XM Satellite Radio reported greater-than-expected subscriber gains in the first quarter of 2004 in what many analysts believe is a critical year for building consumer acceptance of the nascent satelli

XM Satellite Radio reported greater-than-expected subscriber gains in the first quarter of 2004 in what many analysts believe is a critical year for building consumer acceptance of the nascent satellite radio industry.

XM Radio yesterday (April 1) reported 320,000 net new subscribers in the period, up 230% from the same period last year, bringing the company's total subscriber rolls to 1.68 million. The company said it expects 2.8 million subscribers by the end of 2004.

Analysts had expected additions of 259,000 in the quarter, which was typically strong due to activations of new radios given as holiday gifts.

XM's smaller competitor Sirius Satellite Radio said it plans to report first-quarter subscriber numbers with its first-quarter earnings, as is company policy. It expects to have 1 million subscribers by the end of the year.

XM's strong subscriber growth bodes well for the industry, and some analysts said they would revise projections for the year based on the new numbers.

"My guess is we'll be taking those projections up throughout the year," said Tom Watts, analyst at investment bank SG Cowen.

While satellite radio's initial growth has been impressive, the industry is still looking for a growth driver to ensure the trajectory stays steep.

About 50% of XM radios are factory-installed in cars and Watts expects that percentage to rise in coming years. Both XM and Sirius have been looking to local programming and compelling radio personalities in order to boost the drive-time appeal of their services.

Both services launched local weather and traffic information channels. This week, XM Radio launched a left-leaning talk channel, America Left, featuring humorists Al Franken and Janeane Garofalo.

But industry analysts and satellite radio executives say the defection of a national radio personality to satellite could lift the entire industry.

"The one thing might be Howard Stern," said Watts. The shock jock's contract with Viacom Inc.'s Infinity Broadcasting unit runs another two years, but executives at Sirius say they'll be very interested in negotiating with him and other personalities as their contracts expire.

"We will continue to look for personalities as their contracts come up," said Jay Clark, executive VP of programming at Sirius. "We are interested in signing bigger names."

Clark said Sirius would look to people with large radio followings like Stern and right-wing personality Rush Limbaugh, local-market stars like Howie Carr in Boston and the Regular Guys in Atlanta, and Spanish-language personalities.

--Reuters

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