XM, Sirius Both Add Subscribers, 3rd Qtr. Losses

XM Satellite Radio furthered its lead in subscription sales over Sirius Satellite Radio as both companies announced results for the quarter ended Sept. 30, 2002.

XM said it gained 64,836 new subscribers for a total of 201,554 after roughly 11 months of national service. In addition, the company said it plans to reach a subscriber base of 1.2 million by the end of 2003.

Sirius reported subscriptions reached a total of 11,821 as of Sept. 30 after less than three months of national service for a total of 16,136 subscribers, as of Oct. 31.

Both companies reported heavy quarterly losses of $109 million and $108 million, respectively, with XM laying off 80 out of 480 employees.

While XM leads substantially in subscriptions, and continues to offer a broader hardware base in the market, the company has yet to announce its next round of financing which caused some concern among analysts.

Sirius' lackluster subscription acquisition also concerns analysts, however the company announced a new financing round in October that is expected to be approved in the first quarter.

"One would hope that Sirius' sales would have picked up a little more than they did. Is it a nail in the coffin? No, but it is a source for concern," said Ryan Jones, senior analyst for the Yankee Group, Boston. Sirius CEO Joe Clayton said of the subscription levels, "While I would like them to be higher" they are in line with the company's revised forecasts of 30,000 to 40,000 subscriptions by the end of the year.

At a recent financial news conference, XM told analysts it expects to announce a new round of financing by December and pointed to the company's continued success in the marketplace. "From a programming, operational and marketing perspective, XM continues to hit on all cylinders. From a financing perspective, we need more fuel, but we are heartened by interest from GM and investors," said XM president and CEO Hugh Panero.

XM said it has taken several steps to reduce cash burn and that subscriber acquisition cost (SAC) is now down to $124 from the projected $130 at the end of this year. Panero said this was due to the fact that XM reduced its subsidy fees on the popular selling Delphi SkyFi, and can reduce advertising because General Motors will spend $12 million this quarter on new car ads highlighting XM.

OEM sales are expected to account for the majority of XM sales by next year as GM rolls out between 350,000 and 400,000 XM-equipped cars through the end of model year 2003.

Since General Motors began selling XM factory-installed radios in a wide range of vehicles this fall, it is finding a 70 percent activation rate (within eight weeks) in cars which leave the lot with XM, Panero said. And GM is expected to generate between 60,000 and 70,000 XM subscriber sales in the fourth quarter, he added.

Also boosting sales are the Delphi SkyFi, the transportable home-to-car-to-portable system, which allows users to receive XM for a starting price of only $199 including antenna and one kit. The product accounts for 40 percent of sales in areas where it is selling, said Panero, who said it is also opening up the home market for XM and helping XM to "become a truly mass-market product." Delphi is expected to produce over 120,000 SkyFi units by the end of the year, XM said.

XM said it would add a CNN channel on Dec. 2, a new alternative rock station and a channel dedicated to live music. XM also said it has acquired over 6,000 subscriptions to its new premium Playboy Channel in two months of service. It further reported no impact on sales since the launch of competitor Sirius Satellite Radio.

Sirius announced its service would be available in certain Hertz rental cars in Florida and California beginning Dec. 1, 2002. Sirius and Hertz will initially make available approximately 20,000 Sirius units for renters of the Ford Taurus, Windstar, Expedition, Explorer, Crown Victoria and Mercury Grand Marquis at airports in the two states. Renters can receive the service for $5 per day, Sirius said. Clayton said the agreement with Hertz is exclusive.