Sirius Lowers Losses, Reaps Record Revenue in Q1

Sirius, which is trying to close a merger with rival XM Satellite Radio (Nasdaq: XMSR) by later this year, lost US$144.7 million, or 10 cents a share, in the quarter that ended in March, compared with a loss of $458.5 million in the year-ago period, the company stated. The earlier time frame included a lump-sum payment to shock jock Howard Stern in connection with his earlier move to the satellite outlet.

Much like rival XM last week, Sirius reiterated its 2007 forecasts for subscribers and revenue, calling for a year-end customer total of more than 8 million subscribers and revenue of nearly $1 billion.

Merger Arguments

Sirius' first-quarter revenue was up 61 percent to $204 million -- a record level -- as it added more new customers than it had previously forecast, signing up just over 556,000 new customers in the time frame. Still, the top line came in below the outlook of analysts, who were expecting $211 million in revenue on average.

Apparently mindful that the relatively strong results for the two satellite companies might undermine arguments that a merger between the two is financially necessary, Sirius CEO Mel Karmazin said the merger "makes sense for consumers and stockholders."

Sirius shares fell more than 1 percent to $2.93 in late morning trading. XM shares were also trading lower, losing 1.1 percent to $11.57.

Subscription Surge

Both Sirius and XM have seen a bump in new subscriptions in recent months, a possible sign that would-be customers believe the controversial $13 billion merger between the only two satellite radio providers will be approved by regulators. Combined, the services would have more than 12 million subscribers and would offer twice as much programming, including access to programming by Howard Stern, NASCAR, Major League Baseball, Oprah Winfrey and Bob Dylan.

Nevertheless, both companies are spending so much to attract new customers that long-term profitability remains a question. Sirius' subscriber acquisition costs were around $104 in the first quarter, down from $113 a year ago, the company said. For the full year, it expects those costs to be around $95.

Sirius got a significant boost from new customers who bought service in conjunction with new car purchases, with automobile-related subscriptions accounting for 365,000 net new customers.

While subscriber gains were impressive -- suggesting that "demand for satellite radio is far from dead" -- the "stubbornly high" marketing costs remain a problem, Sanford C. Bernstein analyst Craig Moffett stated in a research note.

Deal or No Deal?

Most analysts remain focused on whether Sirius and XM can convince regulators to allow their merger to be consummated. Even company executives said when they announced the plan that there was a "better than 50 percent chance" of winning approval from the Federal Communications Commission (FCC).

Nevertheless, only one in four analysts believe the deal would be approved while at least two analysts said the odds are likely only 10 percent in favor of the deal happening without major concessions, according to a recent Business Week analyst survey.

When it issued Sirius and XM their licenses, the FCC stated that it would not entertain a merger. That was some 10 years ago, however, and the companies hope to argue that consumers today have myriad more choices than they did then for portable music -- with everything from MP3 players to streaming Web radio stations -- now at their fingertips.

More recently, lawmakers have expressed skepticism over the merger, citing concerns about future price increases.

Even in new-car settings, the satellite companies are competing with MP3 players, with many automakers now shipping new models that are satellite-ready but also have jacks to accommodate iPods and other devices, JupiterResearch analyst Barry Parr noted.

One of the strongest arguments for the merger may be that consumers benefit because they can be assured their provider will survive long-term, he told the E-Commerce Times.

"By combining their businesses, Sirius and XM will not only greatly improve their chances of reaching a stable and profitable subscriber bases, they decrease consumer uncertainty over which to choose and whether either service will be around in a couple of years," Parr added.