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Old 08-05-2005, 04:48 PM   #1
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Sirius doubles ad revenue (Auto News Article)
 
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Default Sirius doubles ad revenue (Auto News Article)

Sirius doubles ad revenue, ups subscriber growth goal
Mel Karmazin expands advertising sales staff further


By Abbey Klaassen
August 05, 2005

NEW YORK -- Sirius CEO Mel Karmazin this week raised the year-end subscriber goal from 2.7 million to 3 million and said that by year's end there will be more than 9 million subscribers to satellite radio total.

Last week during its second-quarter earnings call XM increased its year-end subscriber projection from 5.5 million to 6 million.

He also was bullish on advertising revenues as he addressed investors during Wednesday's second-quarter earnings call.

Revenue up 295%

Sirius reported revenue of $52.2 million for the quarter, a 295% increase over the $13.2 million reported for the year-ago quarter. However, its net loss widened to $177.5 million, or 13 cents a share, from $136.8 million, or 11 cents a share a year ago. Karmazin said the company could reach positive free cash flow as early as fourth quarter of 2006; it has also promised positive free cash flow for 2007.

"Many of you were skeptical of the advertising potential on the Internet and I think you'll find that the advertising potential on Sirius is greater than you think it is," he said. In April he told Advertising Age, a sister publication of Automotive News, that Sirius will take in up to $8 million in ad revenue this year, $50 million in 2006 and $100 million by 2007.

Sirius doubled its ad revenue from last quarter to this quarter, hitting the $1 million mark, according to April Horace, an equity research analyst with Hoefer Arnett. The satellite radio industry's burgeoning ad model is much like that of cable in its infancy, and she believes XM is taking more of a back-seat approach when it comes to advertising -- primarily due to the difference of management teams, with XM's coming from the cable and satellite industries and Sirius' from terrestrial radio.

"I think XM's going to let Mel drive that [ad] opportunity for satellite radio," she said. "You can't drive all initiatives on all fronts. XM is much more interested in moving the technology forward and driving it internationally."

Expands sales staff further

Sirius in February hired former Infinity Broadcasting sales executive Sam Benrubi to helm its ad sales efforts and the company told investors it has added "seven to eight people to the advertising staff," concentrated in key markets Chicago, Los Angeles and New York. While its 65 music channels will remain advertising-free, the company expects high ad demand for its 55 talk, news and sports channels.

"I can tell you right now we are seeing very strong demand for NFL-related content today," Karmazin said, referring to Sirius' deal to broadcast National Football League games. "There is great anticipation for Martha Stewart for a lot of advertisers in their inability to reach women on traditional radio."

Martha Stewart launches Martha Stewart Living Radio, her 24-hours-a-day, 7-days-a-week Sirius radio channel, in September. Its content will include lifestyle programming on topics such as cooking, entertaining, gardening, home-keeping, decorating, holidays, collecting, health and wellness and pets. The venture includes an ad revenue-sharing model with Martha Stewart Living Omnimedia.

Audience measurement issue

While all major terrestrial radio stations subscribe to Arbitron data to measure their audiences, neither Sirius nor XM use the ratings service. Karmazin said it has audience data it regularly examines and that Sirius sales people have sufficient information to be able to work with advertisers.

One media buyer told Advertising Age it tends to buy "on intuition" when striking deals with satellite radio.

"If in fact we believed we needed those numbers from Arbitron, we would subscribe to Arbitron and provide our sales department with those tools," Karmazin said. He called Arbitron's diary-based methodology "archaic" and noted the "huge debate" going on about changes Arbitron is making in its methodology as it begins to move from paper diaries to electronic portable people meters.

Bullish on Howard Stern

Sirius was also bullish on Howard Stern's advertising prowess and said it plans to engage in its own marketing campaign around the shock jock talker: "There will be nobody in the U.S. that will not know that Howard Stern will be on Sirius," Karmazin said.

The former Viacom chief operating officer also pleaded ignorance regarding rumors that Viacom's Infinity radio network, which holds Stern's contract through the end of the year, would release the talker early. "We've had no conversation with Howard Stern about coming early because we do not want to in any way shape or form be interfering with Viacom's relationship with the performer," Karmazin said.

Infinity has reported it is looking at several candidates to replace Stern.

Meanwhile, Last week XM reported second-quarter revenue of $125 million, an increase of 136% over the $53 million reported in the year-before quarter. Its net loss for the quarter was $146.6 million, compared to $166.1 million in the second quarter 2004.

While XM's call didn't discuss the company's potential for advertising revenue, it highlighted a recently announced co-promotional partnership with online music service Napster, which allows XM subscribers to mark songs for later download.



-- Advertising Age
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