XM, Sirius Execs Give 2007 Outlook

LAS VEGAS — XM and Sirius executives, speaking at a Citigroup conference coinciding with International CES both said in separate presentations that they are open to a merger if it benefits shareholders, and each presented an outlook for 2007.

XM chairman board Gary Parsons said that XM should see improved year-over-year retail subscriber additions during the second and third quarter.

Part of the recent slowdown in satellite radio retail sales has been because past quarters were boosted by the Stern effect, he said. In addition, satellite radio is competing with flat-panel TVs and MP3 players. "What we're really seeing is the long-expected migration from retail-intensive to OEM-intensive channels and at a faster rate than we or Sirius would have projected. But there will always be a valuable portion of our growth from the retail channel."

Parsons also stated that while Sirius continues to hint of a rate increase to $14.95 at some point this year, XM will not raise prices to match that increase in the near term.

Both Sirius and XM estimated that the retail share for the fourth quarter would be in the neighborhood of 40 percent for XM and 60 percent for Sirius.

XM hinted that part of the reason for its lower share may be that it refrained from steep Christmas discounting. "We were more conservative in pricing. We did not discount the radios down nearly as heavily and we tied the lower-end radios to a service commitment," Parsons said.

To the inevitable question of a possible merger between XM and Sirius Parsons said, "We are open to any action that is positive to shareholder value." And when asked if XM would consider being either the buyer or seller in a deal with Sirius, he said, hypothetically, that it would likely be a straight merger.

Speaking at the conference the following day, Sirius CEO Mel Karmazin said of the merger, "I think consolidation creates value. That's the kind of thing a CEO should be looking at."

Karmazin estimates that the portable segment of satellite radio for products such as the Stiletto is about 15 percent to 20 percent of the market.

In other statements he said that he expects negotiations with the record companies on royalties should be resolved by the end of this year.

Parsons also admitted that as a result of the Federal Communications Commission (FCC) inquiry into satellite radio emissions last year there were fewer new XM products in the fourth quarter of 2006. "Some of the [XM] devices you'll see coming out in the first quarter would have come out for Christmas if not for the FCC issue," he said.