Subscription Radio Hearings: The sky's the limit

11/1/2004
by John G. Smith

 
THIS MUST SEEM LIKE familiar territory to Stephen Tapp. Within weeks of his abrupt departure from CHUM Television's boardroom, the high-profile industry executive is now working as the president and COO of Canadian Satellite Radio, championing a bid to offer radio signals to paying subscribers.

He's been in a position like this before. After all, he led the successful 1991 bid to introduce Viewer's Choice, Canada's first pay-per-view TV service.

Despite the obvious differences � radio doesn't offer much in the way of pretty pictures, for example � the two services share an important philosophy. If consumers want more control over their entertainment, they need to pay for it.

"I love start-ups," Tapp says with, well, the enthusiasm of someone hired to promote a new business.
**********
Today, the CRTC begins its hearings into three subscription-based radio initiatives. Tapp's Canadian Satellite Radio, backed by entrepreneur John Bitove Jr., wants to bring U.S.-based XM Satellite Radio signals north of the border. In a similar bid, CBC and Standard Broadcasting are joining together to offer Canadians access to SIRIUS signals. CHUM, meanwhile, is hoping to launch a terrestrial subscription service based on Digital Audio Broadcasting (DAB) technology.

And the three services are promising to change the face of radio with more than improved sound.

"It isn't really radio. It's an entertainment service," Tapp suggests. Receivers are able to display supplemental information such as the names of artists and songs, and can offer the ability to buffer transmissions, giving listeners the opportunity to pause and rewind signals. Channels can also offer content devoted to niche interests thanks to larger geographic distribution areas.

"I've never fallen in love with a product like this ever before, unless it was wrestling or boxing on pay per view," Tapp says. "I found that this product rung all my bells."

"If you're a Canadian traveling in the U.S., for the first time you're going to have access to home-grown news and content," adds Kevin Shea, CEO of the CBC, Standard Broadcasting and SIRIUS initiative.

All three applicants are hoping for Commission rulings by the spring of 2005, giving them the opportunity to launch their services by the fall � making subscription-based radio one of the must-have toys for the next Christmas season.

Offers Tapp, "If you're on the air in 90 to 100 days in TV, you could certainly do that in radio."

Massive markets
"Within the scope of seven to 10 years, there could be upward of four million [radio] subscribers in Canada," Shea says, noting that all three applicants offered independent research to support the figure.

While the number may seem overly optimistic at first glance, he suggests that the offerings will tap into a new group of radio listeners. "I think everyone's expectation is that actual tuning of radio will go up because there's more depth of content," he says.

Then again, the number shouldn't be that surprising. Recent reports in the U.S. have forecasted 40 million subscribers within the decade, and Canadian markets are typically reflected as being one tenth of U.S. numbers.

Since launching in the fall of 2001, XM has amassed 2.1 million U.S. subscribers tuning in to a selection of 130 digital channels, 68 of which offer commercial-free music. (The remaining stations offer everything from talk shows to sports, along with 21 channels of traffic and weather for major metropolitan areas.) SIRIUS, which launched in the summer of 2002, plans by the end of 2004 to have more than a million people tuning in to 120 digital channels, 65 of which offer commercial-free music.

A large share of the U.S. subscriptions can be linked to deals with automakers. XM-capable receivers are being installed in General Motors and Honda models, while SIRIUS has struck similar deals with Ford and DaimlerChrysler. General Motors, for example, installed its millionth receiver earlier this year. Honda plans to build 400,000 vehicles with XM-capable receivers in 2004.

But the distribution deals haven't ended with cars. SIRIUS now offers its service to 10 million DISH Network satellite TV subscribers, and XM recently announced a deal with Dell Computers to help launch an Internet-based version of its service known as XM Radio Online. Later this year, JetBlue and AirTran Airways passengers will be able to listen to their XM feeds during flights.

Companies including Kenwood, Panasonic, Clarion and Audiovox are all making satellite receivers, which are being distributed by retailers such as Best Buy and Sears. And Delphi has given the XM service a portable radio in the form of the Roady2.

Audiophiles will obviously be quick to subscribe to the service, but Tapp suggests it will quickly become as mainstream as pay TV and CDs. "They don't have to be the top, top tier," he says of the subscribers. "They aren't necessarily the crazy guys with thousands of CDs in their library."

After all, the units are as easy to use as a radio, he suggests. "I took my mother to show her a unit. She got it. She's 80 years old and she's not supposed to get it."

Jimmy Schaeffler of the California-based Carmel Group, which tracks the industry, has forecasted 25 million satellite radio subscribers in the next five years, thanks largely to the automotive deals. But the eventual market could be measured in the terms of "hundreds of millions," he adds.

There's little question in his mind that consumers will be willing to pay subscription fees for subscription radio. "Guess what? People in Canada, in the U.S., they understand subscription services," he says. "Just look at television. There's your analogy."

"Canadians and North Americans generally have shown a remarkable appetite for new consumer services with new incremental subscription costs," agrees Peter Miller, CHUM's vice-president, business and regulatory affairs. Only a few decades ago, television signals were considered free for the taking. Today, viewers are paying for everything from cable to specialty channels, high-speed Internet service and cell phones.

But this is a race for the youngest listeners among them. "In general, younger people were more willing to pay than the older folks," concluded Audience Research International, which recently polled Canadians about their interest in subscription-based radio feeds.

And the satellite services are making significant investments to win the hearts and ears of American listeners. XM is reportedly paying US$101 to acquire each new subscriber, while SIRIUS is spending US$234 per listener thanks to various sales promotions involving receivers.

The expenses don't end there -- XM is planning to launch a third satellite late this year, and is preparing to launch a fourth electronic bird because of unexpected problems with its two existing satellites.

Canning Cancon?
North of the border, pledges to deliver Canadian content will play a central role at the CRTC's hearings.

The SIRIUS bidders, for example, have promised to include five Canadian-made channels at the time of a launch, including two existing CBC channels, two new CBC offerings to focus on emerging artists, and Standard Radio's Canadian Wave, which will be devoted to Canadian talent. The XM bid would incorporate four Canadian-produced stations.

Still, the satellite-based proposals don't comply with traditional Cancon rules because the majority of stations would be produced in the U.S., and CHUM plans to focus on that fact, particularly since its 50 channels would all be produced in Canada, with new stations leveraging brands such as Much Music and Astral's MusiquePlus, and existing stations such as Montreal's CHOM-FM being added to the selection.

"We're a Canadian-only service," Miller says. "We're not a North American service trying to take advantage of a satellite footprint into Canada. Canadians would be our first and principle and only market."

But Standard Broadcasting CEO Gary Slaight bristles at suggestions that Canadian artists would be lost in the multi-channel satellite universe, suggesting instead that the satellite services offer the talent a better opportunity to find new audiences.

"Canadian artists in Canada get too much airplay in my opinion," he says of the mandated 35% share of airplay imposed under the Commercial Radio Policy. "What we need more than anything is a window into the U.S. They need the U.S. if they're going to make their careers take off."

American listeners have demonstrated that they're willing to tune into foreign content, Shea adds. "Looking at the ratings of SIRIUS radio, the BBC does quite well � it's usually in the Top 10. That shows Americans are openly interested in listening to programming content from other countries."

Meanwhile, Tapp uses the example of Bruce Cockburn, the Canadian singer who currently has 80 tracks in rotation on one of the XM feeds. "How much airplay is Bruce Cockburn getting here?" he asks. The U.S. satellite subscribers seem to have a thirst for such songs as Wondering Where the Lions Are, and If I Had a Rocket Launcher.

Those supporting satellite radio bids have also been quick to offer Canadian artists who see the U.S. exposure as the key to finding new markets.

"By and large, Canadians don't get to hear the incredible music being made by our own talent," Canadian roots musician John Dickie says in a Canadian Satellite Radio press release. "Take the blues. Outside a few specialty shows, the blues simply don't exist on radio. Satellite radio will give Canadian blues the exposure it deserves, and with XM currently playing more blues than all of Canadian radio, that is already leading to increased royalty payments and more work."

Meanwhile, the satellite services have also faced content-related controversies in the U.S. -- the National Association of Broadcasters has been lobbying against channels that provide traffic and weather information to major markets, arguing that satellite radio was only supposed to be a national service. (XM launched these channels in March, while SIRIUS plans to release a similar offering in 2005.)

While none of the Canadian bids include specific proposals for local content, listeners of the CBC Radio 1 feed would be able to hear such reports through programs such as Metro Morning, while CHUM's application includes several local stations.

Shades of grey
Still, the XM and SIRIUS applications suggest that satellite radio is coming to Canada one way or another. According to paperwork filed with the CRTC, as many as 40,000 Canadians are already paying for the services through U.S. addresses.

"There is evidence that some Canadians (13%) will seek to subscribe to a satellite service based in the United States, prior to the service being officially available in Canada," Charlton Strategic Research indicates in its research for Canadian Satellite Radio.

The growth in ExpressVu and Star Choice subscribers has shown that Canadian companies can compete against a grey market offering, Tapp says. "If the grey market takes [hold] and increases, then what we lose is kind of a head start on it."

"This is a very important public policy issue because, essentially, if you read between the lines, they're saying the Commission has no choice but to license it," Miller says of the argument being presented to the CRTC. "People hold out the grey market these days and expect us all to cower in fear.

"[But] there's always been a grey market, even in the origins of the Canadian broadcasting system," he adds, referring to viewers who picked up over the air television signals from U.S. border communities.

He also points to the finding of the Charlton report that suggests a mere three per cent of people would be interested in a U.S.-based satellite service if it was opposed by the Canadian government.

Killing the radio star?
Regardless of the format that subscription radio might take, those behind the bids don't expect to put traditional radio stations out of business.

"Specialty television didn't kill conventional television," Tapp says, noting how listeners will continue to turn to AM or FM feeds for their local news and weather. "Anything that's launched in the category, that's different and offers additional service, is good."

"I kind of draw the analogy with what happened to conventional television with the advent of specialty [channels]," Shea adds. "This is really specialty radio. It doesn't suddenly replace existing players."

Charlton's report, for example, found that 63% of Canadians would listen to both a satellite radio service and traditional radio stations including the CBC.

Slaight doesn't expect an immediate threat to Standard Broadcasting's 51 stations, either. "Early evidence in the U.S. is it's not having an impact on conventional radio," he says, noting that the limited markets come down to cost. "It only appeals to a certain sector of the consumer � It's not cheap. A lot of people are not going to spend the money to do it."

Besides, virtually every home and car has a radio. Satellite receivers are a relatively new phenomenon.

Competitive nature
As he prepares for November's CRTC hearings, Tapp suggests that he'd like to see all three services approved.

"We think that this is a product that's going to require some introduction, and that's why we're advocating the licensing of all services that apply," he says. "The launch of a new category can only benefit if there's a maximum amount of marketing being done."

But Miller doesn't share the same enthusiasm. In fact, any decision to approve all three applications could kill CHUM's plans altogether, particularly as its service looks to comply with Cancon-related restrictions.

"The Canadian marketplace could sustain two of the services," he says, "but [it] probably couldn't sustain all three."

The launch
Meanwhile, any roll-out of a subscription-based radio service will be able to learn from its pay-per-play predecessors in the world of television, Tapp says. "I think the most important thing we have to do is communicate the benefits of what this product is right out of the gates. Our marketing message has to be at a high-concept model. We have to get awareness."

But once the message spreads, satellite radio will be a force for years to come, he says.

"When I launched pay-per-view, I always knew video on demand was around the corner. It just took 10 years."

The players will probably remain the same as well. XM and Sirius will enjoy a "duopoly" in the world of satellite radio, offers The Carmel Group's Schaeffler. Instead of seeing new players in the satellite world, he suggests their main competition will come in the form of other in-car entertainment systems, whether it comes in the form of iPods, Internet feeds, or video sources.

"This is all about your consumer," Tapp adds of the entire initiative. "Programming is where you win and lose."

A grounded approach
CHUM to push subscription-based DAB
by John G. Smith

YOU COULD SAY THAT CHUM's plans for subscription radio are � quite literally -- more down to earth than two competing satellite bids being considered by the CRTC.

After all, CHUM Subscription Radio Canada hopes to use Digital Audio Broadcasting (DAB) towers to deliver such a service to subscribers in major Canadian markets, beginning in Vancouver, Montreal, Ottawa, Toronto-Hamilton, and probably the Calgary-Edmonton corridor.

It also wants to offer 50 Canadian-produced stations, making it the only proposal for subscription-based radio to adhere to Cancon guidelines.

So far, the U.K. has been the strongest DAB market in the world, with an advertising-supported service feeding about 1 million receivers, most of which were developed by smaller manufacturers based in Korea and China. (Sony, for example, only recently developed a DAB offering.)

But the subscription-based model may be the key to DAB's future in Canada. Several Canadian broadcasters recently announced plans to restructure Digital Radio Roll-Out Inc. (DRRI), which was unable to convince consumers to snatch up digital receivers to listen to the few existing stations in Vancouver, Toronto, Windsor, Montreal and Ottawa. Its Achilles' heel, it seems, was the fact that there was no dedicated content. The best the system could provide was a clearer signal.

Perhaps the biggest challenge CHUM would face in a battle with satellite services comes in the form of established deals with automakers, which are placing XM and SIRIUS receivers in new cars. Still, Peter Miller, vice-president, business and regulatory affairs, suggests that CHUM's potential audience of young, hip urban dwellers will be more likely to gravitate to portable devices.

"Radio Shack has every intention of making all the services available," he adds.

And he shrugs at questions about where the required transmitters would be located. "The interesting thing about locating transmitter sites, between cell phone and telephone towers and radio towers," he says, "there's quite a lot of space out there one can tap into."

For that matter, he even suggests DAB is a superior platform for delivering subscription-based radio.

"It's difficult enough for direct to home," he says of the satellite feeds. "Imagine the complications of trying to feed an ordinary antenna in a vehicle going 100 km-h."

Astral, which holds a 19.9% stake in CHUM'S proposal, has the option of increasing its share of the business to 50 per cent.

THE PLAYERS
Canadian Satellite Radio
The service: XM Satellite Radio
Key Canadians: John Bitove Jr., Stephen Tapp, Bob Mackowycz. Partnerships with Rawlco Radio and Golden West Broadcasting. Marketing agreement with Corus Entertainment. Auto agreement with GM Canada.
Initial offering: 101 channels
Canadian channels: Four
Subscription fee: $12.99/month
Automotive distributors: GM and Honda (in the U.S.)
The edge: Of the satellite services, this is the biggest, and was the first to submit a bid to the CRTC.

CBC/Standard/Sirius
The Service: Sirius Satellite Radio
Key Canadians: CBC/Radio Canada and Standard Broadcasting
Initial Offering: 78 channels
Canadian channels: Five
Automotive distributor: Ford and DaimlerChrysler (in the U.S.)
Subscription fee: $12.95/ month
The edge: In addition to key automotive deals, SIRIUS has struck a number of content deals with the likes of the NFL to offer a 24-hour service devoted to the gridiron.

CHUM Subscription Radio Canada
The service: Subscription-based DAB
Key Canadians: CHUM and Astral Media
Initial offering: 50 channels
Canadian channels: 50
Subscription fee: $10/ month plus $99 for a subsidized receiver
Automotive distributor: None
The edge: If the Commission enforces traditional Cancon rules, CHUM is the only one licensed, something that the company is counting on. Some observers are saying it's unlikely to launch at all if the other two are approved.

John G. Smith is a Toronto-based freelance writer and editor.

Back to headlines  |  Email this article to a friend  |  Comment on this article