Quick. What's the first thing you think of when I mention Sirius Satellite Radio
OK, now, when you think of XM Satellite Radio
Take your time.
Nothing coming to mind? Yeah, that's part of the problem facing what was once the runaway leader of satellite radio.
Now, to be fair, XM does have some exclusive deals and features in its portfolio, including its Artist Confidential series and its contract with Major League Baseball. It also becomes the NHL's exclusive satellite-radio partner in 2007. Those are the biggies. It's also got deals to bring you its programming by way of DirecTV
But even combined, these efforts don't seem to carry as much weight as being able to say you're home to the so-called King of All Media and America's favorite sport.
Why is any of this important from an investing perspective? Because if XM can't distinguish itself, it's never going to get itself back on track. And right now, things don't look pretty.
Invisible airwaves, crackling with debt
Rick has a leg up on me in this Duel. He's a seasoned investor. He knows his way around the stock market. And his seemingly boundless optimism helps him find the diamond in every rough patch.
Me? I'm a word guy, a skeptic, and a nascent investor. I've learned most of what I know about stocks by osmosis, through editing the stories you see every day on our site. Yet maybe that's the strongest argument of all against taking a risk on XM right now: Even a market rookie such as I can see that this stock spells nothing but trouble right now.
I look at XM's earnings reports and see a nauseating bloodbath. I see a widening net loss -- up to $231 million for the most recent quarter. I see subscriber-acquisition costs rising over the previous quarter. I see increasing dilution of shares that have already shed two-thirds of their value over the past year. Yes, revenues continue to increase, but so does the red ink. And there's no guarantee that even the revenues will remain as XM's only saving grace, considering that the company has twice reduced its forecast for subscriber growth this year. XM wants to blame that predicament on a soft market for retail in general and satellite radio in particular, yet while XM was reducing its subscriber outlook, Sirius reported a slight uptick in its projections. Sirius has also beaten out its larger rival in new subscriptions for three straight quarters.
Bearing a stock beyond price ... almost free
It hasn't been a good year for XM. Amid the financial troubles, a scuffle with the recording industry, troubles with the FCC that have held up the release of a series of new XM receivers, and the resignation of a board member who warned of bad news ahead, you start to think that some of those partnership deals I mentioned earlier have a feel of desperation about them -- almost as if XM is starting to throw everything it can against the wall just to see what will stick. Yes, it has to keep up with Sirius, but at what cost?
Getting Oprah Winfrey on board should help. The effect of XM's existing star power, however, has been negligible. After all, I'm not sure how much excitement you can generate by giving Bob Dylan his own show. People love Dylan because of his music, not because they want to hear him talk and play other people's music.
Speaking of which, the music itself may just be the biggest story here. If XM wants to survive -- let alone set itself apart from Sirius -- it can't let itself become a pay version of terrestrial radio. Some folks made a big fuss when XM lost the ability earlier this year to market itself as offering 100% commercial-free music, since Clear Channelwon a ruling that allowed it to start running ads on the four XM stations Clear Channel controls. But I've always believed that satellite radio's appeal lies not in its lack of ads but in its variety. And that's why I was troubled when XM fought back against Clear Channel by rolling out a handful of new, ad-free stations whose playlists sounded a whole lot like ... well, like any terrestrial station that Clear Channel might own. Giving listeners a greater amount of channels with overlapping mainstream playlists is hardly my idea of variety.
To free up enough bandwidth for these new channels, XM chopped a couple of its stations that had catered to special musical interests. Much of the music from those channels no longer has a home. When I complained by email to XM management, I got a reply saying that my favorite channel, progressive-rock haven XM Music Lab, went away because its base was dedicated but small. But isn't that what satellite radio is all about -- giving us what we can't find on the terrestrial dial? Serving niche interests? You'd think Hugh Panero and company had never heard of the Long Tail. If they had, they wouldn't be kicking their most loyal customers to the curb. Search the Web, and you'll find people who specifically chose XM over Sirius for the likes of XM Music Lab. You won't find anyone saying that about any of Music Lab's uninspiring replacements.
Sirius fans may well say that about Stern, though. Yes, Stern has a much bigger following than, say, the Latin jazz of XM's erstwhile Luna channel did, but the principle is the same -- you have to keep your loyal listeners happy. XM is in a tough place. I understand that. It's doing what it thinks it has to do to keep pace with Sirius. But turning into something indistinguishable from its competitor -- or from free radio, for that matter -- won't cut it. If XM wants to throw money around, it needs to throw it at more big, exclusive catches like Oprah. And it needs to stop dissing its most dedicated customers. It's already lost a lot of the satellite-radio mindshare. If it doesn't turn things around, it stands to lose a lot more.
Fool online editor Adrian Rush still has an XM subscription, since his wife and dad enjoy the service. He's back to lugging around CDs and never plans to own shares of XM, nor does he own a stake in any other company mentioned here. The Fool's disclosure policy is more progressive than a Mellotron blast over a 9/8 meter.