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By Franklin Paul 2 hours, 1 minute ago

NEW YORK (Reuters) - XM Satellite Radio Holdings Inc posted a wider quarterly loss on Thursday as higher marketing costs overshadowed a strong increase in subscriptions to its pay-radio service by car owners.

Shares of XM, which expects to close its merger with rival Sirius Satellite Radio Inc later this year, slipped 36 cents, or 2.3 percent, to $15.23 in midday trade on Nasdaq.

The company ended the third quarter with 8.57 million subscribers, up from 7.19 million a year earlier, driven by gains in automotive customers, called OEM. Retail sales of XM radios were relatively weak.

"While I'm disappointed the retail market for satellite radio had another quarter of slow growth, subscriber growth from the OEM channel during the quarter more than offset the softness at retail," Chief Executive Nate Davis said on a conference call with analysts.

XM, which offers music, sports, news and talk programs on more than 100 channels for a monthly subscription fee, posted a third-quarter net loss of $145.3 million, or 47 cents a share. Analysts' average forecast was for a loss of 45 cents a share, according to Reuters Estimates.

The company lost $83.8 million, or 32 cents a share, in the same quarter a year earlier.

Third-quarter revenue rose 20 percent to $287 million.

Spending on marketing increased 38 percent to $122.7 million.

"Some of the marketing costs were higher than I was looking for," said James Goss, analyst at Barrington Research. "But I'm encouraged by the trend toward OEM. Retail will be ... where the most creative innovations occur, but OEM is where the meat and potatoes occurs for both XM and Sirius."

Third-quarter OEM net additions totaled 332,000, up 12.5 percent from the second quarter and up more than 50 percent from a year earlier.

XM has said automotive subscribers are its priority, since millions of new cars are expected to carry XM radios in the coming year.

The company said its cost per gross (subscriber) addition in the third quarter was $116, up from $94 a year earlier. Its subscriber acquisition cost, a component of cost per gross addition that excludes marketing costs, rose to $70 from $59.

The U.S. Federal Communications Commission and the Justice Department are reviewing the XM-Sirius deal, which will combine the only two providers of satellite radio service in the United States.

Reuters/Nielsen