More Tuning In to Pay Radio, Firms Say

Slowly but surely, satellite radio is catching on, according to subscriber numbers released Monday. But neither Sirius Satellite Radio Inc. nor XM Satellite Radio Holdings Inc. will break even, analysts said, until millions more people begin paying for something they’re accustomed to getting free. Washington-based XM, the largest pay-radio company, said it recently surpassed 3.1 million subscribers, having started the year with 1.3 million.

Sirius, based in New York, said it had achieved its year-end target of 1 million subscribers, up from about 260,000 at the beginning of 2004.

“It’s now clear that consumers are increasingly recognizing the appeal of our programming,” Sirius Chief Executive Mel Karmazin said in a statement.

Customers who subscribe to XM pay $9.99 a month for about 130 music, sports and talk radio channels, more than half of which are free of commercials. For Sirius, people pay $12.95 a month.

Both companies have moved aggressively in the last year to boost sales for their services through partnerships with automakers, many of which offer the radios as options in new vehicles, and by lining up major sports and talk radio contracts.

Sirius shook up the radio world in October, when it signed shock jock Howard Stern in a five-year deal, beginning in 2006, worth $500 million. Sirius has also partnered with the NFL.

And last month, it recruited Karmazin, the former president of media conglomerate Viacom Inc., as its CEO.

As part of his pay package, Karmazin received 30 million stock options now worth more than $240 million.

For its part, XM recently announced an 11-year deal with Major League Baseball beginning this spring valued at more than $500 million.

In addition, both companies have benefited from brisk holiday sales of portable radios and receivers, which can be used in both the home and the car.

Although encouraged by the subscriber numbers released Monday, analysts cautioned that the companies had a long way to go before they could start turning a profit and delivering on the high expectations they have created among investors.

“They’re largely on track with expected growth, but these are the kind of gains they need to have on a steady basis over the next several years if they are going to break even,” said Larry Gerbrandt, a Los Angeles-based media analyst with AlixPartners.

Some believe the stocks of both companies are overheated, particularly given the costly deals they’ve entered into recently.

New York-based media industry analyst Harold Vogel said XM and Sirius stocks “both have a speculative tinge to them.... It seems to me there’s a little bit of a bubble flavor here, and we all know how bubbles end.”

Reflecting investors’ uncertainty, Wall Street delivered a mixed response Monday. Shares of Sirius rose 15 cents, or nearly 2%, to $8.10, and XM shares fell 19 cents to $39.73, both on Nasdaq.