Sirius Adds Satellite Radio Subs, Losses Too -- XM Drops Commercials

by Paul Gough, Jan 29, 2004, 12:00 AM

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Sirius Satellite Radio added more than 100,000 subscribers in the fourth quarter but also a wider loss as the cost of adding a subscriber remained well over $200 though less than half as much as it did in the third quarter.

Sirius reported $5 million in revenues in the quarter ended Dec. 31 compared to only $650,000 in the comparable quarter in 2002. More than $4.83 million in revenue came from subscriptions, which cost either $12.95 a month or special annual or lifetime rates. It reflects the 74 percent growth in subscriptions between the end of the third quarter (149,612) and the end of the fourth (261,061), and eight times more than the 29,947 subscribers to the fledgling satellite radio provider at the end of December 2002.

Much of the subscriptions came from Sirius' efforts in the retail market, where NPD said it has a 33 percent share of the market, compared to 11 percent at the end of 2002. Its larger competitor, XM, got an 18-month head start in the satellite radio industry. XM had 1.36 million subscribers at the end of 2003 and added 430,000 during the fourth quarter.

Retail sales accounted for 197,650 of the 261,061 total subscribers at the end of the fourth quarter; OEM/dealer channels accounted for 39,400 and a deal with the Hertz rental car agency added 24,011 subscribers by the end of the quarter.

"Satellite radio was a popular product with consumers [during the holidays] and sales exceeded even our expectations," said Joe Clayton, president and chief executive officer, in a conference call Wednesday morning with Wall Street analysts. "More importantly, consumers love this service. This is a very good sign for the future of the industry."

While Sirius showed phenomenal growth in 2003, it came at a cost. The company's net loss was $147.8 million, or 14 cents a share, in the fourth quarter, compared to $134.1 million, or $1.74 a share, in the same period in 2002. The full-year loss was $314.4 million, 38 cents a share, in 2003 compared to $468.5 million, or $6.13 a share, in 2002. Sirius expects to reach the breakeven point when it hits the two million-subscriber mark, which it expects sometime late next year.

More than $63 million of Sirius' $130 million in expenses during the quarter was due to sales and marketing ($35.44 million) and subscriber acquisition costs ($27.83 million) such as $50 rebates for customers who buy a hardware package and a $70 rebate to shareholders. Sirius' average revenue per subscriber fell from $11.20 in the third quarter to $8.59 in the fourth quarter, even though the number of subscribers grew by 74 percent quarter-to-quarter. The hardware rebate lowered Sirius' average revenue per subscriber by $2.21, an executive said. There isn't a rebate on the $12.95 a month service, although that will begin in February, giving three months free for a 12-month subscription.

That compares to XM's subscription price of $9.95 a month, although Sunday XM will remove commercials from all of its music channels, removing a point of differentiation between the two services.

It cost Sirius $222 to add a subscriber in the fourth quarter; but that was much less than the $522 subscriber acquisition cost in the third quarter. A Sirius executive said the subscriber acquisition cost would have been $150 without advertising and promotion.

A Sirius executive said Wednesday that subscriber acquisition costs will be "south of $200" in the future, depending on the pace of advertising/promotion and technical improvements.

Sirius reported only $33,000 in advertising revenues in the fourth quarter for the mostly commercial-free service, compared to $35,000 during the same period in 2002. Full-year advertising revenues were $116,000 in 2003, compared to $146,000 in 2002. Sirius also posted $61,000 in equipment revenues but cost of equipment was $115,000.

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