David Frear, CFO at US pay-radio operator Sirius-XM says it is unlikely that his company will launch outside the USA. “I don’t see us launching a satellite radio business outside the United States that we’ve looked at. We turned down multiple opportunities to do that, for instance in Europe.”
Frear was speaking at the Bank of America Merrill Lynch media conference in New York. Sirius-XM has 26 million subscribers.
He gave his reasons, and admitted that many people thought a ‘Europe’ version could work. “The reason why we decided not to invest in it is because of the amount of time it takes, how deep you have to go on negative cash flow and then ultimately the markets are in fact different,” said Frears. “Now if you look at the demographics of much more broader conception in Europe and just the EU that the beam pattern would cover roughly from Anchorage to Belfast, right. From Stockholm down to Morocco and you’ve got to have to build in people in there and the income demographics are actually pretty good.”
“But think of the number of cultures, right. Sirius has 150 channels it’s bringing to its spectrum today. We could get about the same amount of spectrum in Europe and provide 150 channels, but we are doing it largely to one culture in the US. So we have 150 channels in every market we are competing against three channels, 12 channels, 30 channels.”
“Take those 150 channels and break it up by how many cultures in Europe and do you have 30 channels in each city? Do you have 50? You are not going to get much more than that and so I think it’s a less compelling product offering as you move outside the United States from a consumer perspective, at least to get people to pay for it.”
“And then going negative $4 billion or $5 billion in cash flow for seven years that it just seems to me that we can spend their time and money better in the US than in other product.”
His more upbeat message was that the broadcaster was facing down the “extremely competitive” US market, and cited Spotify, Pandora and other streaming services. “It is unbelievably crowded and especially crowded with music-only product. So we’ll see what the next eight or nine years holds for services like Spotify and whether or not it’ll take hold. One of the things about the streaming business is that they tend to be the paid stream intensely occupied by extraordinarily high churn rate and its okay as long as you current with cost of acquisition as well,” he said.
“But I feel good about the competitive balance in the United States with Pandora at 70 million users, they’ve done a great job. They’ve got 70 million users maybe some of them could be subscribing to us.”
Frears confirmed that Sirius-XM is continuing to develop its own streaming options. “I think that it enhanced on demand services that we have a lot and not so much on-demand music, but as it is to on-demand topic and sports content, that there are a lot of services that we offer through the app today. They’ll be much easier to listen in vehicle and a lot of what you see in the app can be easily ported over to a connected vehicle.”
“So for us, connected vehicles represent not only a deepening of the audio entertainment experience for subscribers, but then it’s also a huge business to business new product opportunity with the services that we provide to automotive companies as well as an improved business to consumer opportunity.”