XM Satellite Radio got a financial and marketing boost with the announcement of a planned $250 million capital infusion, partnerships with DirecTV and a major radio-station chain, and a commitment by General Motors to offer XM's technology in factory-installed radios.
The deals "give us more capital, strategic partners, and programming and technical expertise," XM president Hugh Panero told TWICE. But the company still needs another $672 million to begin commercial service, he said.
GM is targeting availability of factory-installed XM radios during model year 2002, coinciding with planned "meaningful commercial operation" of XM's system "in the first part of 2001," said Panero.
Previously, company spokespeople said XM would launch commercial service in Q4 2000, but the company contended its timetable has not slipped. What was always intended, a spokeswoman claimed, was the delivery of receivers to consumers for beta testing in Q4 2000, when the first of two Hughes satellites will be launched. The second satellite, intended in conjunction with terrestrial repeaters to get signals around obstructions, will go up early in Q1 2001.
Although XM contended it would be the exclusive supplier of SDAR service to GM radios, its agreement with GM could eventually aid rival CD Radio because of an FCC requirement that satellite radios receive both SDAR services. XM chairman Gary Parsons, however, said interoperability won't be achieved in first-generation SDAR radios, although it would eventually come. "There is nothing in the agreements we have signed to inhibit bringing in interoperable radios to the marketplace," he added.
Parsons also said he previously did not expect factory-installed XM radios to appear as quickly as planned by GM.
In conjunction with its commitment to offer XM radios, GM plans to invest $50 million in XM. Another $50 million will come from satellite-TV provider DirecTV, a subsidiary of Hughes, which will launch XM's two satellites and is itself a GM subsidiary.
The other investors include three telecom and technology investment companies, which are investing a combined $75 million, and Clear Channel Communications, which is also investing $75 million. Clear Channel said it operates or is tied to 625 radio stations and 19 TV stations.
The investments are in the form of convertible debt that XM expects to convert to equity, Panero said.
Of the $250 million investment, $175 million will be used to develop XM's system. The remaining $75 million will be used to partially finance a deal in which WorldSpace sells off its interest in XM to American Mobile Satellite (AMS), XM's majority shareholder. WorldSpace, which is developing SDAR systems in other parts of the world, had applied to the FCC to take majority control of XM but was opposed by potential satellite radio provider Primosphere. As a result of the latest transaction, WorldSpace will own 20% of XM parent American Mobile Satellite Corp.
After the $175 million in convertible debt is converted into equity, AMS will own slightly less than 40% of XM but will retain 60% of voting power, Panero said.
Besides providing capital, some of XM's new investors will supply expertise. Clear Channel and DirecTV "will develop differentiated entertainment services for XM," a prepared statement said. "DirecTV will provide its expertise to support the implementation of XM's customer service, billing, and conditional-access capabilities." DirecTV is a "world leader" in developing this infrastructure, Panero said, as well as in developing infrastructure to support the sale of set-top boxes at retail.
XM has no plans right now to leverage DirecTV's brand name, Panero added.
GM declined to indicate which of its divisions and models would offer XM radios or whether availability is planned for model year 2002. It also declined comment on its relationship with XM rival CD Radio, which recently said talks with GM were restarted after they had been broken off.