XM Relaunches Financing Debate

"I think that was the first step toward what everyone wants: XM radio with an iPod-type device," says April Horace, an analyst with Hoefer & Arnett in Denver.

And yet while this represents an enormous new consumer market opportunity, it also puts pressure on the satellite outfits to boost their signal power. That means costly new satellites.

"When they designed and launched the first satellites in the late '90s, no one had completely thought out how much signal power they would need," says Horace, who rates both XM and Sirius strong buy.

For observers such as Horace, the need for cash fits the bullish picture, reflecting a healthy demand for the service and a reason to increase the signal strength.

"I see it as bringing certain payments forward because they are growing faster than they thought," says Horace.

Skeptics tend to see it a little differently. They view the latest financings as part of a familiar pattern where both companies are locked in a perpetual need for more funding.

In addition to the cost of launching its new XM4 satellite and building the new XM5 satellite, XM shells out $100 in subsidies, promotions and marketing for every customer it adds. Similarly, Sirius, which is looking at a bill of about $250 million for its two new satellites, spends $177 on average to sign up each new customer -- which doesn't include promotional and marketing costs. The company has been notoriously lavish in content deals, such as last year's half-a-billion-dollar Howard Stern move.

Sirius just sold 250 million shares in October to replenish its quickly shrinking cash pile. Analysts say Sirius has checked the high-yield market recently and found the rates too steep. Sirius watchers say that almost ensures a new stock offer in the near future.

Of course, no one said satellite radio speculation would be a smooth ride. But at this point, investors might be feeling a little trapped in outer space.

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