Satellite Radio Rivals Report Disappointing Losses

Satellite radio services XM and Sirius report big fourth-quarter losses, even as analysts had expected a move toward profitability. Sirius and XM are locked in a competitive battle to attract new subscribers, and both have been spending heavily to create new programs.

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MICHELE NORRIS, Host:

This is ALL THINGS CONSIDERED from NPR News. I'm Michele Norris.

ROBERT SIEGEL, Host:

And I'm Robert Siegel. There's no question that the satellite radio business is growing fast. Sirius satellite radio said today that its subscriber base nearly tripled in 2005, and its rival, XM satellite radio, has reported strong growth as well. But the companies are also spending wildly to attract customers by signing up high priced talent, including Howard Stern and Oprah Winfrey.

Yesterday, a member of XM's board of directors resigned, saying the buying binge was more than the company could afford. NPR's Jim Zarroli reports.

JIM ZARROLI: The satellite radio is one of the few media sectors that's growing rapidly right now and so its quarterly financial reports tend to attract plenty of attention on Wall Street. In a conference call with analysts today, Sirius chief executive Mel Karmazin delivered a glowingly positive assessment of his company's future.

MEL KARMAZIN: Satellite radio is red hot, and I think you will agree that Sirius is on a roll.

ZARROLI: Karmazin said Sirius attracted more than a million new customers during the last three months of 2005, bringing the total to about 3.3 million. Overall revenue more than tripled. But Karmazin also acknowledged that company lost $311 million during the quarter, and that the losses had grown over the preceding year.

The revelation came one day after XM board member Pierce Roberts resigned. Roberts said in a letter to his board that the company was spending so much money that it faced a looming financial crisis. Like Sirius, XM offers listeners dozens of channels of music, from classical, to jazz, to '60s.

(SOUNDBITE OF RADIO BROADCAST)

ZARROLI: But the two companies have also made some very high priced acquisitions of programming. Sirius paid more than a half a billion dollars to win Stern over. XM announced this week that it would air an Oprah Winfrey channel. Bob Dylan, Tom Petty, Martha Stewart, Fox News, Major League Baseball, and National Public Radio have all signed contracts with one of the two companies.

Karmazin says Sirius needs to spend money if it's to build its customer base.

KARMAZIN: Remember, content matters everyday when the consumer is making their buying decision.

ZARROLI: Many analysts agree, saying the industry's expenses are not out of line, given the huge potential of satellite radio. April Horace of Hoefer & Arnett said XM has been using money to build innovative new programming options.

APRIL HORACE: They are spending money, but they're also investing into the future with things like new data services, like real-time Traffic, with new data services such as the weather for boaters and aviators.

ZARROLI: But others are skeptical. Andy Miedler of Edward Jones, which has a cell rating on Sirius stock, says it's not at all clear the two companies can ever win enough subscribers to justify the large costs they're incurring.

ANDY MIEDLER: We believe that expectations are very aggressive for not only subscriber gains, but most importantly, from a profitability and cash flow perspective. We think there are a lot of things that have to go right for this share price to be justified, and we think that leads to a very high risk situation.

ZARROLI: Because most satellite radios are sold in cars, the company's growth is also vulnerable to fluctuations in auto sales. XM said yesterday that its subscriber growth fell somewhat short of expectations last year because of a drop in sales by General Motors. For his part, XM Chairman Gary Parsons admitted in a conference call yesterday that the company hadn't reigned in costs as well as it hoped last year.

GARY PARSONS: Well, frankly, based on the numbers from the fourth quarter, we did grow strongly, but we failed to do so as economically as we had expected or planned to.

ZARROLI: Parsons said the company's balance sheet would improve quickly if it reduced its marketing expenditures, but he said XM has to play a balancing act. That is, it needs to find a way to attract customers without digging itself into a hole it can't get out of.

Jim Zarroli, NPR News, New York.

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