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Technology Stocks : XM Satellite Radio Holdings Inc. (XMSR) -- Ignore unavailable to you. Want to Upgrade?

To: pcstel who wrote (396)	11/24/2002 10:22:52 PM
From: i-node	Read Replies (1) \| Respond to of 3386

The reason again being that the apparent CPGA and Equipment Subsidies are way too high, and the ARPU is way too small. Spending 11.8 million dollars in equipment subsidies alone to add 65,000 non-contract net adds that will only generate 7.5 million in Revenues per year is not a valid business concept You are wrong about this; the fact that you lose money on initial subscriptions may be immaterial so long as you have the financial backing you need. Microsoft literally gave away Microsoft Word and Excel for the first couple years their Windows products were out -- at substantial losses on the product line -- in an effort to capture the market, and it worked; they now own the product category and make a ton of money off of it. However, you seem to be unaware that per-subscriber costs have ALREADY declined from that level, in that the subsidies on the SkyFi are substantially less than those required ont he Sony, Alpine & Pioneer units. Further, of the anticipated sub growth of 150,000 during the 4th quarter, 120,000 of those units are projected to be the less expensive (in terms of subsidy) SkyFi units. It isn't as though there are going to be ongoing high subscriber costs. You seem to be viewing these subsidies as part of the ongoing business model, but in reality, the subsidies will decline to almost nothing over time. Even at that, the per-subscriber costs that have been incurred to date appear to be such that they WILL be profitable on a net basis over a couple of years time. This, because the customer satisfaction is remarkably high and by all accounts, cancellations are minimal. I think the think you're overlooking here is that this business is designed and implemented as a high-volume operation. Nobody expects that you launch two satellites and run 100 channels of programming without selling several million subscriptions; yet, you seem unduly concerned with the fact they are paying a lot for the first couple hundred thousand. These are, in effect, almost immaterial to the operation, and play an important role only in that they serve to build interest in the product. Not unlike advertising. The potential for this company to do 10M subs by 05 or 06 is very real, particularly given SIRI's failure to catch on (I read somewhere that Best Buy was refusing, apriori, to accept returns on SIRI equipment if they went broke). The potential for twice that by 2010 is, likewise. The cost of operating XM is damned near fixed once you reach break even. This characteristic is what defines a "cash cow" -- the fact that adding one unit of sales after breakeven does not significantly increase operating costs. This point is what the naysayers miss; after you hit breakeven, you can go to 10M, even 20M, subscribers with minute increases in operating expenses.