FAR OUT: SATELLITE RADIO FINDS NEW WAY TO TALLY LISTENERS Grant Robertson – Globe and Mail XM Canada has been trailing in the satellite radio market for the past year. But last week, the company made up to 90,000 customers appear out of thin air — substantially closing the gap between itself and rival Sirius Canada Inc. Had XM's marketing campaign suddenly kicked into high gear, giving the company an immediate 60-per-cent surge in subscribers compared with the previous quarter? Not exactly.
XM has simply changed the way it defines a subscriber.
In an industry already criticized as lacking standard customer data, the company is now counting satellite radios installed in new cars as they roll off the production line, even if those vehicles have not yet been sold to actual paying subscribers.
Subscriber numbers have soared as a result — jumping to 237,500 at the end of February from 147,400 the previous quarter. Rival Sirius Canada said last month that it had surpassed 300,000 subscribers.
Each company is eager to appear as large as possible. If a proposed merger of the two U.S. parent companies is allowed to proceed in the next year, it will force consolidation in Canada.
While the U.S. deal is a merger of equals, ownership in the combined Canadian operation would be determined based on the size of each company, with subscription numbers being one of the most important factors in that equation.
XM operator Canadian Satellite Radio Holdings Inc. said in a press release last week that the company had “revised subscriber definitions” in an effort to align its numbers “more closely with industry norms.” The full impact of the change won't be known until the company reports its next financial results in April.
“We have experienced exceptional growth in our subscriber levels this quarter,” XM Canada chief operating officer Stephen Tapp said Monday. “We're going to get into it, quite frankly, in really significant detail basically a month from now.”
A similar strategy of counting subscribers is used by Sirius Satellite Radio Inc. in the U.S., which notches a subscriber as soon as a car is sent from the factory to the sales lot, since dealerships often send some revenue back to the companies through their installation deals.
Rival XM Satellite Radio Holdings Inc. begins counting U.S. subscriptions once the car is bought and a three-month trial kicks in, even if the customer hasn't yet decided to sign up for the service beyond that.
“Is it misleading? You could say it's a bit misleading.” said Steve Mather, an analyst who tracks the industry at Sanders Morris Harris in Los Angeles. But he said he could work around that, “as long as they tell us how they're doing it.”
The problem, said analysts in Canada and the U.S. who spoke on condition of anonymity, is that many of those radios never translate into paying subscribers.
XM in the U.S. says roughly 54 per cent of car buyers who purchase vehicles equipped with satellite radios actually sign up for subscriptions once the free-trial period expires. New York-based Sirius says it doesn't have enough data yet, while the Canadian companies have not disclosed their figures.
At roughly $15 a month for a subscription, changing how subscriptions are counted could lead investors to expect revenue that may never materialize.
However, analysts suggest XM Canada is merely lining up with the U.S. industry standard, where paying subscribers are loosely defined.
“To be fair, it's not like they're trying to hoodwink the public,” said a Canadian analyst. “They're following the lead of their American partners.”
Comparing the two companies in Canada is difficult, since analysts aren't sure whether they are using the same definitions. Sirius is privately held and reports few of its numbers.
Sirius Canada chief executive officer Mark Redmond said all of his company's subscribers are paying customers. Unlike its U.S. parent, it does not count radios in cars that have not yet been sold. |