Is XM in trouble?

[Chip R]

Could be.

http://news.yahoo.com/s/ap/20060216/...s_xm_satellite

XM Radio's Loss Widens, Key Director Quits

By SETH SUTEL, AP Business Writer



NEW YORK - XM Satellite Radio Holdings Inc. posted a much wider loss in the fourth quarter on higher costs for marketing and acquiring subscribers. At the same time, a key director quit over disagreements about the company's direction, warning of a looming "crisis."

Its shares sank $2.16, or 8.6 percent, to $23.09 in morning trading on the Nasdaq Stock Market, after briefly trading as low as $22.94. Their previous 52-week low was $23.01.

XM, the larger of the country's two satellite radio operators, reported Thursday a loss of $270.4 million, or $1.22 per share, after dividends for preferred stockholders, for the October-December period. In the same period a year earlier, the loss was $190.4 million, or 93 cents per share.

Revenue more than doubled to $177.1 million from $83.1 million. Analysts surveyed by Thomson Financial expected a loss of 92 cents per share on revenue of $174.1 million.

The Washington, D.C.-based company also disclosed in a regulatory filing that Pierce Roberts Jr. has stepped down as a director, citing strategic differences with other board members over the company's direction.

Roberts, a former chief telecom investment banker with Bear Stearns, had served as a director for five years and sat on all of the board's major committees.

In a letter to board chairman Gary Parsons, Roberts said he was "troubled" by the company's current path. "Given current course and speed there is, in my view, a significant chance of a crisis on the horizon," Roberts wrote. "Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now."

The company said in a statement accompanying the letter that its management and other directors disagreed with Roberts over how to balance growth versus cash flow, believing that it was important for the long term to keep up its rapid growth rate.

XM and its smaller rival, Sirius Satellite Radio Inc., are locked in a vicious, expensive battle to line up listeners and programming for their pay radio services, which currently cost about $13 a month and require a special receiver. Both offer dozens of channels of talk and news as well as commercial-free music.

Both have also racked up significant financial losses as they build their businesses, signing big-ticket contracts for programming with shock jock Howard Stern, Major League Baseball, talk show host Oprah Winfrey and others.

For the full year, XM posted a loss, after preferred dividends, of $675.3 million, or $3.07 per share, compared with $651.2 million, or $3.30 per share, last year. Revenue rose to $558.3 million from $244.4 million.

XM said it had more than 5.9 million subscribers at the end of 2005, up 84 percent from a year earlier, and said its total had risen to more than 6 million in the first week of January. Sirius has said it has more than 3 million subscribers.

XM's CEO Hugh Panero said in a statement that the company expects to reach profitability from its operations by the end of this year, with subscription revenues reaching $860 million. He also said he expects to have 9 million subscribers by the end of the year.

[KronoRed]

I see a merger in the future.

[Chip R]

Originally Posted by KronoRed

I see a merger in the future.

The Justice Dept. may have something to say about that.

[Johnny Footstool]

I think XM will have to sell commercials at some point down the road.

[KronoRed]

Originally Posted by Chip R

The Justice Dept. may have something to say about that.

They always ruin stuff

[Yachtzee]

I know that Direct TV now offers XM as its audio channels, whereas Dish Network has a deal with Sirius (I think). Wouldn't it be ironic if XM merged with Direct TV so that it had exclusive rights to the out of market TV broadcasts of NFL games, but the exclusive rights to MLB radio broadcasts?

I wonder how the rebate deal on the equipment has worked out for them. Satellite TV has an ongoing offer to give people free equipment to sign up. I wonder if offering the hardware for free will be beneficial in the long run.

[KronoRed]

News Corp (owners of DirecTV) have a controlling interest in XM, so that's not much of a stretch.

[beb30]

I always questioned how XM made its money. I mean with no commercials or advertising while signing multi million dollar deals with people to do radio shows, i have no clue how they could turn a profit.

[oneupper]

I haven't gotten into XM's finances, but the key is probably in the split between subscriber acquisition costs (the cost to get new subscribers) and regular operating expenses.
Subscriber acquisition expenses to some point are "soft" expenses in that if they effectively bring in new subscribers, that added revenue will be worth it. (making them "investment-like").
If its the operating expenses, on the other hand, start getting prepared while we interrupt this program for a message from our sponsor...

[Caveat Emperor]

Originally Posted by beb30

I always questioned how XM made its money. I mean with no commercials or advertising while signing multi million dollar deals with people to do radio shows, i have no clue how they could turn a profit.

Take Oprah Winfrey -- she has a daily TV audiance of around 22 million people. If just 1 million of those people (less than 5%) of her audiance goes and buys XM to hear her channel, that's a subscriber revenue of $13 million in the first month they listen alone. In order to cover the entire cost of her $35 million dollars, they need those 1 million people to stay for only a few months.

That was the same bet Sirius made on Stern -- except they paid a ton more money and not a lot of new subscribers to stay on board long term in order to cover the cost.

[Joseph]

All I've got to say is, it better not be in trouble.

[RFS62]

Originally Posted by Joseph

All I've got to say is, it better not be in trouble.

No kidding. I've got it in two cars and the house. I'll kill if I lose the baseball channel.

[WMR]

Sirius rocks. Contract XM.

[reds1869]

Originally Posted by WilyMoROCKS

Sirius rocks. Contract XM.

Blasphemy! No baseball fan should say such things.

[Caveat Emperor]

Originally Posted by WilyMoROCKS

Sirius rocks. Contract XM.

Hoo Hoo, I invented 2nd place!