- The Washington Times - Thursday, February 16, 2006

NEW YORK (AP) — XM Satellite Radio Holdings Inc.’s losses soared in the fourth quarter on higher costs for marketing and acquiring subscribers, and a key director quit over disagreements about the company’s direction, warning of a looming “crisis.”

Investors punished the shares of the Washington-based company, sending them down $1.27, or 5 percent, to close at $23.98 in very heavy volume yesterday on the Nasdaq Stock Market. They reached a 52-week low of $22.94 earlier in the day.

Of particular concern to investors was the unexpected departure of Pierce J. Roberts Jr. from XM’s board of directors, who said in his resignation letter that he was “troubled” by the company’s current path.

“Given current course and speed, there is in my view a significant chance of a crisis on the horizon,” Mr. Roberts wrote in the letter, which the company disclosed in a regulatory filing. “Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now.”

Mr. Roberts didn’t go into detail about his concerns in the letter, and a representative said he was declining to comment. However, the company said in a statement accompanying the letter that Mr. Roberts had been pressing for tighter cost controls, a position the company and other directors disagreed with, favoring instead efforts to continue XM’s rapid growth of subscribers.

XM Chairman Gary Parsons said the company’s directors and managers “believe that the balanced growth strategy that we have set for the company is the right one to ensure XM’s long-term value.”

In noting the departure of Mr. Roberts, Merrill Lynch analyst Laraine Mancini said in a note to investors that XM’s cost management had been a concern of hers as well. “We hope that an insider disagreement could force a shift in strategy,” she wrote.

XM, the larger of the country’s two satellite radio operators, lost $270.4 million ($1.22 per share) after dividends for preferred stockholders, for the October-December period. In the same period a year earlier, the loss was $190.4 million, or 93 cents per share.

Revenue more than doubled to $177.1 million from $83.1 million. Analysts surveyed by Thomson Financial expected a loss of 92 cents per share.

Also of concern to investors was a big jump in the net average cost that XM incurs for adding each subscriber, which rose to $141 in the quarter from $104 in the same period a year ago.

Those figures include marketing expenses.

Company officials said the jump was unusual, noting they expected those costs to fall significantly as advertising spending declines. Last fall XM was going up against the imminent arrival of the hugely popular shock jock Howard Stern at its rival Sirius Satellite Radio Inc.

XM continued to spend heavily to fund its expansion. Overall marketing costs nearly doubled in the quarter to $196.5 million, and costs for programming more than tripled to $30.6 million.

XM and Sirius are locked in a vicious and expensive battle to line up listeners and programming for their pay-radio services, which currently cost about $13 a month and require a special receiver. Both offer dozens of channels of talk and news, as well as commercial-free music.

Both have also racked up significant financial losses, signing big-ticket contracts for programming with Mr. Stern, Major League Baseball, talk-show host Oprah Winfrey and others.

For the full year, XM posted a loss, after preferred dividends, of $675.3 million ($3.07) compared with $651.2 million ($3.30) the previous year. Revenue rose to $558.3 million from $244.4 million.

XM said it had more than 5.9 million subscribers at the end of 2005, up 84 percent from a year earlier, and said its total had risen to more than 6 million in the first week of January. Sirius says it has more than 3 million subscribers.

XM’s CEO Hugh Panero said the company expects to reach profitability from its operations by year end, with subscription revenue reaching $860 million. He also expects to have 9 million subscribers by year end.


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