WorldSpace beaming as it takes next step

Boost in subscribers, new offices give satellite radio provider optimism

Friday, Oct. 14, 2005

Click here to enlarge this photo David S. Spence⁄The Gazette “People are as developed as the information they can access,“ says Noah A. Samara, CEO of WorldSpace Inc. Click here to enlarge this photo David S. Spence⁄The Gazette WorldSpace CEO Noah Samara talks to Gov. Robert L. Ehrlich Jr. at the opening of the satellite radio company’s newoffices in Silver Spring.

‘‘People are as developed as the information they can access,” said Samara, chairman, president and CEO of WorldSpace Inc., a Silver Spring satellite radio company that is the only licensed provider of satellite digital radio outside of North America, South Korea and Japan. Its broadcast area includes most of Europe, Asia, the Middle East and Africa.

It’s been somewhat of a roller-coaster ride for WorldSpace since it went public in August. The stock price has been as high as $26 but dropped to $13.44 as of Thursday. Yet there are signs that give Samara hope.

WorldSpace ended its second quarter with 63,930 subscribers, up 402 percent from a year ago. Revenues for the quarter increased 21 percent to $2.3 million from a year ago, while net losses narrowed from $52.3 million a year ago to $22 million, a 58 percent improvement.

‘‘We’re where we expected we’d be,” said Samara, 49, smiling during a ribbon-cutting event Wednesday attended by Gov. Robert L. Ehrlich Jr. (R) and other officials for his company’s new swank offices in downtown Silver Spring near other media companies including Discovery Communications and the American Film Institute Silver Theatre and Cultural Center.

WorldSpace’s bottom-line improvements were noted by some analysts. Tom Watts with SG Cowen said called them ‘‘good numbers with no surprises.”

But another analyst, Seth Jayson with The Motley Fool, an Alexandria, Va., investment information company, was not impressed. Jayson recently wrote in a report that prospects for WorldSpace shareholders ‘‘look grim.”

‘‘If you look only at subscriber growth, things do look good,” Jayson said.

‘‘This quarter’s $799,000 [revenue from subscribers] is a 390 percent increase over the prior-year quarter. But don’t make the mistake of extrapolating that growth rate across the entire $2.3 million revenue base, because other means of revenue are not going to do the same.

‘‘Also remember that the major catalyst of satellite-radio growth in the U.S. — in-car receivers — is not an area WorldSpace can currently enter,” Jayson said. ‘‘That’s right — for some time to come, expect no help from the likes of Toyota, Ford or GM.”

That will change, as WorldSpace plans to broadcast into the growing auto markets in the near future, Samara said. And the net losses are normal for a company making huge investments in satellite infrastructure, said CFO Sridhar Ganesan.

‘‘We have already made most of our large capital expenses,” Ganesan said. ‘‘We are beginning the rollout of services and focusing on marketing and other aspects.”

WorldSpace does not directly compete in the United States with the two satellite radio companies that have satellite broadcast licenses for this nation, XM Satellite Radio Holdings of Washington, D.C., and Sirius Satellite Radio of New York City. Those companies have many more subscribers, with about 3 million and 2 million, respectively, than WorldSpace’s roughly 64,000. But XM and Sirius posted higher losses last quarter than WorldSpace, with $147 million and $177 million, respectively.

The stock price of Sirius and XM, once both above $40, have also slid recently. Sirius’ price was $6.30 Thursday, while XM was $31.32.

The three companies were all formed around the same time: WorldSpace and Sirius in 1990 and XM in 1992. Samara, who was born in Ethiopia as the son of a diplomat and earned a law degree from Georgetown University, helped found XM and was one of that company’s initial owners. He hired XM executives, negotiated contracts and oversaw the development of the company’s business plan. Samara has since sold his interest in XM, but WorldSpace has some licensing and programming agreements with XM.

WorldSpace’s board includes some political heavyweights, including Jack Kemp, a former Republican congressman, cabinet secretary and vice presidential candidate, and Charles McC. Mathias Jr., a former Republican U.S. senator from Maryland.

While WorldSpace does not have satellite radio competitors in Europe and Asia, there are, of course, digital and conventional radio companies there, and many of them are profitable. GCap Media, a London digital radio company, made $10.6 million last year. NRJ Group, a Paris radio station owner, earned $87 million last year.

‘‘Not having direct competitors has its pros and cons, but there are mostly pros,” Samara said.

WorldSpace’s two satellites, the AfriStar and AsiaStar, cover two-thirds of the world with six beams, each of which is capable of delivering up to 80 channels. While China, Western Europe and Africa are key markets, India is WorldSpace’s main focus right now, Samara said. Of the company’s 64,000 subscribers, almost half, 28,000, are in India.

Indian listeners have few choices in radio, Samara said in a recent conference call. Even in major metropolitan centers, there are only four to five channels of FM radio, he said. There are 75 million households with a disposable income to afford satellite radio, and people there often have housing paid for by employers, leaving them with more income for consumer products, Samara said.

In moving from Washington, D.C., to Silver Spring, WorldSpace officials expect to save as much as 60 percent on rent. While the company has offices in India, China, France and other nations, most of its 250 employees — about 140 — are in Silver Spring. Rather than being spread across four floors as they were in the District, they are on two floors in 52,000 square feet, which includes numerous studios, in the Maryland suburb, with a third floor being refinished for future expansion.

Montgomery County gave WorldSpace some monetary incentives, including a grant, to move, said Robert W. McGlotten Jr., director of marketing and business development for the county. He declined to say how much, but a published report put the figure at $200,000.

The county was quite helpful, Samara said.

‘‘All of the permits were done quickly,” he said.

But a big incentive to move was how well officials have developed downtown Silver Spring and the other media and entertainment companies nearby, said Samara, who himself lives in Silver Spring.

‘‘We wanted a friendly space to take us to our next phase,” he said. ‘‘We like having a place where our employees really want to come to work. There are a lot of good restaurants nearby and other amenities.”

During Wednesday’s ceremony, Ehrlich noted Silver Spring’s redevelopment.

‘‘To have a cutting-edge company with bright people in the middle of this cluster during this era means a great deal to us,” he said. ‘‘Ten, 20 years ago, Silver Spring was not what it is today. It’s really neat to see.”

The lure for many companies such as WorldSpace to downtown Silver Spring includes not just the redevelopment efforts, but the good mix of residential and commercial properties and a nearby Metro rail station, said Tom Collins, past board chairman of the Greater Silver Spring Chamber of Commerce and director of sales and marketing for Atlantech Online, a Silver Spring technology company.

‘‘It’s nice to be able to walk to work,” he said.

WorldSpace has faced questions about some former investors. Mohammed H. Al Amoudi and Khalid Bin Mahfouz were named as defendants in lawsuits filed by relatives of victims of the Sept. 11, 2001, attacks on the Pentagon and World Trade Center. The lawsuits accused them of financially supporting the al Qaeda network, which both men have denied. Another investor, Salah Idris, was the owner of a factory in Sudan that the United States bombed in 1998.

Allegations against them are ‘‘unsubstantiated,” and some reports have been retracted, Samara said in the conference call. After restructuring WorldSpace, those investors no longer hold any ownership interest or have any voting rights in the company, Samara said.

As for the future, Samara said he doesn’t look too far ahead. ‘‘It’s like pedaling a bicycle uphill,” he said. ‘‘It works better if you focus on one pedal at a time. The rest will follow.”