The Washington Post yesterday reported that XM Satellite may alter its $40 million marketing campaign as a result of shortfall in cash and slower-than-expected consumer adoption of the service.
XM (and rival Sirius) have been essentially dependant on the sale of new automobiles with satellite-equipped radio tuners installed, so the slumping economy is projected to hurt the sale of new cars as consumers stay away from buying expensive durable goods until the economy rebounds.
In addition as a result of the staggering stock market, further investment both in stocks and in long-term bank loans are drying up, causing the company to rethink how it spends its remaining resources.
XM CEO Hugh Panero told the Post that XM has already cut some costs. Panero said the company will “refocus” its marketing strategy and make other cost reductions while working on several financing deals. He said that with those measures it would be able to stretch out current available cash until mid-2002.
As one of Washington’s most expensive business start-ups, XM has raised $1.4 billion to date. But isn’t expected to break even until at least 2004, when it hopes to have 4 million subscribers.
That means it will need more cash to fund its operations as it tries to build its subscriber base. The firm has said it will need to raise an additional $250 million to $300 million for operations in 2002.
In a report issued by Morgan Stanley, the firm characterized XM and Sirius as operating in a “high-risk sector,” where widespread consumer adoption of their product could be tricky.
According to the Post, Merrill Lynch recently reduced XM’s stock rating from “accumulate” to “neutral.” “We continue to have near term concerns regarding XM’s need to raise capital,” Merrill Lynch said.
