XM Satellite Signs $650 Mil. Baseball Pact

NEW YORK XM Satellite Radio said it has inked an 11-year, $650 million deal with Major League Baseball to carry both regular and post-season games, including the World Series, live nationwide beginning with the 2005 season. As the game's official satellite radio provider, XM will create an MLB channel featuring original content, classic MLB games and archived MLB material as part of its regular $9.99 subscription. Certain games will also be carried in Spanish. "This is the crown jewel, the deal that we've been waiting for," Hugh Panero, CEO of XM Satellite Radio, said in announcing the deal. "This agreement is a significant step forward in providing baseball fans greater access to more games in more locations," said baseball commissioner Bud Selig. XM's deal with MLB marks another turning point for satellite radio, which is in the early stages of signing subscribers. XM is out in front of rival Sirius with 2.5 million subscribers compared to Sirius' 700,000. To increase subscriptions, both XM and Sirius have been spending big bucks to sign premium content that is attractive enough for consumers to fork over a monthly fee. Last year, Sirius Satellite Radio (which charges $12.95 per month) paid $220 million for a seven-year deal to air the National Football League, and this year signed a five-year, $500 million deal with Howard Stern, beginning in January 2006. Just to sign the deal with MLB, XM deposited $120 million in escrow. The Washington, D.C.-based company will pay MLB up to $50 million for 2005 and $60 million annually through 2012. In addition, XM has an option to extend the agreement for the 2013, 2014 and 2015 seasons at $60 million per year. The deal also includes some revenue sharing for subscribers and advertising.While both services need content that distinguishes their paid service from commercial-free radio, the increasingly high costs of programming raises questions about the ultimate viability of its business model. Both services have been losing hundreds of millions of dollars yearly."XM will have to compete for talent with Sirius and with non-satellite radio operators. The company has already spent heavily to lock in Major League Baseball, and Sirius has spent even more on the NFL and Howard Stern. If this persists, and results in a bidding war for branded talent, it could meaningfully increase programming costs and negatively impact operating margins," wrote Niraj Gupta, an analyst with Citigroup Smith Barney, in his report.Baseball going to XM is even more of a blow to commercial radio than either the NFL or Howard Stern, since it's a sport that has translated well to radio for decades. Compared to football, which airs Sundays and Mondays, baseball airs every night of the week, spanning more than 2,400 games over seven to eight months. "Baseball is a sport ideally suited for radio, given its natural pace and the ability to vividly describe each play," said Panero. "Baseball on the radio is magical."

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XM Satellite Signs $650 Mil. Baseball Pact

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