Worldspace Inc. reported revenues of $3.5 million in the first quarter of 2006, up 35 percent from revenues of $2.6 million in the 2005 first quarter due to increased subscriber numbers, the company announced May 9.

Subscription revenue doubled to $1.6 million for the first quarter of 2006, compared with $800,000 for the first quarter of 2005, as Worldspace added more than 38,000 subscribers during the three-month period to bring its total number of subscribers to more than 153,000 at the end of March. At the end of the first quarter of 2005, Worldspace had a subscriber base of a little more than 18,000.

In India, where the company has launched service in 10 cities throughout the past year, Worldspace added more than 74,500 subscribers during the first quarter of 2006, bringing its total number of subscribers in the country to nearly 112,000 at the end of March. Worldspace continues to expand in service in new cities, Noah Samara, Worldspace’s chairman and CEO, said in a May 9 telephone conference with analysts. The company expects that 9 percent of subscriber additions in 2006 will come from new cities, with most of that coming in the third and fourth quarters, he said. In 2007, that number is expected to double to 20 percent.

“We are investing in brand building for a long term presence in India, focusing on marketing the depth and breadth of our partnership as our main value proposition, leveraging partnerships and focusing on loyalty programs,” Samara said. A spate of new marketing alliances “are focused right in the sweet spot of our target audience. It puts the Worldspace service in front of consumers who love music and who have the disposable income to respond to our value proposition.”

The subscriber additions and marketing push led to higher operating expenses, which led to a net loss of $29.2 million in the 2006 first quarter, up from a loss of $9.2 million in the same period in 2005 but down from a loss of $33.2 million in the fourth quarter of 2005. Operating expenses jumped from $29.9 million in the 2005 first quarter to $49.1 million in the first quarter of 2006, driven by a nearly $5 million jump in selling and marketing expenses and jumps in transitioning and programming costs and equipment costs of nearly $4 million each.

Cost per gross addition jumped from $80 in the first quarter of 2005 to $135 in the 2006 first quarter, but the number dipped from $172 in the fourth quarter of 2005. Subscriber acquisition costs, nearly nonexistent a year ago when Worldspace was struggling to attract listeners, was $41 per subscriber in the most recent three-month period, down from $43 in the fourth quarter of 2005.

“We are launching more cities and creating innovative special promotions that are driving strong revenue growth,” Samara said. “We are confident that we have taken the necessary steps in terms of management changes, enhanced visibility, expanded marketing alliances and improved products that will enable us both to grow and retain subscribers to our ever- expanding unique and exciting content.”

Planned Service Launch In Italy

Separately, Worldspace announced that Worldspace Italia SpA, a majority-owned subsidiary of Worldspace’s European holdling company, Viatis Satellite Radio, received approval from the Italian Ministry of Communications to launch service in Italy. Worldspace expects to begin broadcasting in the country in 2007 using a terrestrial repeater network to augment service from its Afristar satellite, Samara said. Development of the terrestrial network will begin when the Ministry of Communications approves the installation plan.

“We believe Italy presents a very attractive business opportunity for a subscription satellite radio service and is one of the most attractive regions in Europe,” Samara said. “We have conducted a number of European market studies that consistently showed that the Italian consumer showed the highest propensity to subscribe to satellite radio as compared with other European markets.”

Worldspace expects to add 4 million to 5 million new subscribers in Italy, Samara said, a “conservative” estimate given that about two-thirds of Italy’s population of 58 million people fall in Worldspace’s target demographic, he said.

Worldspace has partnered with New Satellite Radio, an Italian company primarily owned by Class Editori SpA, to launch the service. “New Satellite Radio … has been instrumental in obtaining the Italian regulatory authorization and is expected to play an integral role in operational execution of the service in Italy, including distribution arrangements, such as OEM partnerships, content supply and acquisition, and marketing,” Worldspace said.

The companies hope to further expand on their expected subscriber base in Italy by tapping into the country’s automobile manufacturing industry, Luca Panerai, CEO and director of New Satellite Radio, said. There are 33 million registered automobiles in Italy, 2.2 million to 2.3 million new cars are sold in the country annually, Samara said.

Worldspace also is seeking authorizations to launch its service in other countries across Europe, Samara said. “We continue to believe that the market for mobile satellite radio service in Europe is larger than that of the United States, where XM and Sirius have been hugely successful,” he said.

The European plans were made possible in January, when the U.S. Federal Communications Commissoin approved the company’s request to launch its Afristar-2 satellite, which will be co-located with Afristar-1 at 21 degrees East, Samara said. The launch of the satellite is planned before the end of 2006. “This will secure Worldspace’s ability to delivery a pan- European satellite radio service,” he said. “… This is one of the most significant developments for the company since receiving the original authorization to provide service.” Worldspace has not yet announced a launch provider or date for the mission.

If Worldspace achieves its target dates for service launch in Italy and orbiting Afristar-2, it will be the first company to provide satellite radio service in Europe, though at least one competitor has a service planned for Spain. Ondas Media plans to launch satellite radio/media services in 2009. The Spanish company has partnered with Delphi Corp., a supplier of XM radios, to launch a service that will provide about 150 channels of music and entertainment.