XM Satellite Radio and Sirius, the US' two satellite radio pioneers are locked in a costly battle for subscribers. Both of them have announced considerably wider losses on revenues and subsciber improvements.
Sirius said it ended 2005 with 3.3 million subscribers, after adding 1.1 million in the fourth quarter. The subscriber gains outpaced the number of new subscribers racked up bigger rival XM Satellite Radio in the quarter.
Both spend around $100 (Sirius a little more) to acquire each subscriber, which seems like a lot of money. It takes their customers nearly a year to pay back those costs.
And both Sirius and XM have shelved out a huge amount of money to attract the likes of Howard Stern and Oprah. Though Oprah seems cheap at the price compared to the $500M for Stern. The pay back can only come with considerably improved customer numbers.
Both investors and board members seem concerned about the cost overruns. And both companies have seen their shares slide. XM was further hurt by one of their board members resigning over his concern at runaway costs.
So Sirius and XM are taking a big gamble. Sirius expects 2006 losses of around $600M. But, if they keep pulling in the subscribers at the rate they are, then their businesses sould turn profitable in the next couple of years.
They probably need about 15M subscribers each to achieve it. If they don't, there's gonna be a whole load of cost slashing in the fledgling US satellite radio industry. And the two leaders might even be forced to merge.