Marketing Costs Boost XM Radio Losses

XM Satellite Radio's first-quarter loss widened by nearly 6 percent as it spent more money on marketing to win subscriptions from new-car buyers.
XM Satellite Radio's first-quarter loss widened by nearly 6 percent as it spent more money on marketing to win subscriptions from new-car buyers. (By Mark Lennihan -- Associated Press)
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By Todd Shields
Bloomberg News
Tuesday, May 13, 2008

XM Satellite Radio, the District pay-radio company planning to combine with smaller competitor Sirius Satellite Radio, reported a wider first-quarter loss yesterday as it increased spending to attract more subscribers.

The net loss expanded to $129.3 million, or 42 cents a share, from $122.4 million, or 40 cents, a year earlier, the company said in a statement. Sales rose 17 percent, to $308.5 million, missing the $313.3 million average of 12 analysts' estimates compiled by Bloomberg.

Sirius reported a loss of $104.1 million, compared with a $144.7 million loss in the first quarter last year. Revenue rose 33 percent, to $270.4 million.

XM spent more on marketing to win subscriptions from new-car buyers. The company is retaining more customers after a free introductory period and is putting its radios into a bigger variety of vehicle models, April Horace, an analyst at Janco Partners in Greenwood Village, Colo., said in an interview.

"I'm very encouraged," said Horace, who doesn't own the shares and recommends investors buy them for their above-average growth potential.

XM shares rose 50 cents, or 4.2 percent, to $12.30. They have dropped 12 percent since New York-based Sirius agreed to buy the company on Feb. 19, 2007. Sirius, down 22 percent since then, gained 14 cents to $2.87.

XM said it remains hopeful about the combination. The $4.18 billion deal won clearance from U.S. antitrust officials in March and is awaiting a Federal Communications Commission ruling. Sirius is offering 4.6 of its shares for each of XM's.

XM added 355,000 subscribers through sales to new-car buyers and rental companies in the first quarter, up from 225,000 a year earlier. Subsidy and distribution costs rose 64 percent to $71.5 million as the company paid more to have its radios installed in new cars.

"New-car consumer adoption of satellite radio remains a strong growth platform," chief executive Nate Davis said on a conference call.

XM gained a net 303,000 subscribers in the quarter, or 6 percent more than a year earlier. It ended the quarter with 9.3 million, a gain of 18 percent.

The company lost 51,000 customers who bought equipment in stores or online, compared with a gain of 60,000 a year earlier.

Retail sales are likely to be "soft" until consumer confusion over the possible merger is resolved, Horace said.

Sirius and XM, the only two pay-radio companies, have said their combination is justified because they compete in a broader market that includes iPods, free radio and Internet broadcasting. The companies proposed lower-priced packages of programming to win FCC approval.

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