Feeling Gravity's Pull

It is, after all, what we've come to expect from XM Satellite Radio (XMSR) and Sirius Satellite Radio (SIRI), which respectively report Thursday and Friday before the open. True, these celestial broadcasters have had to spend aggressively to grow their listener bases, particularly on pricey content deals. And that they have. You can't make mention of Howard Stern without noting his five-year, $500 million contract with Sirius.

If you ask me, though, the most interesting — and possibly the smartest — content development of late has been with the Queen of All Media. XM announced last week that it signed Oprah Winfrey to a $55 million, three-year deal for an "Oprah & Friends" channel. Programming will feature some notable experts from her show, as well as Oprah's foray into the vaguely termed "reality radio" with her best friend Gayle King.

Last week, Oprah hosted a television show packed with promotional plugs for XM. She spent an hour outlining what the channel would entail, trotting out some of the personalities who would appear and delving into a handful of topics. It was all pretty run of the mill PR pabulum until she mentioned buying an XM radio. That's right: Her Oprahness casually tossed in a line about signing up for the service.

It was a friendly aside from the woman whom millions invite into their homes each day. There was some folksiness to the suggestion that everyone go get an XM radio, some humor. Thing is, this is Oprah, the media force who literally makes authors' careers (or, if you're James Frey, cuts you down to size faster than you can say "embellishment"). This is the magnate who makes lists of things she loves, sparking sales for any manufacturer fortunate to receive Oprah's Seal of Approval. And here she was, telling her devotees that they should buy an XM radio. Somewhere that day, XM Chief Executive Hugh Panero shed a tear of joy.

I've said before that satellite radio is ultimately a content play. At the end of the day, no one cares that they're getting radio beamed down from a contraption circling the earth. They only care about what they're hearing. Do they like that there aren't any commercials? Sure. But they don't give a fig that a satellite is what's delivering that ad-free nirvana.

No, this is about content. And XM signing Oprah was a coup plain and simple. Sure, I joke, but I have the utmost respect for Oprah. Who doesn't? With this agreement XM benefits from Oprah's name, and the contract cost a fraction of Stern's super-sized deal. It should only take 145,000 new subscribers for XM to break even on it, according to the number crunchers at Oppenheimer. That's a fraction of the estimated one million additional customers that Sirius needs to break even on its deal with Stern. And when it comes to promotional force, no one's stronger than Oprah. Or smarter, I should add, considering her deal was all cash, not stock. This businesswoman didn't become a billionaire by accident.

One could say that XM's stock didn't make it on Oprah's list of favorite things. It would be little surprise, really, as it's in sad shape. XM shares plunged 27% last year, compared with the Nasdaq's modest 1% climb. And 2006 isn't looking much better: Already, the stock is down 10%, and that's after an Oprah-induced 4% pop last week. Sirius shares aren't faring any better either: After falling 12% in 2005, they've sunk another 16% year-to-date.

Will quarterly results light a fire under these dilapidated issues? I'm not so sure. We already know that subscriber growth is going better than expected, since XM and Sirius release those figures ahead of their quarterly reports, so that tidbit is baked in. And while revenues continue to grow at a swell pace, both are still swimming in losses. Analysts expect XM to lose 92 cents a share for its fourth quarter, 20 cents worse than a year ago, according to Reuters. And Sirius is expected to lose 22 cents a share, a penny worse than last year, according to estimates. (Keep in mind that XM is larger than Sirius, boasting more than six million subscribers to Sirius's 3.3 million.)

What the managements of XM and Sirius have to say about when they expect to turn cash-flow break-even will be key. Both have maintained they'll achieve this milestone by the end of 2006. That would be a step in the right direction, of course. But that still won't be earnings per share. Not that Wall Street is discouraged, mind you. More than twice as many analysts rate these stocks a "Strong Buy" as opposed to a "Hold" (that's 13 Strong Buys for XM and 12 for Sirius), according to Zacks Investment Research.

Color me a skeptic, but I'd be a little more cheery if Oprah went out and bought some stock on the open market.