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WorldSpace Bankrupt And On The Block: What Happened & What They Were Waiting For

WorldSpace Inc, which provides satellite radio services, along with its US subsidiaries WorldSpace Systems Corporation and AfriSpace Inc, has filed for Chapter 11 (Bankruptcy). The owners of the company have secured financing of up to $13 million for 90 days, in order to facilitate a sale. Readers may recall that the company had announced having received financing facility of upto $40 million earlier this year, and re-branded as 1worldspace.

In India, the company operates satellite radio services, and had recently tied up with Bharti Airtel for radio on DTH. In August last year, the company had also tied up with MSN India for online radio, but we are told by reliable sources that there were issues since online and mobile rights for the music had not been sold to WorldSpace. The website doesn’t appear to be active anymore.

What Happened

WorldSpace was launched in India in 2000, with an eye on the countrys craze for music. They launched premium subscription services in 2002. At present, they levy a monthly fee of $3.3 (Rs. 150) in India for the base package, while the premium package is charged at $9.99. WorldSpace receivers in India are manufactured by BPL, retailed at prices ranging from Rs.2,499 to Rs.3,599 (approximately, $60 to $90). A majority of the sales were of their lowest priced receiver, for which they had to provide a subsidy.

Worldspace, meanwhile, was only able to gather 163,000 subscribers in India by December 31st 2007. What went wrong for them, was the launch and success of free-to-air radio stations from Indian companies, which were essentially ad-supported because of their massive userbase. Nevertheless, India remained a key market for them, which is obvious from the fact that by then, they only had 11,000 subscribers in the rest of the world (Europe, the Middle East, and Africa).

What They Were Waiting For
WorldSpace was banking on “Hybrid” digital radio services – a combination of satellite and terrestrial transmission, which would allow them to broadcast to vehicles – what they called “Mobile services”. The success of this model was also dependent on car manufacturers integrating WorldSpace receivers alongwith their cards.

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But for this, they first needed spectrum allocation. The Telecom Regulator (TRAI) had issued recommendations, but recommended that licenses be granted only to Indian subsidiaries (100 percent Foreign ownership allowed), but subject to a revenue share of 4 percent of Annual Gross Revenue. However, nothing had been finalized, and the government had not issued any ruling.

With regulations taking time, they put their India plans on hold – reducing spending and marketing and sales activities, and shifted focus to Europe.

In Conclusion

Worldspace’s costs mounted, and the subscription based business model did not find enough takers to make it profitable. At the same time, the reworked business plan depended heavily on infrastructure spends (establishing a terrestrial repeater network), for a regulation on spectrum and terrestrial licensing to come through. Meanwhile, by December 31, 2007, costs continued to mount, and they incurred aggregate losses of approximately $2.5 billion. Given the current financial situation, I think it is unlikely that any financer will take a punt on supporting them, given that regulations may not favour them.

Do read the WorldSpace Annual SEC Filing, here.

A Question For You: what kind of a business-to-consumer subscription service do you think will find takers in India?

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