By Kim Hart
Washington Post Staff Writer
Friday, October 26, 2007
XM Satellite Radio Holdings said yesterday that its third-quarter loss widened 70 percent from a year earlier, as it continued to push for regulatory approval to merge with smaller rival Sirius Satellite Radio.
The company added customers, but its losses increased primarily because sales in retail stores such as Best Buy and Circuit City fell.
XM added 315,000 net subscribers, compared with 286,000 in the third quarter last year, the first year-over-year customer growth in more than a year.
XM finished the quarter with 8.5 million subscribers, compared with 7.2 million at the same point last year.
People who bought cars equipped with XM radios make up 47 percent of XM's subscribers, said Nathaniel A. Davis, president and chief operating officer. This customer base grew during the third quarter primarily because XM made more deals with automakers.
But a 22 percent drop in sales through retail channels deepened the company's loss. XM also lost money in the quarter because of merger-related costs and severance pay to its former chief executive, Hugh Panero. The company, which has never earned a profit, also struggled to keep customers.
"We're obviously not happy with the third-quarter results from the retail channel," Davis said during a conference call with analysts. XM expects to add customers in the fourth quarter, when retail sales usually increase, he said.
The District firm reported a loss of $145.4 million (47 cents per share), compared with a loss of $85.5 million (32 cents) in the third quarter the previous year. Revenue was $287.5 million, up from $240.4 million.
Davis said satellite-radio providers face increased competition from the proliferation of audio entertainment devices, such as MP3 players, cellphones and high-definition radio. XM and Sirius executives have said they hope regulators will approve the proposed merger to help satellite radio better compete against those media.
The argument that satellite-radio providers compete directly with other audio entertainment could fall flat with regulators, said Maurice C. McKenzie, an analyst at Signal Hill Capital Group in Baltimore. XM and Sirius can air live entertainment to customers in cars, offices and homes, setting them apart from iPods and Internet radio stations that have more restricted audiences, he said.
"They are as dissimilar as a movie theater is to a TV in someone's living room," he said. "While there is a proliferation of other audio devices, satellite radio is relatively unique."
At the same time, Federal Communications Commission Chairman Kevin J. Martin is trying to relax rules governing media ownership, partly because of new media alternatives. That proposal could indirectly improve the chances of the merger's success, analysts say.
XM Chairman Gary Parsons said he does not expect the renewed media ownership debate to affect the merger.
"I think the FCC will assess ours on its own merit and on its own timeline," he said.
XM shareholders are scheduled to meet Nov. 13 to vote on the merger. XM shares closed down 25 cents, or 1.6 percent, at $15.34.