XM narrows loss, grows revenue

Panero is running firm 'as if there is no merger'

XM Satellite Radio narrowed its quarterly loss a bit on soaring revenue but offered only a few vague morsels to analysts hungry for details about its proposed merger with Sirius Satellite Radio.

Chairman Gary Parsons and CEO Hugh Panero noted Monday that the competitive landscape for music has changed dramatically in the past decade, making their case that federal regulators should see the benefits to consumers that a merged XM-Sirius would offer.

Neither of them would get into specific details about how the early process has been going, though Panero reiterated that a merger should happen by year's end.

In the interim, "We are running XM as if there is no merger," Panero said.

Asked whether big-ticket content deals with Major League Baseball, Oprah Winfrey and others might need to be renegotiated if XM merges with Sirius, Parsons replied that contracts are being evaluated and such determinations will be forthcoming. He noted that advertising revenue splits are usually involved, so content providers ought to embrace the notion of XM's audience growing significantly by way of a combination with Sirius.

Radio hardware also will be an issue. Said Panero: "No consumer will have an obsolete radio, whether they signed up for service a year ago or sign up today or tomorrow."

The company reported Monday that it lost $263.1 million in its fourth quarter, down from a loss of $270.4 million a year ago. Revenue grew from $177 million last year to $257 million.

XM finished the year with 7.6 million subscribers, 29% better than last year, though short of the 9 million that the company predicted it would have. Executives forecast that it will end the year with up to 9.2 million subscribers.

Subscriber acquisitions costs per user fell from $89 a year ago to $70.

For the year, XM lost $732 million on revenue of $933 million. The company last year lost $675 million on revenue of $558 million.

The losses, because of expensive marketing and content-acquisition strategies at XM and Sirius, are a primary reason the two seek government approval for a merger.

Goldman Sachs analyst Mark Wienkes said Monday that he was impressed with XM's report, though he puts the chance of a merger approval at 30%. He is "neutral" on XM shares and recommends selling shares of Sirius.

Miller Tabak + Co. analyst David Joyce on Monday downgraded shares of XM from "buy" to "neutral" though he kept his $18 target. XM shares closed 1.1% lower Monday at $14.93, while Sirius shares were flat at $3.74.