SIRI, XMSR

XM Satellite Radio continues to make headlines for the wrong reasons, and the company’s woes are having an impact on the stock prices of both XM and rival Sirius Satellite Radio.

Both U.S. satellite radio companies hit 52-week lows, as news broke that the record industry is suing XM Satellite Radio for copyright infringement over XM’s new portable radio.

XM in January unveiled four new portable radios, including a pair of units that can receive live XM signals as well as play stored digital music files. Radios manufactured by both Samsung and Pioneer Electronics have the capability to receive live XM signals and record up to 50 hours of XM programming or digital files. The music industry filed suit over the Pioneer Inno, claiming that the device acts as a subscription service.

The suit alleges that XM is breaking copyright law with its new “XM + MP3” subscription service, which allows subscribers to listen to XM, as well as download digital music files and store them permanently in the Inno. The Recording Industry Association of America, which represents record companies such as BMG Music, Elektra Entertainment, Universal Music Group and Virgin Records, is seeking $150,000 in damages for every song copied by XM customers, according to the suit filed May 16 in U.S. District Court for the Southern District of New York. The suit also seeks an injunction against the service offering.

In March, Sirius settled with the record labels in similar discussions regarding its S50 portable radio. The device, released in October, will store up to 50 hours of Sirius content, as well as play MP3 and WMA files, the unit does not receive live signals on the go.

XM vowed to “vigorously defend these radios and your right to enjoy them in court and before Congress, and we expect to win,” the company said in a statement to subscribers.

“The music industry wants to stop your ability to choose when and where you can listen,” XM said. “Their lawyers have filed a meritless lawsuit to try and stop you from enjoying these radios. They don’t get it. These devices are clearly legal. … Satellite radio subscribers like you are law-abiding music consumers; a portion of your subscriber fee pays royalties directly to artists. Instead of going after pirates who don’t pay a cent, the record labels are attacking the radios used for the enjoyment of music by consumers like you. It’s misguided and wrong.”

Consumer organizations also jumped to XM’s defense.

The Consumer Electronics Association called the lawsuit “a brazen effort by the labels to strong-arm more money from a successful technology industry startup. XM Radio already is the largest single payer of digital music broadcast royalties. More, the record labels receive royalties on every XM recording device sold as provided by Congress under the Audio Home Recording Act,” the association said in a May 17 statement.

“… The lawsuit is yet another ambush in the labels’ ongoing war on innovators and consumers. In addition to this lawsuit, the industry is pushing the PERFORM Act in Congress. This legislation would raise royalties and impose new technology mandates on satellite radio. We urge Congress to refrain from acting on this and any related legislation pending an outcome of this lawsuit in the Courts.”

The Home Recording Rights Coalition also vowed to back XM. “The action taken yesterday indicates that representations to the Congress, the courts and the public are not enough to assure that the music industry will keep its promises, to us or to the public and its elected and judicial representatives,” Chairman Gary Shapiro said in a May 17 statement.

While XM has its supporters in the fight, stockholders punished the company following the announcement, which came closely upon the heels of class action lawsuits filed against the company in the past few weeks accusing executives of misleading investors.

XM’s shares hit their 52-week low of 16.36 following the news of the record industry lawsuit. Sirius also hit a 52-week low at $3.99 during the week, the lowest the price has been since late 2004.

Robert Peck, satellite analyst with Bear Sterns, sees an opportunity in XM’s low price, giving the stock an “outperform” rating. While the company faces several issues, “the business model has not broken down, in our opinion, as the chart seems to suggest,” he said in a research note. “Our model suggests a 2014 sub base of [about 19 million] for fair value of $16 to $17.” We are projecting 27 million, virtually in line with street estimates. While the market may be looking for execution on a sustained basis, we think current valuation levels offer a compelling opportunity.”

ISAT.L

Inmarsat posted a profit of $14.8 million in its 2006 first quarter on revenues of $121.7 million, the company announced May 17. In the same period a year ago, the mobile communications provider earned a profit of $22.6 million on revenues of $127.4 million.

Revenues from mobile satellite communication services were $119.9 million, down from $121.1 million a year ago. Revenues in the maritime sector improved from $66.2 million in the first quarter of 2005 to $69.1 million in the most recent three-month period. Inmarsat attributed the growth to strength in data services, which was offset by a decrease in voice revenues.

Land sector revenues fell from $35 million in the first quarter of 2005 to $30 million in the first quarter of 2006 due to the decline in BGAN high-speed data traffic following a reduction in traffic in the Middle East and competition from VSAT services.

Growth in the use of Switf64 high-speed data services in the government aircraft and business jet markets helped Inmarsat’s aeronautical sector post a revenue gain of $1.6 million to $7 million in the first quarter of 2006. Leasing revenues slipped from $14.5 million to $13.8 million in the first quarter of 2006 due to short-term leases not being renewed.

“Our overall revenue performance for the first quarter was solid and met our expectations, despite some weakness in leasing revenues,” Andrew Sukawaty, Inmarsat’s chairman and CEO, said in a statement. “… We see the first quarter performance as fully consistent with our 2006 outlook and with continued positive feedback from potential BGAN end customers, we feel well positioned to meet our goals for the year.”

BGAN service was launched in Europe, Africa, the Middle East and Asia in December, and Inmarsat received approval from the U.S. Federal Communications Commission March 12 to launch the service in the United States.