The abbreviated version of this interview was published earlier today on DailyTech.
The proposed merger between XM and Sirius would unite the only two providers of satellite radio services into a single entity – or so most Americans now believe. In fact, there is a third satellite radio company that stands on the periphery of this mega-deal. Like XM and Sirius, it is a U.S. company that provides audio entertainment subscription services via its own fleet of geostationary satellites, but this company’s spacecraft fly well under the radar of American consumers. The reason Maryland-based WorldSpace Inc. remains largely incognito here is that its subscribers live far outside the United States, in Africa, Asia and lately, Western Europe.Ironically, the millions of loyal XM and Sirius listeners owe an unwitting debt of gratitude to WorldSpace and its founder, Noah Samara, for without their pioneering efforts, there might be no satellite radio industry today. Although it is no longer the foremost satellite radio provider, WorldSpace is universally recognized as the first. Owing to its launch in 1990 – more than a decade before XM and Sirius came on the scene – WorldSpace could rightly be called the granddaddy of them all. In that same spirit, his pivotal role in securing the first licenses for space-based commercial radio services, then assembling the necessary talent and technology from receivers to rockets, WorldSpace Chairman and CEO Samara could well be called the Founding Father of Satellite Radio.Despite its enormous head start, WorldSpace has had difficulty getting its lofty business plans off the ground. Created with the express goal of bringing information and education services to the vast and underserved African continent, WorldSpace and its Ethiopean-born, U.S.-educated founder ran into obstacles. After all, only a tiny fraction of the African population could actually pay for such a service. To raise funds, WorldSpace licensed its technologies to create XM. Still, the company struggled until it recently refocused its energy on serving the more economically viable Indian continent, allowing WorldSpace to float a successful initial public offering on the NASDAQ exchange in 2005. But after an initial honeymoon period, WorldSpace again fell on hard times as the difficult economics of launching expensive satellite subscription services into untried markets became evident. In its recently released financial statement for the fourth quarter of 2006, the company revealed a greater-than-expected net loss of $33.8 million, sending its stock price plummeting and triggering the immediate launch of a class-action lawsuit by shareholders.
DailyTech: What role did you and WorldSpace play in the creation of the satellite radio industry?
Samara: WorldSpace was the pioneer that started the creation of the satellite radio industry. We were the first to go out and apply for licenses, and we were the ones that drove the activities at a 1992 conference in Spain that led to the global frequency allocation for satellite radio.
We were the first to actually begin to put together the technology behind satellite radio. Our technology was the first to be recognized and endorsed by the ITU (International Telecommunication Union) as a global standard for satellite radio. We implemented our services long before anybody else did. We actually had satellites covering Europe, the Middle East and Africa and later on Asia long before either XM or Sirius had their satellites up, and we had radios in consumers’ hands first.We were also founding members of XM satellite radio. We were involved in XM and were owners of XM when it first started, even before it became known as XM. So we had a role in the early technology development of XM. We had a role in the licensing of XM. Generally, we have had, and will continue to have, a role in the evolution of this important media in the American and in the global landscape.XM is now a shareholder in WorldSpace. They invested in WorldSpace just before we took the company public, and we have an ongoing relationship with the company where we provide them with content.
DailyTech: What is the significance of a merger between XM and Sirius in this very finite industry of satellite radio?
Samara: The interesting thing is that in a few short years, I think three or so years, these two players have been able to generate something on the order of 16 to 17 million plus subscribers. It’s very significant that so many people in the American media landscape are actually subscribing to these services. It’s a very strong validation that consumers like the idea. Ultimately, this is important for the consumer, because if these two guys are in a duopoly kind of situation, they end up going after the content and driving up the content price. They’re trying to play this one-upmanship against each other. The consumer ends up being hurt because neither party is stepping back and saying, “OK, now consumers like this. So how can we help the consumer enjoy radio?”What this merger does, if it goes forward, is help the consumer by making the companies able to really provide a much wider content architecture. That is one thing that has been missing from the two players.
DailyTech: There is a sense in the financial community that satellite radio has not executed well. It remains unprofitable, and there’s a subtext to this merger that it’s important to the very survival of satellite radio in this market.
Samara: In a sense, that is both true and not true. It is true that in a duopoly, each player is doing everything it can to undermine the other. Then all the components required to make satellite radio successful -- that are outside of their control -- begin to play one against the other. In that kind of scenario, the financial market is right, and it’s not about execution. It’s about the very nature of this fierce, destructive competition undermining the ultimate viability of the service. In that sense, they’re right.In the other sense, however, they’re absolutely wrong, because these guys have executed extremely well. They have driven their subscriber base very, very fast and very well. Their inability to be profitable is driven not so much because they have a weak product that they have to foist upon the consumer. Rather, they’re not profitable because, though the product is good, bringing it to the consumer has been very expensive. “I have to pay $600 million and more for baseball, I have to pay X million dollars for Howard Stern.” This one-upmanship has driven up the price of the content and therefore, the ultimate breakeven point for the business.One of the things I imagined about satellite radio was that at the end of the day, it is not about broadcasting as much as it is about narrowcasting. It is about casting content to a niche segment of society, based on formats that can’t be justified on a broadcast mode to a smaller geography, but that can be justified if you can aggregate this niche across a larger geography. That’s the concept I had when I started thinking about satellite radio in the early years. So you aggregate the jazz lovers, you aggregate the baseball lovers. You aggregate them across the American landscape.
DailyTech: What’s coming in terms of new technology that will help or hinder satellite radio as a media delivery vehicle?
Samara: There are things like WiMax and DVB-H ((Digital Video Broadcasting - Handheld), and other broadcast platforms that have been thought of in other markets, where people are trying to provide mobile TV. The very existence of these platforms, including the internet, provides alternative vehicles for satellite radio content to be transported into those new technologies. In that respect there could be synergy. The fact that these other technologies exist also underscores the concern that satellite radio providers here have that their competition isn’t really just between themselves, but it exists in the larger context of the audio market itself. As the Internet itself becomes more and more, in a broadband sense, available in mobile environments, there’s going to be competition. Neat, wonderful technologies like the iPod provide additional competition, too. It may be good and bad – or `challenging’ – news for satellite radio providers going into the future, but ultimately, it’s great news for the consumer. And at the end of the day, it’s the consumer that supports these services.