XM's Subscriber Boom

It's been hard not to hear something about satellite radio in recent months. Prominent coverage in news outlets from PBS to The Wall Street Journal suggests that the burgeoning radio services have caught the media's imagination, while naysayers might suggest that the attention being showered on satellite radio is nothing more than hype.

But, then, it's hard to dismiss XM Satellite Radio's (Nasdaq: XMSR) recent release of subscriber figures for the first quarter. The Washington, D.C.-based firm indicated that it added 540,000 net new listeners, a 68% increase from the number of subscribers it signed up in the first quarter of 2004. The newbies bring XM's subscriber base to a grand total of 3.77 million.

XM's strategy appears to be to grab customers fast before rival Sirius Satellite Radio (Nasdaq: SIRI) can get its hands on them. XM surmised that the robust subscriber growth was in part a function of its new technology, including a portable handheld satellite radio introduced through Delphi (NYSE: DPH). Such sleek hardware should indeed be decisive in winning early adopters.

In addition, XM is working hard to get its service in front of as many people as possible. For example, the company recently sealed an agreement with Hyundai making XM a standard feature in the South Korean automaker's cars. Further, XM has been inking deals to put its radios in Starbucks' (NYSE: SBUX) cafes, AirTran's (Nasdaq: AAI) planes, and Cendant's (NYSE: CD) Avis brand rental cars, according to The Washington Post. That kind of exposure surely will be good for sales in the near term.

Still, while XM may capture customers quickly, the key to maintaining its subscriber base and commanding future price increases will rest in exclusive content such as its Major League Baseball coverage. XM has to be commended for its innovative technology, but it's hard to imagine that Sirius won't respond with similar hardware of its own. What's more, the cost of switching services is relatively low. Over the long run, content will determine which company is top dog in satellite radio.

For related Foolishness, see:

• Satellite Radio's New Ride
• XM Radio Tees Off

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.