Faltering finances are unlikely to sink satellite radio services
By Earle Eldridge
USA Today
The two satellite radio companies competing in the United States say they need big cash infusions to continue operating beyond next year.
Both XM Satellite Radio and Sirius Satellite Radio offer 100 channels of music, news, sports, talk and entertainment channels available nationwide for a monthly fee. All the Sirius channels and many of XM's are commercial free.
But so far, neither has attracted enough subscribers to break even.
The key, the companies and analysts say, is for the satellite radio receivers to be widely available as a factory-installed option in cars. That won't happen until next year.
For now, both companies need to raise cash. In its second-quarter report, Sirius said it has $327 million on hand, enough to keep running through the second quarter of 2003. But it needs $300 million to continue operating beyond that. XM says it has about $157 million to continue operating through the first quarter. XM CEO Hugh Panero says his company has met with its partners, including General Motors, to discuss possible financial help.
Despite the cash crunch, analysts predict satellite radio will survive. "Once they shore up their financial strength, I think investors will come on board, and the public will begin to notice satellite radio," says Robert Peck, an analyst with Bear Stearns.
The satellite radio networks feature programming that ranges from sex talk to gospel music, from sports to kids' shows. Subscribers pay a monthly fee — $9.99 for XM, $12.95 for Sirius. They also must have a receiver capable of receiving a satellite signal. The receivers cost at least $100.
XM beat Sirius to market, giving it a jump on subscribers. It began broadcasting last September and has about 137,000 subscribers. It expects to have 350,000 by the end of the year. The company says it needs 4 million subscribers to become profitable, and it expects to reach that number by the end of 2004.
Sirius began broadcasting in February and has about 7,000 subscribers. It cut its subscriber target to 75,000 by the end of the year from 100,000. The company says it needs 2 million subscribers to become profitable and expects to reach that goal by 2005.
The determining factor for satellite radio survival will be whether automakers embrace the technology, analysts say. That commitment would include integrating satellite radios with other radio controls and installing it at the factory.
While General Motors won't discuss possible aid for XM, it is the only automaker to announce plans for factory-installed radios. Other automakers say buyers will be able to have radios installed by dealers.
GM says factory-installed XM radio receivers will be an option in 25 models in 2003, representing 57 percent of its vehicle production. And buyers who finance their car through General Motors Acceptance Corp. can include their subscriber fee in monthly car payment.
Since November, Cadillac has offered XM satellite radio on its DeVille and Seville models. The luxury division likely will offer XM as standard equipment with free one-year service on some Cadillac models, says Rick Lee, director of satellite radio service for GM. For other GM brands, XM will be a $325 option, plus the monthly fee.
"The fact that you've got someone like GM, a strong, prestigious company behind you, is a real asset," Peck says. "I wouldn't be surprised if GM stepped up and offered some financial assistance to XM."
Among other automakers:
- DaimlerChrysler has announced that the 2003 Chrysler 300M will get a factory-installed Sirius radio. Dealers will install satellite radios in other cars. Chrysler officials say they are not worried about the cash needs of Sirius.
- Ford Motor will announce within the next seven months which Ford models will get Sirius radios, says Said Deep, a Ford spokesman.
- Nissan says it will offer buyers a choice of either XM or Sirius.
