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

To: pcstel who wrote (2131)	1/28/2006 1:03:05 AM
From: i-node	Read Replies (2) \| Respond to of 3386

The investors drink the Kool-Aid and say things like. Low, Low cost of content is going to produce HUGE, HUGE, HUGE Gross Margins (See my earlier post). Well, at least it starts out that way. But, as we have seen in other subscriber models. The cost of content quickly increases as the cash flow starts flowing in. To date, XM has done an excellent job of controlling content costs -- the $59M/year on MLB is, to date, the worst of it -- and Sirius is pretty well tapped out on content expenses, meaning the content battle shouldn't continue to escalate wildly from here. XM is actually in a position to add some excellent content should they come upon an opportunity to do so. Could a future content war destroy the business model? Of course, if it happened. But we have seen Sirius commit more than a billion dollars to content since you and I had the earlier discussions -- and meanwhile, XM has managed to leverage its technology and OEM advantages to maintain a strong leadership position without making massive content commitments going forward. XM's content cost burden has not increased substantially since that time, and if one looks at XM's revenue share expenses, those costs have scaled nicely as the business has ramped. You have conveniently failed to mention that while XM increased its pricing by 1/3 its churn did not suffer materially. In this respect, XM's business model looks stronger today than it did a few years ago when we originally discussed the subject. The key thing that has happened in '05 is that for the first time we will have seen a clear and substantial decline in XM's annual loss (meanwhile, Sirius will have suffered a loss that for the 3rd straight year set a new record for a single year loss in SDARS). XM's loss for '06 is likely to be cut by an even larger amount as more subs sign on at higher ARPU levels and additional revenue streams continue to ramp.