Wall Street can be fickle in picking the financial performance measures it uses to evaluate publicly traded companies. For satellite radio companies, the focus right now is on notching subscriber gains. As a result, both New York City-based Sirius Satellite Radio [SIRI] and Washington, D.C.-based XM Satellite Radio [XMSR] collectively committed to spend more than $1.35 billion during recent months to obtain coveted content to distinguish themselves from terrestrial radio stations. Sirius nabbed the rights to the National Football League games starting this fall as well as to shock jock Howard Stern beginning in 2006. XM will begin carrying all the Major League Baseball games next season.

Upbeat Earnings

The benefit from Sirius’ deals was reflected last week when the company released its third-quarter financial results that showed the subscriber gains it promised to produce were on track. Wall Street analysts reacted by giving Sirius credit for the progress and indicating the company now appears poised to achieve its goal of generating 1 million subscribers by year-end.

Bob Peck, a satellite analyst at Bear Stearns, is one of those who noticed. He had upgraded Sirius’ stock Sept. 29 when he compared the battle between Sirius and XM to the heavyweight fight waged for years by Coke with Pepsi. He predicted last week that Sirius’ stock would hit $5 a share by year-end 2005. At that point, the company should reach approximately 2 million subscribers, he added. XM already has topped 2.5 million subscribers, and it rolled out new, high-end user equipment last week to keep its momentum strong.

Encouraging Churn

Both Sirius and XM are growth companies that investors are willing to support due to the promise of huge cash flows in the future. For now, each company is losing money big time, spending heavily to obtain subscribers as quickly as possible. Sirius’ subscriber churn of 1.5 percent a month during the third quarter actually encouraged Peck, who had estimated 1.7 percent churn.

As I mentioned in my column last week, Ford’s [F] commitment to offer Sirius units as a factory-installed option would be a big boost for the fledging service to help compensate for GM’s early and substantial factory-installation of XM units. Peck estimated that Ford could produce about 350,000 cars with Sirius units beginning with the 2006 model year. Despite incurring heavy losses, Sirius’ outlook is “promising” and provides upside potential to patient investors, Peck wrote last week to his clients. Clearly, Wall Street is rewarding satellite radio’s potential rather than its current earnings performance.

With iPods and other innovative portable music recording devices now available to consumers to heighten competition, Sirius is taking steps to upgrade its internal management of subscription services. Sirius, which charges $12.95 a month, says it will use ScheduALL software to manage operational resources and to distribute the satellite radio’s services content. The software will aid in scheduling and workflow management of production and distribution at Sirius’ Rockefeller Center headquarters.

Sophisticated Software

The software system manages personnel scheduling, equipment scheduling, billing, video and audio libraries, and production costs. Jay Clark, Sirius’ executive vice president of programming, said his company’s sports programming, including the NFL and the nation’s top 26 college programs, required software to handle the increasingly complex logistics. Preemption rules of sports broadcasts helped to fuel the need for the software. Existing users of the software include NPR, Intelsat, Globe-cast-Asia and New Skies Satellites.

Now that Sirius has committed to spend more than $700 million for new content during recent months, it needs to protect its investment. The company’s ability to raise $321 million in a financing last month shows investors are willing to support its aggressive push to spend huge amounts of money — if new subscribers sign up at a stepped up pace.

For now, subscriber gains are of paramount importance for the U.S.- based satellite radio operators. Earninigs and positive cash flows will follow behind.