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Sirius XM [SIRI
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] satellite radio service faces tough competition from free services plus the challenge of keeping and adding subscribers despite a pullback in consumer spending.
The company, the result of a merger of Sirius Satellite Radio and XM Satellite Radio Holdings last July, has been struggling. And this morning's quarterly results were worse than expected. Sirius XM finished the third quarter with 18.6 million subscribers, and while that's an increase of 3.5 percent from last year, it's also down by 400,000 from just three months earlier.
Satellite radio's shrinking subscriber base indicates satellite radio is not a necessity in this recession. When paid promotional trials expired, many people just didn't renew them. And the decline in auto sales to a multi decade low decimated one of the company's main sources of growth. Still, the company has managed to take advantage of economies of scale from the merger to narrow its losses. Its pro-forma net loss narrowed to 62.9 million from $233 million a year earlier, while pro-forma revenue grew 5 percent.
While just a few months ago the company warned investors it might have to file for bankruptcy protection, an injection of cash from Liberty Media last month made a world of difference, allowing it to refinance. Last month Standard & Poor's raised its credit rating for the satellite radio maker, saying its liquidity position has improved.
The merger of the two satellite radio giants took so long and faced a slew of anti-trust concerns. But the performance of the merged company just goes to show that in this digital world there are so many different ways to consume media, that different formats compete with each other. Satellite radio is up against Internet radio and online music. Sirius XM is now counting on new distribution platforms to move away from its reliance on auto sales and to make its service a must-have no matter what the economy.
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