with terrestrial radio as one part of our competition and Internet-based companies like Pandora and others as another part you can't regulate me one way and give the other guys room to operate differently. I'm easy – I don't care either way. Just don't put us in a situation where we got one foot in and one foot out. Either we compete with them on a level playing field or they're competing with us in the box we're regulated into.
Where can you find growth at this point?
We're spending as much time effort and resources on retaining as we are getting new [subscribers]. Once we put a radio in a vehicle, if we don't convert them the first time, then we get the life of that vehicle. Which is 10-plus years. And there's a second-time buyer, a third-time buyer. Our sunk-in cost is in the first go around. A lot of effort now is on the whole used-fleet opportunity – we're talking millions of vehicles, not hundreds of thousands – that have satellite radio in them but are not paying subscribers.
How are you finding these people?
We're getting really good at propensity modelling based on historical data. We've got some really smart people doing data mining and dating analysis around geography, age, what vehicle you bought and what trim level and how does that make you more or less likely to convert. The modelling we're doing is very, very unique.
Do you see a world where customers subscribe because they have a mobile device?
We own the car, we're not moving away from that. I don't see us in short term going out and saying we have an Internet-only offer. It's easier for people in that environment to say that's not good value – you can get it for free. That's not our sweet spot.
You lost $2.6-million in the last quarter despite hitting a record number for subscribers. How close to a net profit? Are you in striking range?
Editor's Note: An earlier version of the story included incorrect information about the upgrade price for the premium service.