XM Blows Past First Quarter Subscriber Estimates

By | April 5, 2004 | Feature

By Paul Dykewicz, PBI Media LLC

XM Satellite Radio [XMSR], the largest U.S. satellite radio services provider, is keeping up a torrid pace in growing its subscriber base.

The pioneer in rolling out satellite radio services in the United States announced last Thursday that its subscriber total grew to more than 1.68 million at the end of the first quarter. XM netted more than 320,000 subscribers during that period to achieve a 230-percent increase, compared with first-quarter 2003 when it enticed 135,916 new subscribers.

That sales momentum should please Wall Street analysts and investors. XM has had a highly unusual streak of meeting or beating the guidance it has given to Wall Street for subscriber growth every quarter since the company began offering commercial service in September 2001.

Bob Peck, the satellite analyst at Bear Stearns, had forecasted more than 250,000 net new subscribers for XM in first-quarter 2004. Consensus Wall Street estimates hovered around 260,000. Peck apparently sensed XM could have a breakout quarter when he suggested in a research note last Tuesday that the company’s subscriber gains for the period could spike as high as 265,000 to 275,000. XM’s 320,000 net new subscribers during the time frame literally blew away those estimates.

XM has started 2004 on a “very strong note,” said Hugh Panero, president and CEO of the company. He has been able to let the company’s growth do much of his speaking during the past few years but he whetted the appetites of investors Thursday by crediting part of the gain to consumer acceptance of XM’s 2004 programming lineup that became 100-percent commercial-free Feb. 2. Previously, half of XM’s music channels carried commercials, while the other half of its music channels along with its none-music channels had been commercial-free.

In addition, a new XM Instant Traffic & Weather service ultimately intended to operate in 21 major markets nationwide began rolling out in March, and it should give the company another lift in attracting subscribers, Panero said. He expressed confidence that XM would reach its 2004 goal of amassing more than 2.8 million subscribers by year’s end.

Responding Rival

One of the impressive parts of XM’s subscriber growth is that the company continues to roll out new products and services that seem to speed the process. Rival Sirius has been attempting to gain on XM’s big subscriber lead but without much success as the industry frontrunner tries to stay a step ahead.

Terrestrial radio is taking notice by initiating advertisements in certain markets that criticize satellite radio. Those anti-satellite ads likely will become more commonplace after Sirius last week rolled out local traffic-and-weather services to roughly 20 of the nation’s most congested metropolitans areas. Because local traffic reports are a staple of terrestrial radio that such national services as XM and Sirius were not supposed to be able to match, satellite radio is looming as a competitive threat to traditional radio in ways that might not have seemed possible several years ago.

Indeed, satellite radio keeps finding ways to add to its consumer appeal as it fends off attacks from traditional radio stations that claim subscription radio is not worth the money. XM has held its $9.99-a-month price steady since its consumer introduction, and it is introducing new services and features to keep churn among existing subscribers low. In addition, XM and Sirius – which recently lowered its $12.95-a-month price to $10 a month for those willing to make a one-year commitment — are attracting new converts dissatisfied with the homogenized music offerings on free, over-the-air radio and transitioning to niche-oriented subscription radio.

Both satellite radio services are attempting to cater to the passion of pure music fans. Those fans, in turn, apparently are responding by becoming paid subscribers.

XM also is attempting to boost the quality of its talk channels by adding new programming to attract listeners who lean politically to the left as well as the right. On April 5, XM is launching a new political talk channel called America Right to replace a channel called Buzz XM. The new channel will feature conservative superstars Bill Bennett, Michael Savage, Michael Reagan and Laura Ingraham. The channel addition follows closely on the heels of XM’s recent launch of political talk channel America Left, devoted to progressive talk radio, featuring such talk personalities as satirist and leftist author Al Franken.

XM’s current programming lineup includes more than 120 digital channels of choice from coast-to-coast, featuring 68 commercial-free music channels and 33 channels of sports, talk, comedy, children’s and entertainment programming. In addition, XM is working its magic on the distribution side of its business. Its service is available in more than 80 different 2004 car models. XM is a factory-installed option on more than 40 new General Motors [GM] models as well as being a standard feature on several top- selling Honda and Acura models.

In a creative marketing campaign, passengers on JetBlue Airways [JBLU] and AirTran Airways [AAI] will be able to listen to XM’s programming in flight later in 2004. XM not only will receive subscription revenue from that service but it will be able to gain exposure to air travelers who might be impressed enough to buy the service for their own vehicles.

No one should be surprised if XM’s performance in the remaining quarters of 2004 rekindles memories of partner GM’s one-time advertising tag line: “the mark of excellence.”

Paul Dykewicz is senior editor and senior analyst of Satellite News. He can be reached by e-mail, pdykewicz@pbimedia.com , or by phone, 301/354-1769.

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