RSSXM Board Member Quits, Says 'Crisis' Looms
By Ed Oswald | Published February 16, 2006, 5:34 PM
Following the announcement of a wider than expected loss, satellite radio provider XM said Thursday that a member of its board of directors had stepped down, citing disagreements with management over the company's direction.
Both XM and its smaller competitor Sirius are incurring heavy losses in order to attract high-profile content to their services. XM signed a $55 million deal for the exclusive rights to radio content produced by Oprah Winfrey's Harpo Studios.
Analysts say that the deal was likely in response to Sirius' high-profile hiring of Howard Stern, who began broadcasting his show on the service in January. However, some are beginning to question whether the strategy of spending heavily on content instead of focusing on profitability.
That reasoning is said to be one of the contributing factors to XM Director Pierce Roberts' departure. In an SEC filing, the service said it received his letter of resignation on Monday, which said if the company did not right itself financially, "given current course and speed there is, in my view, a significant chance of a crisis on the horizon."
XM reported a fourth quarter loss of $268.3 million or $1.22 per share versus $188.2 million or 93 cents per share in the year ago quarter. Financial analysts had expected a loss of 92 cents a share.
A similar story is likely from Sirius, which will report its earnings on Friday.
Roberts said that he does not believe the current direction was in the best interest of the company. XM admitted in its filings that Roberts had become increasingly vocal in his opposition to the company's strategies.
"Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now," he wrote in a letter to XM chairman Gary Parsons. "It is clear to me that I cannot be part of the solution and I will not be part of the problem."
Comments from XM CEO Hugh Panero in a conference call to analysts and investors seemed to suggest a sharp disagreement with Roberts' opinion. "Our overall focus in 2006 is to continue driving rapid growth in a cost-effective manner," he said.
Furthermore, in a statement covering the earnings release, Panero said that much of the higher costs, such as subscriber acquisition, were due to "a one-time competitive event in the fourth quarter," likely referring to the buildup to Stern's debut on Sirius.
Analysts seemed to agree, with Standard & Poor's Equity Research maintaining a "strong buy" rating on the stock, echoing Panero's reasoning.
Panero also added that the company expects its costs to decrease, especially in marketing, with the Stern launch out of the way. Also, XM plans to break even on a cash flow basis by the end of the year.
Banc of America Securities analyst Jonathan Jacoby said recently that the company is in a better position than Sirius financially, as it has less programming costs and is not as far in debt.
"[We] feel management needs to give more transparency on churn expectations … and true cost of Stern," Jacoby said of Sirius.
Checks by the analyst suggest that Stern is drawing fewer new subscribers to the satellite radio service over time, which could be a potential problem for Sirius. In order to break even just on Stern's contract alone, it must use the base monthly fees of close to 700,000 of its subscribers just to pay his salary.
While it may not seem like much with the company boasting a $3 billion market cap, Sirius currently counts only 3 million total subscribers and the fees do not include any other company expenses and programming.
In either case, Roberts' resignation brings the debate of whether entertainment companies should be first focusing on content or profitability, say analysts.
I have XM... its great.. I paid $19.00 for the base and $19.00 for the homekit.. I listen to tons of FM and AM talk radio and XM is 10000000000000000000000000000000% worth what you pay... Sure FM is free but one thing i HATE more then anything is "omg i love this song, who is it?". Also all the talk radio which I love is great... I love to listen to Air America and laugh at the lib idiots.
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|The reason they signed oprah is because she already has so many media outlets she can tell everyone about her being on XM. It excellent advertisment. There are at times she has 26 million viewers on her show. People listen to what oprah say, you would be amazed.
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|I pay yearly with XM and it is completly worth it. No comercials at all, so much different type of music. since i got xm i have been open up to so many different artists ans different types of music. well worth the money if you ask me.
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|...
One wonders how these companies continue year after year to spend twice as much as they take in.
...
The Computer Rodent
...
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|Manager: "Sir, we are losing 50 cents on every item!"
Boss: "Keep going, we will make it up on volume".
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|Strangely enough...it's true.
The belief is that the increased demand will lower production costs to the point that the loss will eventually turn into profit.
If they make a product that costs $10 to produce and sell it for $5, they are counting on the fact that increased demand will alow them to mass-produce, thus lowering the cost to produce to under $5, turning that loss...into a profit.
It's not magic, it just sounds like it. ;)
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|ha...it's actually not that simple, depending on the product/market you're talking about...most companies either make money on software/licensing fees while losing money on hardware, while others sell at a loss initially in hopes of getting recognition and turn a profit on future products (or other licensing fees). In the case of XM and Sirius, they're currently losing alot of money from signing up big name broadcasters, in hopes of attracting customers that will pay monthly fees for years and years. Not to mention they are trying to convince people to pay for radio when most people are just used to the idea that radio should be free. Marketing isn't cheap you know. :)
You're right it's not magic, but it's not as simple as "well we'll lose money on it now, but in the future it will be cheaper to produce and we'll make money." Maybe true, but definetly not the way many companies hope to make a profit...:)
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|You are right, I should have specified the Manufacturing/Hardware industries.
Obviously, software production costs drop nearly 100% once the product goes gold, eh?
Sirius and XM will lose money until they change their pricing structure or dominate the "radio" market (I.e., get the vast majority of subscribers vs OTA listeners to offset costs).
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|It seems pretty stupid to me that XM would pay Harpo 55 mil for content that her fans already likely pay for by viewing cable's "O" channel and her Network Broadcast Talk Show. So what would drive a fan to subscribe to this content?
Where as if you are a Howard Stern fan the only way you can hear him is if you subscribe. He is in the studio with new shows daily on Sirius. Thus old fans and new will continually come to sirius. Obviously not in the numbers that came during the debut, but they will still grow.
Harpo will likely never be exclusively on XM, what you get on TV is what you will hear on XM, just like the Ellen Degenrous station and TV Show.
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|I don't care how big one celebrity is, its NOT going to be the difference. XM's management sucks! how about that?
Maybe they don't know how to run a company.. some fail, some are a success, but you can't EVER pin the results on one single incident, its a culmination that becomes one's undoing..
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|XM and Sirius will eventually merge and downsize to save each other from drowning. As for pricing, I would love to subscribe, but just can't justify the monthly cost. If, however, they offered a limited subscription of a $1/month just for the channels I would listen to, then I'd reconsider. Otherwise, no thanks. Paying for music is like paying for bottled water — you gotta be crazy.
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|12 dollars isn't a lot to pay for personalized, uncensored content. You are just cheap.
I am sorry, but this isn't asking too much.
Bottled water also isn't crazy, you aren't paying for the water, you are paying for the shipping, bottling, marketing, AND filtering of the water. You want to drink water from a tap? be my guest.. don't blame me when you get disentary, milaria, or alzheimers from too much flouride...
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|Flouride is good for you. There is nothing unhealthy about it. If you don't get enough flouride you won't have healthy teeth.
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|if you cant afford ten bucks...the welfare office is open. I wouldnt give up Sirius even for my broadband.
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|Flouride is a poison. (That's an actual Fact™, ever heard of 'em?)
At least look it up before commenting on it, man.
Teeth, left to their own devices, are just as resilient as any other bone. Other than the increase in corrosive drinks, the main issue with oral care is the gums. They *do* require regular brushung to keep them healthy (well, it's at least by far the easiest way to keep them healthy).
Flouride was discovered due to its *negative* effects on teeth, and it was only found later that in *much* smaller doses, it can bond with the enamel already there to make it stronger.
Putting it in the tap-water was one of the dumbest things this country has *ever* done. Keeping it there just compounds that stupidity.
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|Yes, good for teeth, you aren't supposed to drink it. Its meant to be topical not taken as a food additive.
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|.. the welfare office is open... hahaha..
Good one.
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|Good for teeth in very limited quantities, otherwise, it'll discolor them something fierce.
Other than that, you're spot-on.
Could this get any more off-topic?
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|I gather you actually mean "mAlaria", don't you?
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|XM and Sirius need to understand... as a customer of XM I listen mostly on my way to work... all I care about is good music without ads... that’s it! The price for the service is already about as high as I would pay for it. If XM and Sirius want to pay millions for celebs then maybe they should charge a premium rate for these 'special' channels and let those subscribers who enjoy this type of programming pay for the company's 'bail outs'. Basically what I’m saying is if XM/Sirius plan to raise their rates for everyone to save their own asses after irresponsibly spending millions for this over rated celeb crap then I would cancel and listen to CD’s/mp3’s. Think about it, cable TV was once without ads, now you pay them and get the ads too! The day that happens to satellite radio is the day I cancel them.
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|Jaypup: **A BIG AMEN!**
I feel the same EXACT way!
I also subscribe to XM Radio ONLY for Music with no advertisements. Yes, both services are definitely overpaying for talent. The only two exceptions that each service should have are Opie & Anthony and Howard Stern (although Howard is way overpaid). Personally, I don't listen to either, but if they both help bring the subscribers to each service. --> But, is it REALLY worth XM or Sirius throwing cash away at talent that aren't going to substantially increase their subscriber rates? (eg: Ellen DeGeneres, Snoop Dogg, Eminem, Martha Stewart, etc.) (no offense offended to these very talented comedians/artists). As a music listener, even though there still are plenty of music channels available on both services, I am not happy that many of the music channels are being discontinued to open up bandwidth for all these talk channels.
Think about it:
- Are people going to sign up for XM for their commercial-free music or are they going to sign up for XM because Ellen DeGeneres is available on XM?
- Are people going to sign up for Sirius for their commercial-free music or are they going to sign up for XM because Martha Stewart is available on Sirius?
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|Marta Stewart.. too bad, we don't get video, she looks sexy in those iron clad large pen stripes...haha..
I have Sirius, and realistically I only listen to 5 stations, 3 of which are regular.. NONE of them are howard stern. I still think its worth it, to get music uninterrupted, commercial free, and available anywhere in the country.
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|That explains that "XM management sucks" comment earlier.
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