Grudge Match

The media and entertainment world has long served up epic battles, whether it was the Hearst-Pulitzer newspaper wars, MGM vs. Warner Bros. Studios or, more recently, Fox News's (NWS ) assault on CNN (TWX ). But the rivalry that has been blazing for six years between XM Satellite Radio (XMSR ) and Sirius Satellite Radio (SIRI ) sets new standards in the art of one-upmanship. What began with some space-age technology and deep-pocketed investors has escalated into a pageantry of excess. Hundreds of millions have been laid out for star-studded programming -- Stern, Oprah, Martha, Dylan -- but nary a penny of profit has been made.

Orchestrating this war are two CEOs with a whole lot to prove. XM's Hugh Panero, a cable industry vet, was passed over for a new top job at a pay-per-view company. Sirius CEO Mel Karmazin, an old radio hand, was forced out as the No. 2 at Viacom Inc. (VIA ). Each is fully aware that XM and Sirius may seem very similar. Dozens of channels each, half music, half talk. Same price. Flip a coin, right? That's why the two play such a pitched public-relations game. If these guys were on the hard court, their fevered volleys would make for a riveting match. So that's where we put them.


XM rolls out its service ahead of Sirius in late 2001 and gets a huge advantage early on from having more advanced technology and by sealing a lucrative deal with General Motors.


Outbidding XM, Sirius announces in December, 2003, that it has reached a 7-year, $220 million deal to broadcast NFL games. From behind the baseline, XM grumbles that everybody is in front of the TV for the games on Sunday afternoons, anyway.


In October, 2004, Sirius stuns the entertainment world by announcing that shock jock Howard Stern will jump from broadcast radio to satellite. Sirius outbids XM once again by agreeing to pay $500 million over five years.


XM follows the Stern announcement with its priciest deal yet: an 11-year, $650 million pact to broadcast Major League Baseball games. Real jocks trump shock jocks, reasons Panero.


Hoping to create huge buzz about Stern and other offerings, Sirius hires former BMG music group PR man and onetime Wall Street Journal reporter Patrick Reilly, as its spinmeister.


Less than a year later, XM hires Reilly's former No. 2 at BMG, Nathaniel Brown, to be its spinmeister.


That feisty New York native expressing himself in the stands is Stern's old boss at Infinity Broadcasting, Mel Karmazin. Karmazin accepts a job at Sirius in November, 2004. He once said satellite radio had no future.


In 2005, Sirius signs Jimmy Buffett; XM announces a partnership with Napster (NAPS ). Sirius announces a 24/7 Springsteen channel; XM says it will become exclusive broadcaster of the National Hockey League starting in 2007, taking over for Sirius. Sirius announces a new channel for Martha Stewart. XM creates one for Bob Dylan. In early 2006, XM signs Oprah.


In May of this year, XM lowers subscriber growth projections from 9 million to 8.5 million. Its shares drop some 11%. Sirius quickly puts out a release reaffirming its 2006 target of 6.2 million subscribers. In July, Karmazin projects positive cash flow for Sirius in late 2006.


In June, Karmazin says he'd like it if Sirius bought XM but isn't sure regulators would approve such a deal. Panero's response: "It's wishful thinking." So, it seems, are profits: After XM reports a wider-than-expected second-quarter loss, speculation heats up that it's takeover bait. Once again, it cuts its 2006 subscriber growth estimate, to 7.7 million. Still, Sirius trails XM by 2.2 million subscribers and lost nearly $200 million more than its rival last year.

By Tom Lowry and Paula Lehman

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