|Sirius' promotional blitz for its newest star, shock-jock Howard Stern, meant that XM reported a loss due to increased advertising and marketing spending.
KARMAZIN: SIRIUS WILL BE A $60 MILLION AD MARKET
But Sirius Stumbles With Stern Podcast Promotion
SATELLITE RADIO HAD A VERY GOOD CHRISTMAS
XM, Sirius Combined Have 9.4 Million Subscribers
Satellite radio companies spend money on promotion offers, marketing and advertising to persuade consumers to sign up for the services. The most comprehensive measure of this spending is called cost per gross addition -- or CPGA. In 2005 XM’s CPGA was $109, up from $100 in 2004. Fourth-quarter CPGA was especially high, totaling $140 in 2005 vs. $104 for the same period in 2004.
The company attributed the rise to the “need to counter a onetime marketplace challenge” -- the addition of Howard Stern at rival Sirius Satellite Radio. Mr. Stern went on the air Jan. 9 after a heavily hyped campaign. (Mr. Stern had been with Infinity Broadcasting, now CBS Radio, part of CBS Corp.)
XM said it expects subscriber acquisition costs and CPGA to drop sharply in the first quarter as the company scales back on media spending and hardware discounts.
Overall fourth-quarter net losses were $268.3 million and $1.22 per share in 2005 vs. $188.2 million and 93 cents per share for the same period in 2004. For full-year 2005 XM’s net loss was $666.7 million and $3.07 per share compared to $642.4 million and $3.30 in 2004.
And while executives acknowledged on the earnings call they were “disappointed” to not have met their goal of increasing XM's subscriber rolls to 6 million by year-end, CEO Hugh Panero said the company would be “relentless” in achieving a total of 9 million subscribers by the end of 2006, positive cash flow from operations in the fourth quarter and positive cash flow for full year 2007.
In addition to earnings, XM also said Director Pierce J. Roberts resigned. In a letter to XM Chairman Gary Parsons, Mr. Roberts issued a warning that there is a "significant chance of a crisis on the horizon.”
XM addressed Mr. Roberts’ resignation, explaining Mr. Roberts favored “more stringent cost control” and thought the company should spend less on marketing, programming and promotions so that it could more quickly achieve positive cash flow.
Mr. Parsons called it “a balancing act for management” and said the "differing opinions are quite similar to the differing opinions we hear from investment community at large.
XM took in $20 million in ad revenue in 2005, up from $8.5 million the year before. The company said it would significantly increase ad revenue through 2006.