FTC to Scrutinize XM Radio's Marketing Practices

01 May 2006

The Federal Trade Commission, responding to complaints from investors in lossmaking XM Satellite Radio, has launched an investigation into the company's marketing practices.

Given XM's red-drenched financial position, its stockholders are less than happy at the firm's promotional profligacy. It offers a range of generous subscriber recruitment incentives, including including free trial periods and rebates. They are also concerned at XM's telemarketing and billing methods, as well as the volume of customer complaints.

News of the probe coincided with the release of XM's quarterly numbers - which provide scant solace for irate shareholders. Its loss during the year's first quarter widened to $149.2 million (€118.19m; £81.89m) compared with a deficit of $119.9m for the year-ago period. Revenue, however, more than doubled to $208m from $102.6m.

According to an XM spokesman, the company has 6.5m subscribers and its customer-care center handled 8.8 m calls in the last year. Over the same period, the Better Business Bureau received 189 complaints about XM's billing and refund practices - a number few would regard as significant.

However, the BBB has assigned XM an "unsatisfactory" rating, primarily because it has failed to respond to a handful of complaints.

"You do see with new businesses aggressive marketing practices," Andrea Levine, director of the BBB's national advertising bureau, told the Wall Street Journal. "Free trial periods and rebates have been problems in lots of other industries, often because consumers forget when the trial period ends or they end up paying more than they expected."

XM's chairman Gary Parsons told analysts during a conference call: "To our knowledge we comply with all of the laws that are under the purview [of the FTC]."

Data sourced from Wall Street Journal Online; additional content by WARC staff