Earnings: XM Slims Losses; To Focus On ‘Microchannels’, Less On Marketing Hardware

Satellite radio network XM (Nasdaq: XMSR) managed to reduce its losses by 18 percent, to $122.4 million in the quarter to March, improving from $149 million in the same period last year ($8 million was sucked up by expenses relating to the proposed Sirius merger). Quarterly revenue increased 27 percent year-on-year, from $208 million in Q1 2006 to $264 million this time around, the company reported. XM has added subscribers, reporting 7.9 million customers, up from 6.5 million in the corresponding 2006 quarter. It said it added 868,000 total subscribers in the quarter – since March 31, it’s passed the eight million mark, however. The company held its churn rate at 1.8 percent for the third consecutive quarter.

XM is benefiting from better distribution in automobiles. Toyota and Honda earlier this year signed 10-year deals to pre-fit vehicles with XM hardware and GM rolled its five millionth XM-equipped vehicle off the production line back in January, while Infiniti’s 2008 range and Hyundai’s Veracruz will also come ready-fitted. XM confirmed it expects to have merged with Sirius by the end of the year if it gets “timely regulatory approval”. For 2007, XM is targeting between nine million and 9.2 million subscribers, growing especially late in the year; subscription revenue of around $1 billion. Most auto installations will not come until the second half of the year, however.

From the conference call: In the first quarter, XM added 331,000 gross additions at the retail point, said president Nate Davis (this points to the reliance on pre-installed auto relationships). XM will now focus less on marketing its hardware and more on promoting its content – for example, promoting Major League Baseball to “displaced” New York Mets fans on the west coast. Fall marketing plans will center on college sports. A Black History Month tie-up with Beyonce resulted in some of the highest CPMs the network’s website has ever seen, and XM will now look for similar opportunities to address the Hispanic community, Davis said. The Oprah And Friends channel is extremely popular with women and pulls in more advertising revenue than any other channel on the line-up. Davis cited XM Green (St Patrick’s Day programming) and start-of-the-season baseball music programming as examples of a new focus on niche “microchannels”: “Stay tuned because you’ll see much more channels targeting specific audiences.” There have been web gains, with a doubling of average user time spent on-site and 20 percent increase in the number of people hitting channel pages.

— Sirius: CEO Hugh Panero: “We believe we will ultimately receive the necessary approvals to complete the merger and it will be a big win for customers and shareholders. Even without the merger, XM is well positioned to be a leader in the industry.”

Earnings Release | Webcast | Transcript (SeekingAlpha.com)