XM (XMSR) missed forecasts by a penny. But, more important, it showed that satellite radio is really not a hot growth business anymore, perhaps helping make the case that it needs to merge with Sirius (SIRI).

The company said earnings for the three-month period ended June 30, 2007. Revenue for the 2007 second quarter increased 22 percent year over year to $277 million compared to $228 million in the 2006 second quarter. XM’s 2007 second quarter net loss narrowed to $176 million, representing a 23 percent improvement compared to the 2006 second quarter net loss of $229 million.

XM ended the 2007 second quarter with more than 8.25 million subscribers compared to 6.90 million subscribers in the prior year period.

The company simply is not adding enough net subsribers per quarter. In the 2007 second quarter, XM recorded gross subscriber additions of 942 thousand and net subscriber additions of 338 thousand compared to 926 thousand gross additions and 398 thousand net subscriber additions in the 2006 second quarter.

And, costs to get new subscribers are rising. In the 2007 second quarter, XM’s subscriber acquisition costs, a component of cost per gross addition, was $75 compared to $67 in the second quarter of 2006.

Cost of revenue fell from 64% to 61%, year over year.

Cost for adding a gross subscription rose to $121 from $112 in the same quarter a year ago.

Clearly, getting number subscribers is becoming more expensive even as demand slows.

Douglas A. McIntyre

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