XM Radio 2007 Annual Report Download - page 2

Retail Strategy – Optimize Costs, Reap
Benefits: XM reported 1.3 million retail
gross subscriber additions and 185,000
net additions in 2007. In order to better
optimize retail sales opportunities while
containing costs, we have implemented
a series of strategic initiatives.
A key focus on the retail side is growing
our direct sales volume through our
Listener Care team and Internet sites,
including XMRadio.com. We have
moved a significant amount of
advertising from broadcast to online, as
a more cost-effective way to gain new retail subscribers; and, we restructured or eliminated numerous partnerships to
enhance the return on our retail marketing investment.
The retail channel continues to be important to XM. The positive experience of listening to XM on a factory-installed car
radio helps drive consumers to purchase additional radios at retail outlets and through our direct sales channels. Likewise,
when retail subscribers are shopping for new cars, they are strong prospects to become automotive subscribers. We will
continue to focus on improving our performance at retail, where we compete against a wide range of competitors,
including iPods and cell phones.
Programming: 2007 was another exceptional year for XM programming. We kicked off our first season of college sports
from all six major conferences – the ACC, Big East, Big Ten, Big 12, Pac-10, and SEC – and the positive response from
customers was enormous. We opened our third season of Major League Baseball®, bringing every game for every team to
fans nationwide. We expanded our NHL®coverage to every game as we launched our first season as the NHL’s exclusive
satellite radio home. New music channels were added to the XM lineup, including XMX™(Channel 2), which airs the best of
XM’s original music programming, all in one place. Bob Dylan began the second season of his award-winning XM show
“Theme Time Radio Hour,” and the popular Oprah & Friends®channel expanded its slate of exclusive XM programming.
Live music took center stage on XM with the addition of the legendary Grand Ole Opry®radio show from Nashville, as well
as premier music festivals such as Lollapalooza, Bonnaroo, and South by Southwest. In anticipation of the Presidential
primary season, XM debuted POTUS '08™, the nation's first and only radio channel dedicated to a Presidential campaign.
In summary, we look forward to the completion of our merger with Sirius and the synergies that will result from this
landmark agreement. We have demonstrated momentum in our automotive channel, growth in revenue and
subscriptions, and improvements in customer satisfaction. Our focus is firmly set on building upon this momentum and
progress that we achieved in 2007. We thank you for your ongoing support and the trust you have placed in us – a
responsibility that we will continue to heed as we move forward.
2007 ANNUAL REPORT
We are pleased to report that XM Satellite Radio delivered a solid performance in 2007, and did so in the face of
substantial competition in the audio entertainment sector, as well as a prolonged approval process for our merger with
Sirius Satellite Radio.
We met our primary business objectives in 2007, hitting our subscriber and revenue targets, and transitioning XM’s
business from a retail-focused company to an automotive-focused company.
Merger Update: 2007 was a historic year for satellite radio as XM and Sirius announced an agreement to combine in a
merger valued at $13 billion at the time of the announcement. The merger will deliver more choices and better pricing
options to consumers while making satellite radio a stronger competitor in a robust audio entertainment marketplace.
Under the tax-free, all-stock transaction, XM shareholders will receive a fixed exchange ratio of 4.6 shares of Sirius
common stock for each share of XM stock they own. XM and Sirius shareholders will each own approximately 50 percent
of the combined company. The Department of Justice announced on March 24, 2008, that it had ended its review of the
XM-Sirius merger without taking action to block the transaction. With the Justice Department’s approval, we continue to
work with the Federal Communications Commission (FCC) as it reviews the merger, and we expect the FCC to rule in the
near future.
Revenue and Subscriber Growth: XM grew 2007 revenue to $1.1 billion, a 22 percent year-over-year increase. Our
subscriber base grew to more than 9 million – an increase of 1.4 million customers or 18 percent year-over-year. We posted
3.89 million gross subscriber additions in 2007, with the automotive channel delivering an impressive 2.6 million
subscribers, or 67 percent of the total.
Automotive Segment Drives XM Growth: The automotive channel emerged as the primary growth driver for XM,
establishing a clear path for sustained future performance. Our strategic partnerships with GM, Honda, Hyundai, Nissan,
Toyota, Porsche, Ferrari, Subaru, and Suzuki produced more than 3.5 million vehicles with factory-equipped XM radios in
2007, a 64 percent increase over 2006.
Our automotive partners, which hold approximately 60 percent of the U.S. automobile market, are expanding XM across
their total vehicle production. The penetration level in vehicle production among our partners was approximately 40
percent in 2007, and is on track to reach 60 to 70 percent by the 2010 model year.
Importantly, as the production of XM-equipped vehicles increased and expanded into more models, the conversion rate –
the number of promotional trials that became paying subscribers – remained stable. The 2007 conversion rate was 52.7
percent, which represents strong consumer demand for XM, as well as sustainable revenue growth.
And XM isn’t just radio anymore. We have a growing menu of data services that are being integrated into new vehicles.
XM NavTraffic®, the real-time traffic service for GPS systems, expanded to 18 vehicle models in 2007, and it will rise to more
than 40 models in 2008. We recently introduced our newest data service, XM NavWeather™, which delivers real-time
weather conditions and alerts directly to the vehicle. Services such as these help position XM as a valuable addition to our
customers’ daily lives and will further diversify our revenue stream.
Nate Davis
President & CEO
Gary Parsons
Chairman
Dear Shareholders:
Nate Davis
President & CEO
Gary Parsons
Chairman