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Satellite Radio Looks Wobbly

August 19, 2002

• XM-Sirius Merger Approval Nears Completion • No Surprise: FCC Chair Decides to OK Sirius-XM Merger • Consumer Groups Urge FCC to Reject XM-Sirius Merger • States Raise Questions about XM-Sirius Merger • XM-Sirius Merger Gets Antitrust OK • Senate, FCC Chairman Spar Over Media Consolidation • Wisconsin Seeks To Block Satellite Radio Merger • XM/Sirius Merger Gets a Boost • Webcasters, Music Industry Reach Accord On Royalties • Karmazin "Clarifies" XM-Sirius Merger Plans • Last Minute Stay Of Execution For Web Radio • Dead Air Ahead: Court Denies Webcasters' Appeal • Notes From The Future Of Radio • Senators Throw Support Behind Internet Radio • Internet Radio Gets a Reprieve • Web Broadcasters Lose Music License Appeal • Feds Agree To Rethink Internet Radio Royalties • Reception Poor at Senate Sirius-XM Hearing • XM-Sirius Merger May Encounter Technical Difficulties • The End Of Internet Radio As We Know It • XM-Sirius Merger Encounters Serious Opposition • XM, Sirius Agree to Merge • Record Companies, Congress Take On Satellite Radio • Satellite Radio Looks Wobbly --- Consumer Comments • Sirius • XM Radio

You might want to think twice about ponying up big bucks for a satellite radio. The prospects that there'll be anything to listen to are looking slim, at best, with both satellite broadcasters running out of money.

Sirius Satellite Radio Inc. is warning that it may have to file for bankruptcy if it can't raise $300 million to operate next year. While Sirius' rival XM Radio hasn't mentioned bankruptcy, the truth is it too will need to raise a tremendous amount of money before it reaches profitability.

Second-quarter results showed that Sirius isn't adding subscribers as quickly as it had hoped. It cut its year-end target to 75,000 customers from earlier estimates of 100,000 to 150,000. The company posted a loss of $113.2 million on revenue of $70,000.

XM got a head start on Sirius and has more subscribers, about 136,000 as of June 30. But it too has been burning money like a rocket and, although it has less debt than Sirius, its situation is not really all that different.

Both companies face the same problem: how to get consumers to pay for something they can get for free -- namely, radio programming. While the satellite stations are free of advertising, it's open to debate whether that alone will persuade millions of consumers to shell out $9.95 per month for XM or $12.95 per month for Sirius, not to mention the cost of the receivers.

While both companies have been adding subscribers, both are still a very long way from having the millions of subscribers they will need to have something that resembles an ongoing business. And both are still too young to have an answer to the problem of "churn" -- the turnover that plagues magazines, cable companies and other subscription-based businesses.

At one point, XM said it would need 3 million subscribers to break even. In eight months, it has signed 136,000. Convincing investors in today's climate that the other 2.9 million will follow quickly is not going to be easy.

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