Sirius Subscriber Forecast Up While XM Lowers Expectations

Sirius Satellite Radio bested rival XM in new subscriptions for the third quarter in a row, and in a symbol of the two companies' changing fortunes, Sirius also revised its subscriber projections upward just days after XM Satellite Radio told financial analysts it was lowering its estimate for the number of subscribers it expects to have at the end of the year.

New York-based Sirius now believes it will have 6.3 million subscriber by the close of the year, a slight increase from its original projection of 6.2 million subscribers.

During the second quarter of 2006, Sirius added 600,460 net subscribers, up 64 percent from the 365,931 subscribers it added during the second quarter of 2005. That brings Sirius' total number of subscribers to 4.7 million.

While it is catching up, Sirius still trails XM in total subscribers. Washington-based XM Satellite Radio finished the quarter with 6.9 million subscribers, but only added 398,012 net new ones during the quarter.

During a conference call with investors Aug. 1, Mel Karmazin, chief executive officer of Sirius, said that the quarter's numbers and the company's programming content "continue to contribute to our very bullish feelings about satellite radio in general, and specifically Sirius."

Those sentiments stood in contrast with XM's Chief Executive Officer Hugh Panero, who said during his company's conference call that satellite radio in general has been experiencing an "overall softness" in the market.

Sirius brought in $150 million in revenue during the quarter, but reported an overall net loss of $237.8 million. In the second quarter of 2005, Sirius brought in $52.2 million in revenue and lost $177.5 million overall.

"We call that dramatic growth," Karmazin said of the revenue numbers.

Shaun Parvez, an analyst with New York-based S.G. Cowen and Co., said in a telephone interview Aug. 4 that his firm believes Sirius will continue to gain market share for at least another year.

Sirius will be aided, according to Parvez, by the fact that the National Football League season will begin soon. Sirius has the rights to the live play-by-play broadcasts of every NFL game. In addition, Sirius will begin broadcasting NASCAR content beginning in 2007.

Disc jockey Howard Stern's fans will also help drive Sirius's success, Parvez said. Stern's 20 years of archived radio broadcasts now are available to listeners, Parvez said, adding that Sirius subscribers will be able to listen to the Stern show online as well.

Sirius will receive a marketing boost from Stern during the upcoming Christmas season, Parvez predicted; Stern was constrained by his contract with Infinity Broadcasting from doing any marketing for Sirius during the 2005 Christmas season.

Which company will take the lead in 2008 remains to be seen, Parvez said. XM will see at that point a lot more of its automotive deals come to fruition with companies such as Nissan and Hyundai factory-installing XM radios.

"XM will still realize its long-term potential," Parvez said. "They just have to get through some of their recent issues first." Karmazin said during the conference call that plans are underway for Sirius to deliver video content, and that the company expects to close deals during the second half of 2006 related to video content directed at children.

Sirius also saw a drop in its subscriber acquisition costs during the second quarter. It spent $131 per gross subscriber during the quarter, compared to $160 per subscriber during the second quarter of 2005.

Karmazin said the company is preparing for the launch of its Stiletto personal radio product, which will be launched at the end of the summer, but he declined to release any details about the design of the product.

The company plans to be cash-flow positive by 2007, Karmazin said. Sirius is still working with the U.S. Federal Communications Commission to resolve issues with its devices that use an FM modulator. Both Sirius and XM have been informed by the commission that those devices exceed legal emissions standards, according to Jim Meyer, president of operations and sales for Sirius.

"We've had very few complaints from consumers about interference, but it is an issue," Karmazin said during the call.

Sirius stock closed at $4.20 per share July 31 and dropped to a closing price of $4.08 per share Aug. 1, following the release of the quarter's financial figures.