TORONTO - Satellite radio still depends heavily upon automotive subscribers for its revenue but that will have to change, with a shift into mobile Internet and GPS markets crucial to its future, says the head of Canada's second-largest satellite radio provider.
About 90 per cent of XM Canada's (TSX:XSR) new subscribers are tuning in in their cars and drivers make up about 54 per cent of its overall customer base, but XM is poised to target a younger demographic immersed in iPhones and other Web-enabled smartphone technology, according to CEO Michael Moskowitz.
"Automotive is by far the largest and strategically the most important part of growth for satellite radio," Moskowitz told the company's annual meeting Tuesday, but looking to the future, the company has launched iPhone and iPod Touch applications to offer its more than 100 radio stations to the earbuds of commuters who don't own cars.
"The early response is very encouraging, the conversion of trial customers to paying subscribers is exceeding out expectations. With digital already an important element of our everyday life, it was critical for us to monetize the new mobile distribution channel."
The Toronto-based company, owned by Canadian Satellite Radio Holdings Inc., relies on an automotive backbone that has lent it stability even as the car industry struggles to return to growth. It increased subscribers and revenue in its core automotive market in 2009 - despite an decline in auto sales.
The company has long-term installation agreements with over half of Canadian auto makers and many new cars come equipped with the satellite technology in their dashboards and users can tune in to 130 largely commercial-free and customized channels.
The company said a recent survey among auto customers showed that satellite radio is more popular with drivers than traditional radio, CD, or the iPod.
"While the world underwent a global meltdown that crippled consumer confidence, we capped off the year with a strong performance," Moskowitz said.
XM reported a 23 per cent spike in self-paying subscribers to 400,000 in 2009, while revenue increased 33 per cent year-over-year.
And although XM is confident the auto market will pick up this year, it plans to expand its audience by offering users access to digital satellite radio anywhere, through mobile and Internet applications. On top of that, it plans to capitalize on its existing satellite infrastructure in cars to offer commuters services beyond radio, such as navigational weather and traffic reports "to enhance the dashboard experience."
The company is also pursuing other expansions of its satellite services following the launch of an Internet-streamed weather service for pilots and boaters.
Moskowitz said satellite radio's growth has been much like the initial roll out of Canada's mobile and cable industries.
"(But) it appears that our growth rate will surpass that of both mobile (Internet) and cable during their respective startup periods over the same time frame."
He also reiterated that his company is considering consolidation with privately-held Sirius Canada, which owns the rights to the Howard Stern channel and reported last week that it had reached a milestone of over one million subscribers.
In America, Sirius and XM have seen incredible success, outperforming analysts expectations, after merging last year to form Sirius XM (NASDAQ:SIRI) - which holds 47 per cent of Canadian Satellite Radio Holdings.
Sirius Canada, the biggest satellite radio operator in Canada, is 40 per cent owned by CBC Radio, 40 per cent by Slaight Communications and 20 per cent by Sirius XM in the United States.
"Our analysis indicates that proportionally similar synergies and economic benefits could be realized if the companies got together in Canada," Moskowitz said.
Shares in Canadian Satellite Radio were unchanged at $1.25 apiece on the Toronto Stock Exchange on Tuesday.