After a decade of losses, satellite radio is a profitable business in Canada.
Canadian Satellite Radio Holdings, which operates Sirius XM Canada and is the sole provider of satellite radio in the country, said late Monday that it posted its first ever quarterly profit as its first quarter came to an end. The company was formed in 2011 by merging the competing Sirius Canada and XM Canada services, neither of which had been able to scrape out a profit despite steadily increasing user bases and high-profile programming from names such as Howard Stern, Martha Stewart, Playboy and CNN.
When licences were first granted to the services in 2005 by the Canadian Radio-television and Telecommunications Commission, it was expected that they would lose as much as $100-million over the course of the seven-year deal. But there was an anticipated payoff – they expected to be booking $65-million a year in profit by 2013.
That hasn't happened. Both services rely on their U.S. partners for programming and technology, and when the two U.S. companies merged the Canadian entities found themselves struggling to exist as standalone players. The Canadian merger happened just as the recession was ending, and after a year of cutting costs and figuring out how to merge the programming the company has managed to post a $3.3-million profit (last year at this time, it posted a $3.4-million loss).
The newly merged company wasn't bleeding money – most of its losses were on paper as items such as depreciation and amortization took their toll. But although it managed to sock away more than $65-million, which is now being used to fund its first dividend, this quarter is the first time it can say it is operating in the black when it comes to net income.
It had some help – it saved about $1-million because it didn't have to pay the National Hockey League royalties through the first half of the season because of the extended lockout that cancelled hundreds of games and was only just resolved. But revenue also increased by 9 per cent from a year ago to $69-million, as it increased its user base by about 200,000 to 2.2 million.
That's not to say there aren't challenges – other Web-enabled companies such as Pandora have their eye on the car market and are looking for ways to steal market share from satellite operators. And the U.S. companies the Canadian company relies on are in the midst of a nasty ownership battle that will see Liberty Media – which helped keep the service alive with loans in 2009 – take over by the end of the year to try and guide it toward consistent profits.
Its average revenue per user slipped slightly and churn rate (number of people dropping the service) increased slightly from last year as price increases took hold and discount programs were scaled back.
But armed with a new six-year licence that will see it pay marginally less to a CRTC fund that helps fund Canadian content and steady free cash flow, the analysts who follow the company expects it to build on the quarterly profit.
It signed a deal Monday that will see its radios installed in Chrysler vehicles for the next five years, along with a free one-year subscription. It will also start charging its subscribers more to access its content, asking a dollar more per month in order to access more channels and another $4 for enhanced services that include online options that make it
Like other media companies looking to make money from their content, the company's executives are holding out hope that users are willing to fork out cash for quality programming.
"We believe that a premium service will attract a premium customer," the company said ahead of today's annual general meeting in Toronto (Tuesday). "Fiscal 2013 is off to a wonderful start."