Marketplace: XM Satellite Radio Profits

XM Satellite Radio has posted its fourth-quarter profits and they don't look good. John Dimsdale of Marketplace talks about some of the difficulties facing the company.

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MADELEINE BRAND, host:

Back now with DAY TO DAY. I'm Madeleine Brand.

XM Satellite Radio turned in its profit report today and the news was mixed. The report shows that revenue for the last quarter more than doubled as the number of subscribers jumped to nearly six million, but losses were also much bigger than expected due to higher costs for programming and marketing. And joining us is John Dimsdale from Marketplace's Washington Bureau, and that's where XM is based.

And John, so good news or bad news for XM?

Mr. JOHN DIMSDALE (Host, Marketplace): Well, the jury's still out on that question, Madeleine. You know, the company's been meeting its targets for new subscribers, but neither XM nor its smaller rival, Sirius, are anywhere near making money. XM's new customers rose by 84 percent last year. Subscriptions for satellite radio work like cable TV. You pay $13 a month for somewhere around 150 channels of crystal clear programming which can be received anywhere in the country. And with so many new subscriptions, XM's revenue jumped to more than $500 million last year. And Sirius also has been signing up new members. They reached three million by the end of the year.

BRAND: Wow. Five hundred million, that sounds like a lot. But they still can't turn a profit. Why?

Mr. DIMSDALE: Both of these companies are spending hundreds of millions on programming. They're in a race to sign up the biggest names. Sirius is paying Howard Stern $500 million for two channels of his shows. XM last week signed up Oprah Winfrey for $55 million and a cut up the profits, if they occur. XM paid $650 million for Major League Baseball games, Sirius $300 million for National Football League games. And the two companies have been furiously signing up exclusive rights to talent like Martha Stewart and Bob Dylan and Eminem, and even Bob Edwards. But all this spending is a high-stakes gamble. In fact, XM also revealed today that a member of its board resigned because he thinks there's a financial crisis on the horizon. He feels that XM's strategy of spending so much for high priced talent doesn't serve shareholders.

BRAND: So given all this money they're spending on talent, when do they expect to make any money?

Mr. DIMSDALE: Some skeptics say that pay radio will never fly, that it will only have a nitch appeal for a few million and never break out for big profits. The industry is watched by a lot of people. Stocks are popular with folks who think that there's potential. The future's gonna depend in part on new car sales. Lots of new cars come with a free trial of one service or the other. Also on technology, whether satellite radio breaks out of cars and into pockets with portable receivers. Company execs are upbeat, so we'll have to see.

Coming up on Marketplace, we look at how some college grads are turning to professional counselors to help them find jobs.

BRAND: Thank you, John.

John Dimsdale of Public Radio's daily business show Marketplace, produced by American Public Media.

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