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Lunchtime Briefing: XM Finally Achieving Orbit?

Frank Ahrens

XM Satellite Radio may be on the brink of its long-promised goal of not hemorrhaging ghastly amounts of cash every quarter.

Satellite radio is an expensive business -- hey, you're launching satellites into space. Sometimes they blow up or otherwise fail and you have to launch a new one. It's not like setting off Estes rockets in your back yard.

But beyond that, XM and its rival, New York-based Sirius Satellite Radio, lose a great deal of money in what is called "subscriber acquisition": The cost -- through advertising, marketing and so forth -- of getting people to subscribe and agree to pay $12.95 per month for service. (Also, the two companies pay a lot for content, such as Sirius's $500 million for Howard Stern.)

That extrapolates out to about $155 per subscriber, per year. But both satellite radio services actually pay more than that to acquire each subscriber. Which is why they need customers to commit to sign up for more than one year.

XM released its third-quarter earnings today and said that it lost $84 million over the past three months. That's actually an improvement over the third quarter of last year, when it lost $132 million.

More importantly, XM chief exec Hugh Panero said the service, which has 7.2 million subscribers, is on pace to actually go into positive cash-flow over the next three months. In other words, it actually will make money for the first time in its five-year history. (Sirius releases its third-quarter earnings on Wednesday. In its second-quarter earnings, Sirius reported a loss of $238 million -- up from $178 million the previous year -- and said it had 4.7 million subscribers.)

We'll check back in January to find out if XM achieves escape velocity and is able to break free of the gravitational grip of financial loss. In the meantime, track both companies' stocks: XMSR | SIRI.

Today in The Post:

* Mike Musgrove writes about a game-trading business started in Maryland by some disgruntled gamers.

* I wrote about a new three-month test Google is trying. The popular search engine is looking to expand its so-called offline advertising presence by becoming a broker for advertising sales on radio, in magazines (TV too) and now, newspapers. Advertisers will be able to go to Google, click on a paper they want to advertise in (such as The Washington Post) and place an ad just like that.

* Also, you make want to check out a column I wrote Sunday on "Intellipedia," the Wikipedia for secrets that the U.S. intel agencies have started.

Elsewhere:

* One day before the elections, the blogs are burning up over the GOP's "robocall" campaign. Voters get automated phone calls at home that say they're calling with information about a Democratic candidate. The call then says bad stuff about that Democrat. Voters are reporting that, if they hang up right away, they get called back several more times. The cumulative effect: The voter thinks the call is a) from a Democrat who b) won't quit calling.

Understandably, this would sour anybody on the Democrat. Here's an Associated Press story about the tactic.

By Frank Ahrens  |  November 6, 2006; 12:28 PM ET  | Category:  Frank Ahrens
Previous: CBS's New Digital Dealmaker | Next: Election Technology: Maddeningly 20th Century


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Comments

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XM still managed to net more than a million new subscribers. This business can be compared to the satellite TV business in the early days. DMX may grow into a competitor or key acquisition down the road.

Frank, I think you meant Estes Rockets, not Testors. Good article overall!

Posted by: thw2001 | November 6, 2006 4:30 PM

Hey, thanks: I *did* mean Estes rockets.

Testors made the paint and glue that I most certainly did *not* sniff while I was assembling the dozens and dozens of Revell (there's a pull from the past) plastic models in my room. Man, just thinking about that, I can smell the glue. What a memory.

I'd go through stages making models: I'd do a dozen or so WWII fighters and bombers, then switch to motorcycles, then to 18-wheelers (the timber truck was particularly cool, esp. when you put in real branches).

I didn't do too many tall ships (the rigging was too hard!) but I did do a few spaceships and was particularly pround of an X-wing fighter from "Star Wars" that I spray-painted flat white. (The clear plastic canopy got a coat of transparant blue.) Looked sharp!

Do kids make models these days? How about adults?

Posted by: Frank Ahrens | November 6, 2006 5:37 PM

Great article Frank! Have you ever been on a tour of XM? It's very impressive with the amount of money they put into the infastructure and they have a great live well work well program for their employee, it seems to be a great place to work. I have XM myself and I chose it over Sirius because XM boosts a much better signal ( and I learned why during the tour because of the positioning of their satellites.

Posted by: Greg Howard | November 7, 2006 10:17 AM

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