XM loss widens, subscribers grow


NEW YORK-- XM Satellite Radio Holdings Inc. posted a wider quarterly loss Thursday as higher marketing costs overshadowed a strong increase in subscriptions to its pay-radio service by car owners.

Shares of XM, which expects to close its merger with rival Sirius Satellite Radio Inc. later this year, were off 38 cents, or 2.4%, to $15.21 in afternoon trade on Nasdaq.

The company ended the third quarter with 8.57 million subscribers, up from 7.19 million a year earlier, driven by gains in automotive customers, called OEM. Retail sales of XM radios were relatively weak.

“While I'm disappointed the retail market for satellite radio had another quarter of slow growth, subscriber growth from the OEM channel during the quarter more than offset the softness at retail,” Chief Executive Nate Davis said on a conference call with analysts.

XM, which offers music, sports, news and talk programs on more than 100 channels for a monthly subscription fee, posted a third-quarter net loss of $145.3 million, or 47 cents a share. The company lost $83.8 million, or 32 cents a share, in the same quarter a year earlier.

Analysts' average forecast was for a loss of 45 cents a share, according to Reuters Estimates.

Third-quarter revenue rose 20% to $287 million.

Spending on marketing increased 38% to $122.7 million.

“Some of the marketing costs were higher than I was looking for,” said James Goss, analyst at Barrington Research. “But I'm encouraged by the trend toward OEM. Retail will be ... where the most creative innovations occur, but OEM is where the meat and potatoes occurs for both XM and Sirius.”

Third-quarter OEM net additions totaled 332,000, up 12.5% from the second quarter and up more than 50% from a year earlier. As a contrast, XM lost 17,000 retail customer, down from additions of 43,000 in the second quarter of 2007 and 68,000 in the year-ago period.

XM has said automotive subscribers are its priority, since millions of new cars are expected to carry XM radios in the coming year.

The company said its cost per gross (subscriber) addition in the third quarter was $116, up from $94 a year earlier. Its subscriber acquisition cost, a component of cost per gross addition that excludes marketing costs, rose to $70 from $59.

XM said it still expects to end 2007 with between 9.0 million and 9.2 million subscribers to its pay radio service. It also continues to expect a 2007 adjusted operating loss of $170 million to $180 million, and around $1 billion in subscription revenue.

The FCC and the Justice Department are reviewing the XM-Sirius deal, which will combine the only two providers of satellite radio service in the United States.