XM Losses Narrow, Revenues Increase

XM posted one of its best quarters yet as it heads into a proposed merger with Sirius Satellite Radio--boasting increasing revenue, decreasing losses and promising new partnerships with automobile manufacturers.

Revenue increased 22% compared to the same period in 2006 to $277 million, while its net loss dropped 23% to $176 million. Since second-quarter 2006, the satellite broadcaster has added 1,350,000 net subscriptions (the figure takes "churn" and dropped subscriptions into account), ending this quarter with 8.25 million subscribers. Thus, XM still leads Sirius by a substantial margin of 1.6 million subscribers, based on a first-quarter figure of 6.6 million from Sirius, the most recent available. Sirius is scheduled to release its second-quarter results on July 31.

XM executive Hugh Panero pointed to the company's partnerships with automobile manufacturers, both new and long-standing, including GM, Hyundai, Lexus and Nissan. According to Panero, XM's automobile partnerships represent 60% of the U.S. auto market, and the second quarter saw XM radio installed in 8 million vehicles. Of these, 5.5 million were manufactured by GM.

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During the conference call, Panero also acknowledged his impending departure from XM, confirming the August exit announced by the company earlier this week. This may be a step toward drawing up a clean management slate for XM, as it is scrutinized by regulators prior to its proposed merger with Sirius Satellite Radio.

While widely hailed as a pioneer of satellite radio, Panero ran afoul of XM investors and the Securities and Exchange Commission. A group of XM investors filed suit against Panero and four other XM executives in May 2006 over the sale of $79 million of stock the year before, accusing them of issuing false forecasts of overall subscriptions and the average cost of new subscriber acquisition to inflate stock prices in the six-month period before they sold their stock.

The XM-Sirius merger is far from a sure thing, facing regulatory hurdles as well as skeptical lawmakers. Overall, Banc of America radio analyst Jonathan Jacoby says his Washington contacts "believe that there is still only a 35% chance of FCC approval, up from less than 30% a few months ago."

To bolster its chances, Sirius CEO Mel Karmazin outlined a revised subscription program that the companies will adopt if allowed to merge. In the new "a la carte" program, subscribers have the option of choosing radio programming, picking only the genres they want. Under the post-merger terms, subscribers to both services would be able to choose from two basic a la carte options.

The first allows subscribers to one service to choose 50 satellite channels from that service for $6.99 a month, about half the current rate of $12.95; consumers can also add additional channels beyond the basic 50 for $.25 apiece. Under the second plan, for $14.99, subscribers can choose up to 100 channels--including premium programming from the other service.

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