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Confirming the trend of the past few quarters, XM Satellite Radio stated it is shifting from a retail-centric business to an OEM-centric business as the retail market for satellite radio softens and OEM sales in new cars ramp up.
Speaking with security analysts late last month, where XM outlined its annual and fourth-quarter performance, the company reported it now has a total of more than 9 million subscribers, and said if it shifted to a more liberal accounting method, more closely resembling that employed by Sirius, then XM's total subscriber base would total 10.3 million and the company would have added a record number of 4.5 million gross subscribers for the year. This compares with 4.2 million gross subscribers reported by Sirius several days earlier.
Specifically, XM does not include in its subscriber count XM radios in cars that are sitting on the dealer lot but are not yet purchased. XM estimates these radios amounted to 1.255 million during 2007 (double that of 2006). If they were reported, XM's gross subscriber additions for 2007 would have reached 4.5 million and net subscriber additions would tally 2 million, president and CEO Nate Davis told investors in a conference call late last month. In addition, SAC (the cost of adding a new subscriber) would also have shown an improvement of more than 10 percent, instead of rising about $10 for the year and the quarter.
"While we prefer our more conservative figures, it's important to understand the continued strong OEM growth," said Davis.
Using XM's more conservative accounting, total gross subscriber additions for the year were flat with 2006 and net additions declined to 1.4 million, compared with 1.7 million in 2006.
Davis said the declines were due, in part, to slower retail sales and competition with other consumer electronics devices such as the iPod and cellular phones. "Even FM radio has improved," he said.
However, XM's OEM sales this year were better than expected. Davis referred to the "transition of our business and, in fact, the whole satellite radio business, from a retail-centric business to an OEM-centric business." He noted that XM was installed in 3.5 million new vehicles in 2007, which is 67 percent higher than in 2006.
But XM indirectly refuted Sirius' claims to have taken a 68 percent share of the retail market, by The NPD Group's accounting, as stated days earlier by Mel Karmazin in a Sirius conference call with investors. Davis said NPD measures only 40 percent of XM's sales, down from 70 percent five years ago, as more of XM's business is performed through direct sales or in retailers that do not report to NPD. XM said it no longer relies on NPD figures as a lead indicator of the satellite radio market and said the data is less relevant today than it was five years ago.
XM said it recently closed its mall kiosk locations, as more consumers are aware of XM and more are buying direct from the Internet. Like Karmazin this week, Davis noted that retail sales will continue to play an important, while lesser, role in satellite radio as OEM subscribers seek out additional radios for other members of the family.
XM posted narrower net losses for the fourth quarter and a 20 percent gain in revenue. For the quarter, ended Dec. 31, 2007, XM narrowed its loss by $18 million over the prior year to a loss of $239 million. Revenue climbed to $308 million, compared with $257 million for the quarter last year.
For the year 2007, XM added 1.4 million net new subscribers, an 18 percent increase over the prior year and increased revenue, while narrowing losses. XM said its net loss for the full year improved by $37 million to a loss of $682 million, and revenue increased by 22 percent to $1.1 billion.
And both XM and Sirius announced they have agreed not to exercise their rights to terminate their merger agreement until May 1. The original deadline was March 1.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.