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Satellite Radio Subscriptions, Financial Losses On The Rise

Satellite radio operators add subscribers and spend heavily on programming, but profitability is off in the distance.
Subscription satellite radio services are on the rise, and at least one company is touting TV broadcasts on cellular phones. The long-range success of these ventures is in question, however, as the companies remain at least a year or more away from profitability.

The two leaders in satellite radio, XM Satellite Radio and Sirius Satellite Radio, have lost billions of dollars over the past five years but are continuing to invest heavily in new programming.

XM reported a loss of $304 million on revenue of $161 million through the first three quarters of 2004, after reporting a loss of $319 million on revenue of $92 million in 2003.

Sirius reported a loss of $450 million on revenue of $41.6 million through the first three quarters of 2004, after reporting a loss of $226 million on revenue of $12.9 million in 2003.

Most recently, XM revealed a deal to broadcast all Major League Baseball games beginning this spring as part of an 11-year, $650 million package. Sirius made news last fall when it said Howard Stern would move his talk show to the satellite radio provider beginning in 2006. The five-year price tag for Stern, including staff and production set-up costs, is $100 million.

The programming investments are paying off, the companies say.

XM recently reported it now has 3.2 million subscribers, up from 1 million a year ago, and expects to end this year with as many as 5.5 million subscribers. Sirius, which started a year after XM, has about 1.1 million subscribers and expects to double that total this year.

"We don't directly tie subscribers to a profitability timetable," said David Butler, manager of corporate affairs for XM at the International Consumer Electronics Show in Las Vegas. "We do believe we can be looking at breakeven in 2006."

At the Consumer Electronics Show, XM said that Pioneer Electronics and Tao will join current manufacturer Delphi in offering the MyFi XM2go radio, a compact Walkman-sized satellite radio receiver.

Jim Collins, VP of corporate communications for Sirius, says both Sirius and XM are in the mode of building assets, which contributes to the losses the companies are mounting.

"But we have enough assets to get to the finish line," Collins says. Analysts estimate that satellite radio subscriber rates could grow to as large as 50 million by the end of the decade. At a subscription rate of about $10 a month, 50 million subscribers would provide about $6 billion in annual revenue.

Although both companies offer more than 120 programming choices each--including the MLB package for XM and a similar package with the National Football League for Sirius--for the basic subscription price, they're both beginning to experiment with providing some premium options for an additional charge, although Collins says the Stern radio show will be part of the basic package.

A newer company in the subscription entertainment space is MobiTV, which began a little over a year ago and offers television broadcasts over cellular telephones. The company offers 23 channels, including Fox Sports, MSNBC, ABC News, Cnet, C-SPAN, and the Discovery Channel, and plans to add 10 more this quarter.

MobiTV's services are provided through cellular operators, and the company has deals in place with Cingular, Sprint, and Midwest Wireless, says Phillip Alvelda, chairman and CEO. Additional agreements are expected over the next two quarters, he says. The service is priced around $10 per month, with additional fees for options such as music video programs.

Alvelda says the company has more than 100,000 subscribers, but he declined to discuss the company's finances. He said financial disclosures for the privately held company could be forthcoming by the end of the year.

"It's entertainment wherever you are," he says. "No, it's not the TV you have in your home, but people understand the limitations associated with being able to have access to this kind of programming on a mobile basis."

This story was modified on Jan. 10.