Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Saturday, September 30, 2006

Weekend Edition: Can Ad Reveue Save XM Radio?

Can Advertising Revenue Save XM? (XMSR)(SIRI)

Satellite radio has had a rough road. But, advertising revenue could change that. There is a broad perception that satellite radio is commercial-free. But, that is only true on some channels. The new Oprah show carries commercials and some of them are large marketers including like Target, Dove and Snapple.

According to XM, the company did $20 million in revenue in 2005. The previous year the figure was $8.5 million.

XM’s revenue run rate is about $1 billion a year. Advertising is clearly an extremely small part of this. But, XM has not had Oprah before. As here syndicated TV show and magazine have proven, she is a tremendous draw for marketers.

With an operating loss of $100 million a quarter, and a slowing subscriber base that may only reach 8 million by the end of the year, XM needs a hand. The market for advertising revenue on radio is still huge. Citadel Broadcasting, a modest-sized public radio company did $420 million in revenue last year. The company owns 153 FM and 58 AM stations. The company had an operating profit of $143 million last year.

Over the air radio has lost a great deal of it momentum to satellite radio. But, with its stock But, with its stock down from over $36 a little less than a year ago to $13 now, XM hardly looks like it has taken the momentum torch from the old line broadcast companies. Rival Sirius is doing no better. In December, its stock traded near $8. It is now below $4.

A hybrid model of paid subscribers and advertising is what may save XM’s bacon. The Oprah channel is not just an experiment. It may be XM’s future.

Powered by Blogger