Sirius Satellite Radio reported a narrower loss in its latest quarter, signing up more subscribers than rival XM Satellite Radio in the first three months of 2007.

New York-based Sirius reported a loss of $144.7 million in the 2007 first quarter, which closed March 31, compared with a net loss of $458.5 million in the same quarter of 2006. Revenue improved 61 percent to $204 million.

Sirius added 556,490 subscribers in the 2007 first quarter, compared with the 285,000 subscribers that Washington, D.C.-based XM signed. XM reported a loss of $122.4 million in the first quarter on revenues of $264.1 million.

Those totals bring Sirius to 6.6 million overall subscribers, still trailing XM’s 8 million subscribers. The subscriber growth for both companies is down from a year ago, but Sirius hopes to reach 8 million by the end of the year, while XM expects to close 2007 with 9.2 million customers.

"In [the first quarter 2007] alone, we added more than double the number of subscribers that we did in our first year of operation," Sirius CEO Mel Karmazin said during a May 1 conference call. "In the first quarter, Sirius added 66 percent of total satellite radio segment net additions, and in the retail segment, Sirius represented a 76 percent share. This is the sixth consecutive quarter where Sirius has attracted the majority of the satellite radio segment subscriber net additions. It is also interesting to note that in the first quarter of 2007, Sirius captured the majority of gross subscriber additions in the segment, marking the second consecutive quarter for that milestone."

Karmazin also highlighted the company’s progress in the original equipment manufacturer (OEM) channel. "During the last few weeks, numerous announcements have been made by our automakers, including Lincoln, Mitsubishi, Audi, Land Rover, and Mini, making Sirius standard in additional models," he said. "Last week, Mercedes announced that Sirius is targeted to be installed in 80 percent of their auto penetration this year and 90 percent of their auto production next year and more than 90 percent in 2009. These recent announcements dramatically exceed previously established installation targets and, in my view, represent a very positive signal for our continued growth."

James Meyer, Sirius’ president of sales and operations, expanded on Karmazin’s observation, noting that in the first quarter, Sirius added 365,000 OEM net additions, capturing 62 percent of total OEM net addition share, "the highest results in our history. … The numbers attest during the first quarter: Sirius, in conjunction with our OEM partners, executed very well on all fronts."

Meyer attributed the first quarter success to "pull from end users, as evidenced by those partners marketing Sirius as a free-flow option. The great news is that penetration rates for Sirius are exceeding initial projections and strong customer and dealer demand for the Sirius option is driving these high penetration rates."

Meyer believes the OEM growth shows that Sirius is becoming a key marketing influencerfor vehicle buyers. "Our automotive partners are confidently stepping up their rollout of Sirius with packaging and promotional strategies up to and including lifetime subscription offerings, as evidenced by our Mini announcement," he said. Mercury will embark on a two-month national promotion prominently featuring Sirius in their models with a paid three-year subscription, and Ford plans in 2007 to more than double the number of vehicles shipped with factory-installed Sirius radio, from the nearly 600,000 that have already been shipped to date, he said.

Despite recent skepticism among industry professionals that the propose merger of the two satellite radio operators would gain regulatory approval — recent estimates have described the likelihood as no better than 35 percent — both companies have said they expect to complete the $3.5 billion deal before the end of 2007.

"The bottom line is this: The merger of Sirius and XM is good for consumers, good for shareholders and good for the audio entertainment industry as a whole," Karmazin said. "We remain confident that the regulatory authorities will carefully weigh the merits of the transaction and that we will be able to close the transaction by the end of the year."

If analyst Tim Farrar of Telecom, Media and Finance Associates Inc. (TMF) appreciates Sirius’ recent efforts, he is more skeptical of the broadcasters’ success in merging. "I think it’s still very uncertain what’s happening with the merger, and that overshadows any other opinion," he said. "If that happens, that will obviously change the thinking. But the perception is that people are starting to see that the projection for 80 million customers in 10 years is coming down significantly, and that perhaps the market isn’t quite as big as people thought."

According to Farrar, the OEM successes may sink the merger bid. While noting that "I think most people think it will be a difficult job to get it through," he added that it may especially depend on "whether the Federal Communications Commission (FCC) and the [U.S. Department of Justice] take the view that satellite radio won’t be in every car."

The ability of other companies gain fair entrance to in-car services is "a potential barrier that could be addressed," he said. "It comes down to the idea of whether it will be in every car, ultimately — then it’s hard to agree to the merger. But if only 20 percent of car owners are going to pay for the service, then it’s easier to justify."

Farrar suggested "it’s not entirely clear to me what XM and Sirius themselves think is going to happen."

Ultimately, Farrar said, "if it doesn’t go through, clearly the level of cost savings is more challenging. It’s not to say they’ll go out of business, but the profitability is more limited. My view is that it will be only 20 percent in cars rather than 100 percent. It’s perhaps three times the customers they have at the moment… They share 14 million customers; you could see that going to 40 milllion or 50 million. That’s enough for a level of profitability, but at the investments they’ve made, it’s not a terribly high return."