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The Globe and Mail

For satellite radio, content is king as digital threats abound

Sirius XM Canada CEO Mark Redmond is photographed at the company's office in Liberty Village in Toronto, Ontario, Tuesday, August 19, 2014.

Kevin Van Paassen/The Globe and Mail

Even in the doldrums of late summer, the New York City headquarters of Sirius XM Radio Inc., the centre of satellite radio, is a buzzing hive of celebrity activity. On a recent August morning, former White House press secretary Dana Perino arrives for an exclusive on-air interview in front of two dozen subscribers invited to watch live. She bumps into Joel Madden, front man for punk band Good Charlotte, as Mississippi rap group Rae Sremmurd mugs for photos across the lobby.

The following week at Sirius XM Canada, the company's separately owned northern cousin, the office is quieter. But on any given day, a steady march of personalities from Conrad Black to Ziggy Marley arrive at its Toronto studios for live, exclusive chats, supplying the lifeblood of the Sirius XM schedules.

Satellite radio is facing fast-growing competition from online streaming services, some of which are free to use. The expectation that WiFi-enabled cars will be widely available within years only amplifies the challenge to satellite stations, which still count drivers as their core audience. Combined, these two new forces form "a real competitive threat" to the medium, wrote Haran Posner, an analyst at RBC Dominion Securities Inc., in a recent research note.

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But so far, satellite radio is holding its ground, with exclusive content, unavailable for free over the traditional airways or the Internet, as its main bulwark.

"We've been competing with free since we launched," said Mark Redmond, president and CEO of Sirius XM Canada, in an interview at the company's office in Toronto's trendy Liberty Village. "Terrestrial radio's our biggest competitor, and it's free."

Mr. Redmond, once an upstart himself in the radio scene, is now an established player facing an invasion of new intruders. Music streaming services like Songza and Slacker Radio have been crowding into the Canadian market, with Spotify the latest to move north.

They operate on a mix of free and subscription models, usually for $5 and $10 per month, offering access to massive troves of songs.

Sirius XM Canada charges $15.99 monthly for a full slate of 120 channels, ranging from curated music channels to news, live sports broadcasts, talk shows and entertainment. (Some premium stations are available for an additional $4/month.) All but 12 of those channels are licensed from the American-owned Sirius XM Radio, which offers 150 channels at similar prices. Music stations are commercial-free, and ad revenue provides just 2.5 per cent of the U.S. company's revenue.

Competitive threats are nothing new for Satellite radio, which launched in 2002. The U.S. and Canadian Sirius XM companies were born of mergers, in 2008 and 2011 respectively, as former competitors Sirius Satellite Radio and XM Satellite Radio were locked in an arms race for top content and suffering from a steep recessionary downturn in car sales.

But in the latest quarter of this year, Sirius XM Canada added 142,200 net subscribers and its revenue grew 1.2 per cent to $74.5-million from the same quarter last year. At the same time, its U.S. affiliate added 475,000 net new subscribers, posted net income of $120-million (U.S.) and grew revenues 10 per cent year-over-year to more than $1-billion.

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The two companies have nearly 29 million subscribers between them, and their radios are installed with free trial subscriptions in upwards of 60 per cent of new cars, offering a potential trove of new subscribers.

"Even with intensifying competition in the audio entertainment business, we expect [Sirius XM Canada] to grow at a significantly faster pace than most Canadian media peers over the next two to three years," wrote Mr. Posner of RBC.

Sirius isn't ignoring new competition, but has built safety nets. Both the American and Canadian arms now offer Web streaming of their satellite channels for an added fee, and the U.S. arm recently embraced a would-be competitor by launching "The YouTube 15," a weekly program showcasing top emerging artists with videos on Google's ubiquitous streaming platform.

Late last year Sirius XM Radio also bought the connected vehicle division of Texas-based Agero Inc., in a bid to tighten its ties with the Internet-connected car business. And while the adoption of WiFi-enabled vehicles could be hampered by data and roaming costs, satellite radio customers can access the service wherever they travel across North America at no extra charge.

Yet ultimately, it is still content – some of it very expensive – that shelters Sirius XM from the streaming incursion. The satellite giant offers branded stations like Eminem's Shade 45 or E Street Radio, a Bruce Springsteen channel, supplemented with live subscriber events such as Paul McCartney playing the storied Apollo Theatre.

And, as Sirius XM executives are quick to point out, a free service is unlikely to be able to afford the rights to The Howard Stern Show: Sirius XM reportedly paid $400-million to lock up the hugely popular shock-jock host exclusively.

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"Spotify at $9.99, I think, is good. It's a music-only service," Mr. Redmond said, explaining why he's not worried.

"We're $15.99 and we're everything."

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