XM Is Aggressive With Performance And Programming

Washington, D.C.-based XM Satellite Radio [XMSR] once again outperformed Wall Street expectations last week when it announced second-quarter results and gained further media attention for creating a new premium radio channel that will be devoted to the controversial on-air duo of “Opie and Anthony.”

XM increasingly is viewing itself as the HBO of satellite radio. Hugh Panero, the company’s president and CEO, has used the description himself. HBO is a financially successful video channel known for cutting-edge programming, and XM is heading in the same direction.

“Opie and Anthony” had been taken off the air by their previous radio-station management, having run afoul of Federal Communications Commission (FCC) standards for decency. The pair had aired highly controversial content that drew consumer complaints.

The thinking of XM officials is that a premium channel provides the avid fans of the duo a chance to hear them on the air nationally, while not publicly airing the content to others.

XM subscribers can listen to the new “Opie and Anthony” channel for $1.99 a month, in addition to paying their standard monthly subscription fee of $9.99. A four-hour, drive time show will be aired repeatedly during the day. As content builds up, special shows and “best of” shows will be included in the product mix, said Chance Patterson, vice president of corporate affairs at XM, who spoke with Satellite News about the matter.

“They have an existing fan base,” Patterson said. “These are people who have not been on the air for two years. They will be on XM beginning Oct. 1.”

He continued, “We are excited to have them on board. They were No. 1 on many of the markets where their programming was heard two years ago.”

According to Patterson, the pair also acknowledged that they have learned from the past. “They made some mistakes, and they have learned from those mistakes,” Patterson said in Friday’s interview. “They are viewing this as an opportunity to come to XM, and put [the past] behind them. I think they are looking to the future.”

XM also announced last week a marketing alliance with Starbucks. Under that arrangement, XM will create a new channel, “Hear Music,” that will be aired on its subscription service as well as in Starbucks stores.

“It is clear that XM and Starbucks customers have a lot of common interests,” Patterson said. Both groups of customers appreciate music, and the airing of the channel in the stores is a “natural fit” for both companies. The increased exposure for XM programming also could help to entice new subscribers.

In other news, XM reached an agreement with its insurers last week that will result in a substantial payment to the company for satellite anomalies. The settlement would allow XM to receive $142 million for in-orbit technical problems that will shorten the expected life of both of its satellites, according to an 8-K the company filed last week with the Securities and Exchange Commission (SEC).

On the financial front, XM is making steady progress in achieving cash flow break even by next year. It added 418,449 net new subscribers during the second quarter to more than double its subscriber growth from 2Q03. The company also boosted its guidance for year-end subscribers to 3.1 million from 2.8 million a year ago. Revenues during 2Q04 rose to $53 million, tripling from $18.3 million for the same quarter in 2003. Another positive sign was that the cost of adding new subscribers, known as cost per gross addition, was reduced by XM in the second quarter.

The company is showing no signs of slowing down and appears to be gaining momentum by the week.

Paul Dykewicz is senior analyst and senior editor of Satellite News. He can be reached by e-mail at [email protected].