Sirius Subs Soar, XM Issues Stern Warning

Sirius Satellite's subscriber base increased by almost 200 percent in 2005, ending the year with 3.3 million subscribers--about half of which came in the fourth quarter in anticipation of Howard Stern's high-profile move to Sirius on Jan. 6.

Sirius' fourth-quarter surge was bad news for its main competitor XM. Although XM remains the larger of the two--with 5.9 million net subscribers by the end of 2005--last week it disclosed serious losses in 2005, including big increases in the average amount of money spent to lure new subscribers. XM's expenses included a $196.5 million marketing blitz to counter Sirius' massive campaign for Stern.

In contrast, Sirius reported a substantial decrease in average spending for subscription recruiting for 2005, although it was still higher than XM. Sirius also boasted a 262 percent increase in revenue over 2005, with a year-end total of $242 million. Meanwhile, XM reported net revenue growth of only 128 percent over 2004, taking in $558.3 million in 2005.



Both companies reported net losses as they invested heavily in acquiring new subscribers and fending off each other's sallies, with Sirius posting an $863 million net loss for 2005 versus XM's net loss of $666.7 million. But while Sirius' net loss was far larger, its investment in acquiring new subscribers paid off with a fourth-quarter bonanza--and XM's flurry fell flat, as only 900,000 new customers signed on in the fourth quarter.

XM pioneered satellite radio broadcasting in 2001, but has been steadily overtaken in the last five years by Sirius, which opened up shop in late 2002.

One key question for media planners and buyers is whether either of the satellite radio broadcasters, which are jockeying for position, will begin accepting more advertising in a bid to lower subscription fees or offset costs.

Currently, Sirius doesn't carry advertising on any of its 68 music channels--but it does sell limited ad time on its entertainment, news, and sports channels. In a January interview, Sirius executive Patrick Reilly confirmed Sirius' commitment to "noticeably less" advertising than analog radio, and the company's robust figures for market share and subscription revenue may allow it to hold the line here.

In contrast, in the wake of its troublesome financial statement, XM has indicated it plans to significantly increase ad revenue in 2006.

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