XM and Sirius Satellite Radio Report Continuing Losses

Mel Karmazin Bullish on Ad Revenues; Investors Encouraged by New Subscriber Increases

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NEW YORK (Adage.com) -- You gotta take the bad news with the good -- that appears to be the story for XM's and Sirius's second quarter earnings.
Despite continuing losses, CEO Mel Karmazin was bullish on the potential of advertising as Sirius' second revenue stream.
Despite continuing losses, CEO Mel Karmazin was bullish on the potential of advertising as Sirius' second revenue stream. Credit: AP

$237.8 million loss
Losses at both satellite radio companies widened during second quarter, though Sirius, reporting results today, said its advertising revenues were up. The satellite radio company, led by former CBS Radio chief Mel Karmazin, lost $237.8 million for the period compared with a loss of $177.6 million during second quarter of 2005.

XM Satellite Radio on July 27 reported a second-quarter loss of $231.7 million, up from losses of $148.8 million a year ago.

Despite the losses, investors appeared encouraged by a growth in the overall market. Sirius's net subscriber additions outpaced XM's during the quarter, 600,460 to 398,012. XM has a total of 6.9 million subscribers to Sirius's 4.6 million. Given the tiny market segment, both stocks saw a lift in their share price today, with XM's up 4.31% to $12.10 and Sirius's up 0.71% to $4.23.

Subscriber acquisition cost
A big factor keeping the companies in the red: subscriber acquisition cost, or the money each company spends to get a single subscriber to sign up for the service. Sirius's acquisition costs dropped to $131 in second quarter from $160 in the year-ago period. XM's, meanwhile, rose to $64 in second quarter, compared with $50 in the year-ago period.

Not surprisingly, Mr. Karmazin, Sirius' CEO, was bullish on advertising as a second revenue stream. "We have approximately $22 million on the books this morning," he told analysts on today's earnings call. "That compares to finishing all of last year at slightly over $6 million." He also said advertising ARPU -- or the average ad revenue per unit/subscriber -- totaled 62 cents vs. 22 cents last year, which meant advertising growth outpaced subscriber growth.
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