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Sirius Reports Wider Loss Despite Record Subs

2/17/2006 09:07:00 AM Eastern

New York — Sirius Satellite Radio today reported its revenue for 2005 soared 262 percent to $242.2 million and jumped to $80 million for the quarter, compared with $25.2 million in the fourth quarter of 2004, driven by a sharp rise in subscribers.

But the company’s net loss for the quarter widened to $311.4 million, compared with a net loss of $261.9 million for the fourth quarter in 2004, it said.

The results follow by one day rival XM’s earnings report which also showed a broader loss for the fourth quarter.

Sirius, however, reported it nearly tripled its subscriber base in 2005, marking its best year and best quarter ever, according to CEO Mel Karmazin. Subscriber acquisitions soared by 190 percent for the year to 3,316,560 subscribers, with net additions for the year totaling 2,173,302 subscribers. For the fourth quarter, the company added 1,142,640 net subscribers, beating XM’s quarterly subscriber additions for the first time.It marked a 138 percent increase for Sirius over net subscriber additions in the quarter a year ago.

Speaking at an earning conference here, the company also announced that it will offer a wearable live Sirius/MP3 headset radio this summer. The unit will feature a “buy” button to allow users to purchase songs heard on Sirius through a third party, said the company, but no further detailers were provided. Sirius also announced that it successfully wooed back FOX News to its programming lineup, returning in March. It further stated that it plans to place Howard Stern’s show live on the Internet at some point in the future. Initially, it will not charge an extra fee for the service, but the company is working out technical issues, such as security, said Karmazin.

Countering recent statements from analysts who see Stern’s lure of new subscribers waning after the first quarter, Karmazin, noted, “We think that Howard Stern is going to add subscribers every day. In radio his value continued throughout the year and we think that will continue here. The idea that he’s only going to affect [the] first quarter or fourth quarter is lame. As we marshal the Howard audience to get them to be our salespeople to sell it to their friends, you are going to see those numbers continuing.”

Sirius also stated that its addition of more than 1 million subscribers for the fourth quarter was due to its programming lineup. “We have proprietary research that tells us why people subscribe and the drivers of that for the fourth quarter were Howard Stern, the NFL, our music and Martha [Stewart],” said Karmazin.

In new subscribers for 2005 broken down by channel, Sirius said it added 1,554,108 net subscribers from its retail channel in 2005, and 620,224 net subscribers from its automotive OEM channel. For the fourth quarter, it added 900,645 retail and 241,705 OEM net subscribers, it said. The company said it expects to double its OEM subscribers next year, reaching 1.65 million net new OEM subscribers.

The company’s adjusted loss from operations for the quarter increased $71.1 million, to $226.3 million, over the quarter in 2004. For the year, loss from operations increased $111.3 million, to $567.5 million. Sirius blamed increased marketing expenses for the losses. Its subscriber acquisition costs (SAC) increased 124 percent, or $80.2 million, for the quarter due to “higher shipments of Sirius radios and chipsets and increased commissions to support a 143 percent increase in gross subscriber additions.” SAC costs for the year increased 101 percent to $175.9 million.

Sirius also reported a churn of 1.5 percent for year and the fourth quarter.

Programming and content expenses increased $9.2 million, to $35.0 million, for the fourth quarter and sales and marketing expenses increased $12.2 million, to $63.0 million, for the fourth quarter. For the year, programming and content expenses increased $35.2 million, to $98.6 million.

Sirius continues to forecast subscribers will exceed 6 million by the end of this year.

The company also said it experienced shortages during the holiday season of products, such as the S50 wearable MP3/Sirius (non-live) headset and the Sportster Replay. The company is “working hard” to get the Sportster, which exceeded sales expectations, back in stock, it said.

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