XM Radio posts wider quarterly loss; director quits | VailDaily.com
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XM Radio posts wider quarterly loss; director quits

SETH SUTEL

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 companys direction, warning of a looming crisis.Investors punished the shares of the Washington, D.C.-based company, sending them down $1.04, or 4 percent, to $24.21 in very heavy volume Thursday afternoon 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 XMs board of directors, who said in his resignation letter that he was troubled by the companys current path.Given current course and speed there is, in my view, a significant chance of a crisis on the horizon, 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.Roberts didnt 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 Roberts had been pressing for tighter cost controls, a position the company and other directors disagreed with, favoring instead efforts to continue XMs rapid growth of subscribers.In a statement, XMs chairman Gary Parsons said the companys directors and managers believe that the balanced growth strategy that we have set for the company is the right one to ensure XMs long-term value.In noting the departure of Roberts, Merrill Lynch analyst Laraine Mancini said in a note to investors that XMs 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 countrys two satellite radio operators, lost $270.4 million, or $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, saying 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 its 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 Stern, Major League Baseball, talk show host Oprah Winfrey and others.Like Sirius, XM relies heavily on capital markets to fund its aggressive expansion efforts, and analysts cautioned that any disruption of the willingness of investors to stay on board could have serious consequences. Late last month XM said in a regulatory filing that it planned to raise an additional $470 million from investors.They have been in a startup mode for a very long time, and have been in a negative cash flow mode for a very long time, said Heather Goodchild, chief media analyst at the Standard & Poors debt rating agency. If the capital markets became less receptive, you could envision the music stopping and not enough chairs being there.For the full year, XM posted a loss, after preferred dividends, of $675.3 million, or $3.07 per share, compared with $651.2 million, or $3.30 per share, last 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 has said it has more than 3 million subscribers.XMs CEO Hugh Panero said the company expects to reach profitability from its operations by the end of this year, with subscription revenues reaching $860 million. He also said he expects to have 9 million subscribers by the end of the year.Vail, Colorado


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