WASHINGTON, Feb. 17 (UPI) -- Satellite radio competitors XM Radio and Sirius each announced heavy fourth-quarter losses this week, though both continue to add subscribers.
XM announced Thursday that they lost $270 million, or $1.22 per share, in the last quarter of 2005. The losses were $80 million more than the fourth quarter of 2004.
The increased loss came despite XM increasing its revenue to $177.1 million in the fourth quarter of 2005, up from $83.1 million the previous year.
Shares of XM on the NASDAQ Stock Market reflected the losses, dropping to a 52-week low of $22.94 before settling at $23.98 at the end of trading.
On Friday, Sirius posted a fourth-quarter loss of $311.4 million, or 23 cents per share. It outpaced the previous year's loss by $50 million.
Sirius's revenue jumped to $80 million in the last quarter of 2005, up from $25.2 million the previous year.
Ryan Saghir, satellite radio expert and blogger at Orbitcast.com, said that both companies were successful in bringing in new subscribers in 2005.
"The reason for the loss is because it's so expensive to actually get those subscribers," he said.
Sirius's subscriber acquisition cost in the fourth quarter was $113 per subscriber. XM's was $89 per subscriber.
"The profits are made when those initial expenditures translate into long-term subscribers," Saghir said.
Sirius added 1.1 million new subscribers in the fourth quarter, bringing their total to 3.3 million. Many of those came in anticipation of shock jock Howard Stern's debut on Sirius early in January 2006.
Saghir said that the brunt of Stern's effect has already been felt.
"Stern's influence in subscriptions will definitely continue because he has the brand recognition, but the pace of subscriber additions in the fourth quarter of 2005 simply cannot be maintained," he said.
He said that Stern will continue to be a potential draw for customers comparing the two satellite radio providers.
"It's a matter of choice," he said, "and Stern is a polarizing factor."
Scott Fish of TopSatelliteRadio.com said that Stern's move from terrestrial radio could cause him to lose the free publicity he got each time he got in trouble with the Federal Communications Commission.
"There is no FCC regulation over satellite radio, so that buzz and press that he normally would be receiving is no longer there," he said. "This has the potential to deteriorate his image."
Also on Thursday, XM announced the departure of Pierce Roberts Jr. from its board of directors. In his resignation letter, which XM disclosed to in a regulatory filing, Roberts expressed concern with XM's habits of spending on on-air talent.
"Given current course and speed there is, in my view, a significant chance of a crisis on the horizon," the letter read. "Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now."
Saghir said that the timing of Roberts' decision so close to the announcement of the fourth-quarter results was interesting.
"The message he was sending was very clear: he didn't like how heavily XM was spending money to increase growth," he said.
Saghir added that he thinks the battles between XM and Sirius for new content are over.
"2005 was the year of grabbing big-name talent, and 2006 will be the year of turning cash-flow positive," he said.
Roberts, a veteran of the telecommunication industry, is the chairman of San Francisco-based telecom data-analysis group Telephia. He previously worked at Bear Stearns, The Blackstone Group, and BellSouth.
Hugh Panero, chief executive of XM, said in a conference call Thursday that the company had to be especially aggressive with advertising in late 2005.
"For the 2005 holiday season, we increased our media spending to counter the one-time media public relations blitz surround surrounding Howard Stern," he said.
Saghir said he feels XM was right to stay aggressive as Stern debuted.
"When it comes down to it, most people don't know the difference between XM and Sirius - they just know about "satellite radio as a technology," he said.
"XM probably felt that they needed to increase the awareness of their product or they would have missed capitalizing on the attention," he added.
Fish said that despite XM's efforts, Stern helped Sirius gain a lot of ground on XM.
"XM had the best brand recognition until midway through last year, when Howard Stern started to come into the picture," he said. "Sirius' brand recognition started to increase and eventually toppled XM's."
Panero said despite the financial loss in the fourth quarter, the news wasn't entirely bad.
"Frankly, based on the numbers from the fourth quarter, we did grow strongly," he said, "but we failed to do so as economically as we had expected or planned to."
Saghir said he believes both XM and Sirius could be cash-flow positive by the end of 2006.
"Satellite radio is moving beyond the early adopter now and into the general population," he said.
"Their focus needs to be on managing subscriber retention and on the development of new technologies to compete with the digital music player market," he added.
Fish said that both companies would be wise to build foundations by targeting specific audiences.
"Both satellite radio companies are trying to touch every single demographic possible," he said. "This is evident in the diverse personalities that each company has brought on board."
