Sirius and XM Boost Volume

When Sirius Satellite Radio (Nasdaq: SIRI) kicked off 2004 with a paltry 261,061 subscribers to its digital radio service, closing out the year with an impressive 1.1 million members didn't seem likely. XM Satellite Radio (Nasdaq: XMSR) had built a significant head start, and Sirius was pitching a similar service priced 30% higher than the market leader.

Yet after penning meaty sport programming deals, signing up popular morning talk radio host Howard Stern, and hiring Viacom's (NYSE: VIA) programming guru Mel Karmazin as CEO, Sirius now finds itself topping the 1.1 million mark with 40% of those subscribers signing up during the last three months alone.

That doesn't mean that XM is quivering with fear. Last week it announced that it had signed up 3.1 million subscribers to its radio service. But that doesn't mean that XM is growing nearly three times as fast as Sirius. The disparity ratio has been narrowing every quarter, and in this last quarter XM grew by at least 600,000 subscribers, while Sirius will have signed up roughly 440,000 listeners. In the spirit of full disclosure, I was one of those 440,000 new Sirius subscribers, and I'll be writing about my initial satellite radio experience next week. Yet rather than pit one service against the other, take a step back and digest the nugget that satellite radio signed up well more than a million new listeners this past quarter.

The migration is real. Conventional radio has every reason to be worried because it's losing its most avid listeners, and this audience has the disposable income that sponsors covet.

Sirius expects to double its subscriber base by the end of the year. With Stern coming over to kick off his five-year contract starting next January, the "in" door should be a busy swinger, and Sirius, with 2.2 million members by the end of the year, may prove to be a conservative target.    

The industry clearly has Rule Breaker potential, though the valuations already discount a great deal of the potential growth. XM has been marked up to $7.4 billion, while Sirius, despite trailing XM, commands a dizzy $9.5 billion market cap. As satellite television behemoths DirecTV (NYSE: DTV) and EchoStar (Nasdaq: DISH) combine for a $37 billion price tag, there is far more pricing elasticity in that niche than in satellite radio. Yet, for now at least, perch yourself high and relish the stunning growth early in its infancy. The migration to satellite radio is looking more like a stampede and XM and Sirius wouldn't have it any other way.

Will Sirius ever lap XM in revenue and subscriber count -- and if so, when? Will folks ever be willing to pay as much for satellite radio as they do for satellite television? All this and more -- in the Sirius discussion board. Only on Fool.com.

Longtime Fool contributor Rick Munarriz loves his Sirius Sportster radio and has become addicted to Channel 22 -- First Wave. He does not own shares in any of the companies mentioned in this story and is a member of the Rule Breakers analytical team.