Tuesday, May 22, 2007

XM Outage Continues

May 22, 2007
Tyler Savery

This morning, many XM listeners were in hopes of getting their service back. As yet it has not happened.
While this issue is troubling for consumers, it also has the potential to cause heartache for investors. News regarding the outage did not hit the mainstream media until late yesterday afternoon, and XM's last statement held hope that the required repair work (software update and repositioning of the satellite) would be performed last evening.

Investing in satellite systems does have risks. Sirius and XM<>

The issue is compounded by the lack of information at this stage. Investors will likely want some clarity as to whether the issue is serious in nature, or merely a glitch. The longer service is down, the more likely that the perception will be that the problem is severe.

This could also represent a tough month for XM. The issues surrounding Opie & Anthony, combined with service outages will likely have many people looking for reparations. Depending on the numbers, the hit to the revenue line could be substantial. By example, a nearly $2,000,000 dip in revenue can be tied to each 100,000 subscribers that get a free month. With an outage impacting many subscribers, the question will be how XM proposes to make things right for consumers, and how that impacts the bottom line. Perhaps a reasonable solution would be to tag a free month onto the end of the service of subscribers. This will spread the impact out over a varied period of time.

No matter what, it appears that there will be no new information prior to the market opening, and it will be interesting to see the street reaction.

Position - Long XM

5/22/2007 09:04:00 AM

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