Sirius Subscriber Forecast Up While XM Lowers Expectations

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

NewYork-based Sirius now believes it will have 6.3 million subscriber by the closeof the year, a slight increase from its original projection of 6.2 millionsubscribers.

During thesecond quarter of 2006, Sirius added 600,460 net subscribers, up 64 percentfrom the 365,931 subscribers it added during the second quarter of 2005. Thatbrings Sirius' total number of subscribers to 4.7 million.

While it iscatching up, Sirius still trails XM in total subscribers. Washington-based XMSatellite Radio finished the quarter with 6.9 million subscribers, but onlyadded 398,012 net new ones during the quarter.

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

Thosesentiments stood in contrast with XM's Chief Executive Officer Hugh Panero, whosaid during his company's conference call that satellite radio in general hasbeen experiencing an "overall softness" in the market.

Siriusbrought in $150 million in revenue during the quarter, but reported an overallnet 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.

"Wecall 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 telephoneinterview Aug. 4 that his firm believes Sirius will continue to gain marketshare for at least another year.

Sirius willbe aided, according to Parvez, by the fact that the National Football Leagueseason will begin soon. Sirius has the rights to the live play-by-playbroadcasts of every NFL game. In addition, Sirius will begin broadcastingNASCAR content beginning in 2007.

Disc jockeyHoward Stern's fans will also help drive Sirius's success, Parvez said. Stern's20 years of archived radio broadcasts now are available to listeners, Parvezsaid, adding that Sirius subscribers will be able to listen to the Stern showonline as well.

Sirius willreceive a marketing boost from Stern during the upcoming Christmas season, Parvezpredicted; Stern was constrained by his contract with Infinity Broadcasting fromdoing any marketing for Sirius during the 2005 Christmas season.

Whichcompany will take the lead in 2008 remains to be seen, Parvez said. XM will seeat that point a lot more of its automotive deals come to fruition withcompanies such as Nissan and Hyundai factory-installing XM radios.

"XMwill still realize its long-term potential," Parvez said. "They justhave to get through some of their recent issues first." Karmazin saidduring the conference call that plans are underway for Sirius to deliver videocontent, and that the company expects to close deals during the second half of2006 related to video content directed at children.

Sirius alsosaw a drop in its subscriber acquisition costs during the second quarter. Itspent $131 per gross subscriber during the quarter, compared to $160 persubscriber during the second quarter of 2005.

Karmazinsaid the company is preparing for the launch of its Stiletto personal radioproduct, which will be launched at the end of the summer, but he declined torelease any details about the design of the product.

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

"We'vehad very few complaints from consumers about interference, but it is anissue," Karmazin said during the call.

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

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