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2/16/2006
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XM Satellite Radio Losses Widen, Board Member Resigns

XM ended the year with nearly 6 million subscribers, an increase of 84% over 2004. But the growth was expensive.

XM Satellite Radio Holdings Inc. on Thursday said revenues more than doubled in the fourth quarter, but increasing losses due to high marketing expenses has led to the resignation of a board member who disagreed with the company's direction.

The Washington, D.C., company reported for the quarter ended Dec. 31 a net loss of $268.3 million, compared with a net loss of $188.2 million the same period a year ago. Revenues, however, more than doubled to $177 million from $83.1 million a year ago.

XM ended the year with nearly 6 million subscribers, an increase of 84 percent over 2004. But the growth was expensive. The company reported that its subscriber acquisition cost for the quarter increased to $89 from $64 a year ago. SAC is a component of the company's cost per gross addition, or CPGA, which increased year-to-year to $141 from $104.

The increases were primarily due to higher marketing expenses, the company said.

The company's focus on growth over cash flow led to the resignation of board member Pierce J. Roberts Jr., a former telecom investment banker with Bear Stearns, XM said in a statement.

In a resignation letter sent to the board Feb. 13 and reprinted online by The Wall Street Journal, Roberts said he has been "troubled about the current direction of the company and do not believe that it is in the best interest of the company's shareholders."

"Given current course and speed there is, in my view, a significant chance of a crisis on the horizon," Roberts said. "Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now. It is clear to me that I cannot be part of the solution and I will not be part of the problem."

The company said Roberts had favored more stringent cost control, specifically lower marketing, programming and promotional expenditures.

The other board members and company management, however, believe that XM's high growth rate, market leadership and large subscriber base were "strategically important assets" that would ensure the company's long-term value, said the company, which expects to be profitable in the fourth quarter of this year.

"XM's Board of Directors and management believe that the balanced growth strategy that we have set for the company is the right one to ensure XM's long-term value," Gary Parsons, board chairman, said in a statement announcing Roberts's resignation.

For all of 2005, XM reported a net loss of $666.7 million, compared with $642.4 million in 2004. Revenues for the year increased to $558.3 million from $244.4 million the previous year.

As part of its strategy for adding subscribers XM, like its smaller rival Sirius Satellite Radio Inc., has spent heavily on new programming for its digital radio network. Talk show host Oprah Winfrey is scheduled to launch an "Oprah and Friends" channel in September, and music legend Bob Dylan and hip-hop artist Ludacris are also set to launch their own shows this year.

XM also offers Major League Baseball and signed an exclusive, 10-year agreement with the National Hockey League that begins in the 2007-8 season.

Sirius, on the other hand, launched Martha Stewart Living Radio last year, and spent several hundred million dollars to air shock jock Howard Stern's talk show, which debuted in January. Nascar coverage is scheduled to start in 2007.

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