XM looks to future after market drop, director's resignation

| 2/16/2006

While XM Satellite Radio’s fourth-quarter losses and the recent resignation of the company’s director are raising media speculation and customers’ eyebrows, experts on Wall Street say the incidents are merely short-term setbacks.

On Monday, Feb. 13, XM Director Pierce Roberts submitted his letter of resignation to the company’s board of directors. In the letter, Roberts said he was leaving because he was troubled with the direction of the company, and did not feel it was in the best interest of the shareholders.

“Given current course and speed there is, in my view, a significant chance of a crisis on the horizon,” Roberts said. “Even absent a crisis, I believe that XM will inevitably serve its shareholders poorly without major changes now.”

However, in a written filing to the SEC, XM’s board of directors said Roberts’ departure has more to do with his tight-fisted spending strategies than an honest belief that the company is failing.

“The Company and other Directors concur in Mr. Roberts’ assessment that lower programming and marketing expenditures and a potentially lower growth rate would likely result in earlier positive cash generation,” the board’s letter stated. “The other Directors, however, believe that the Company’s high growth rate, market leadership and large base of subscribers are strategically important assets to ensure the company’s long-term value.”

In the same week as Roberts’ resignation, XM posted an 8 percent loss on its stock prices on the NASDAQ, dropping to $1.22 a share – a 29-cent drop from the same quarter the year before, according to MSNBC.

XM – which holds an exclusive contract with Major League Baseball, and recently inked a $55 million deal with Oprah Winfrey – has been in a heated programming war with its competitor, Sirius Satellite Radio, for several years.

Sirius made headlines in October 2004, when it announced that it had teamed up with New York shock jock Howard Stern. Stern left terrestrial radio and moved to Sirius’ satellite airwaves on Jan. 9, 2006, bringing with him a larger audience and, presumably, more subscribers for the XM competitor. Fourth-quarter financial results for Sirius will not be announced until Feb. 17, according to a press release.

However, some analysts say the financial shortfalls will rebound after Stern’s limelight begins to fade and XM can spend less on marketing, and that the company’s strong subscriber base and programming will help it turn a profit in coming months and years.

“Now that Stern has settled into his satellite radio home and is no longer the same kind of media magnet, XM expects to ease back down on the marketing front,” Rick Aristotle Munarriz of MSNBC’s “The Motley Fool” said in a recent column. “(XM) is committed to producing positive operating cash flow by the final quarter of 2006, targeting more than 9 million total subscribers by year’s end.”