XM Lowers Subscription Forecast

During a second-quarter earnings announcement on Thursday, XM Satellite Radio cut its prediction of the number of subscribers it would have by year's end from 8.5 million to a range between 7.7 and 8.2 million. This is the second reduction in XM's forecasted subscription base--which began at 9 million in March, but was reduced to 8.5 in May. The service currently has about 7.0 million subscribers, and continues to grow, announcing 398,000 new subscriptions in the second quarter.

But XM has been buffeted by a number of issues. First, the company is trying to resolve a regulatory dispute with the federal government over FM modulators on some of its new radio sets. It's also the subject of a massive lawsuit from the Recording Industry Association of America (RIAA), which alleges that a new XM portable player allows consumer piracy. And finally, XM faces stiff competition from Sirius Satellite, which has enjoyed growing market share since last year, especially with the addition of shock jock Howard Stern to its roster in January.

Sirius, which plans to hold its own earnings conference on August 1st, has recently been trumpeting the addition of 600,000 subscriptions in the second quarter, bringing it to about 4.69 million subscribers--158 percent growth over second quarter 2005. XM is still 50 percent larger in its subscription base, but Sirius currently holds about 61 percent of the retail satellite radio market, an important bellwether of market trends.

Against this backdrop, the news of XM's subscription forecast drawback caused XM's stock to sink to a one-year low on Wall Street. But the stock experienced a small (5 percent) spike again afterwards, prompting some analysts to say it is bottoming out. They say there are a number of reasons this could happen.

For one thing, competitor Sirius is now mired in an identical regulatory conflict with the federal government over its FM modulators--a serious dispute for both companies, as the FCC may still choose to modify its standards and testing policies in a way that would make their radios non-compliant. And the prospects of the RIAA lawsuit against XM are unclear; according to Fred von Lohmann, an attorney with the Electronic Frontier Foundation in San Francisco, the RIAA's case is "a stretch," especially in light of the Audio Home Recording Act. "As far as I know, every one of these devices was designed to conform to the AHRA," Lohmann said.

Next story loading loading..