XM is testing the limits of its growth rate

XM Satellite Radio has posted much greater than expected losses as its cost per new listener rose 40% over last year in an effort to counter Sirius’s Howard Stern blitz with more marketing. The current cost of $140 per gross new subscriber is almost exactly one year’s revenue on a subscription that can be cancelled at any time.
XM says that its CPGA (cost per gross addition) will drop again after the Stern wave has passed. But XM’s marketing cost rose much faster than its subscriber numbers in this period, indicating that there is a natural limit on how quickly satellite radio can grow while keeping costs in line. This is consistent with the cautions I raised in US Satellite Radio Subscriber Revenue Forecast, 2005 to 2010:

Satellite radio providers must achieve this growth rate while keeping marketing costs per subscription down and without increasing churn rate.

One of XM’s directors has resigned in a dispute related to escalated marketing costs.
Originally published on my blog at JupiterResearch.