Satellite radio companies are spending bundles of money to lure new subscribers, especially those who tune in the services while in their cars.
Those soaring marketing expenses worsened the horrendous fourth-quarter 2005 losses at both XM Satellite Radio Holdings Inc. and Sirius Satellite Radio Inc.
XM Satellite Radio Holdings Inc. director Pierce Roberts Jr. submitted his resignation to the company on Feb. 13, four days before the company announced fourth-quarter losses of $268.3 million.
In his resignation letter, Roberts warned that there is "a significant chance of a crisis on the horizon" if the company does not change direction. Roberts had urged that the company slow its rapid growth in order to improve cash flow. "I have been troubled by the current direction of the company," he wrote in the letter, made public on Thursday, Feb. 16.
XM President Hugh Panero told analysts that weaker sales of General Motors vehicles in the fourth quarter slowed the rate of new subscriptions at XM. New subscriptions peaked during the second and third quarters, when GM incentives also were peaking, he said.
XM posted a $268.3 million loss on revenue of $177.1 million during the fourth quarter, compared with a $188.2 million loss on revenue of $83.1 million during the same quarter in 2004. XM's rival Sirius also lost money for the quarter: $311.4 million on revenue of $80 million compared with $261.9 million on revenue of $25.2 million during the same period in 2004.
For all of 2005, Sirius hemorrhaged $862 million while XM lost $667 million.
XM spent $89 for each new subscriber in the fourth quarter, compared with $64 from a year earlier.
Eileen Furukawa, analyst for Citigroup Investment Research in New York, predicted both networks would be spending less to add new subscribers in 2006. XM has about 6 million subscribers, while Sirius has 3.3 million.
XM has 60 percent of the market for satellite radios installed in new cars, compared with 40 percent for Sirius, Furukawa said.
XM has exclusive deals with GM and Toyota Motor Corp., among others, while Sirius has deals with Ford Motor Co. and DaimlerChrysler.
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