New iPhone Opens Pandora's Box

Today should be a dark day for XM Satellite Radio (Nasdaq: XMSR  ) and Sirius Satellite Radio (Nasdaq: SIRI  ) . The debut of Apple's (Nasdaq: AAPL  ) new 3G iPhone is about to change the way that millions -- and eventually tens of millions -- of people in the country consume new music.

One of the many new apps for the faster phones is the ability to stream music from Pandora.com, a rapidly growing music discovery site that streams music based on user preferences. It was a computer-based sensation before, but now the allure of smart Internet radio becomes accessible to new iPhone buyers.

Did I mention that the service is free?

That last point should send shivers down the spine of XM and Sirius, and it's a slap in the face to the FCC for taking nearly 17 months to approve satellite radio's merger.

I have always felt that criticisms of Apple's iPod (which the iPhone also happens to be) taking down XM and Sirius were unfounded. They are all growing, in part because they are replacing different car-dashboard appliances. The iPod is a CD killer, taking someone's music collection portable. XM and Sirius provide fresh content, coming at the expense of ad-saddled, territorially limited, and content-sparse terrestrial radio.

On-the-go Internet radio, in a device that's a no-brainer to be this summer's hottest gadget, won't help XM and Sirius persuade people to pay $12.95 a month for their own offerings.

There's no point in arguing otherwise anymore: XM and Sirius need this merger to stay alive. They need to realize the cost savings touted in the combination. If they haven't been able to turn a profit under previous rosier scenarios, it gets a lot harder today to stay competitive at a premium price.

I believe in XM and Sirius. However, I also believe that the medium's potential is based on realistic cost-cutting, coupled with carving out new revenue streams. Pandora is free, but it's also tied to selling tunes through Apple's iTunes Store.

Satellite is no stranger to commercial tie-ins. XM has been selling tunes through Napster (Nasdaq: NAPS  ) for years. However, XM and Sirius need to race to the future. They can't simply settle for the "if you beam it, they will come" approach. Today is the birth of the new iPhone. Tomorrow needs to be the creation of satellite radio 2.0.

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Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any company mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 11, 2008, at 1:07 PM, Got1toBurn wrote:

    but no howard stern.

  • Report this Comment On July 11, 2008, at 1:39 PM, powerhour wrote:

    OMG! Who writes this crap? If you are going to be a writer and inform the public... or as you say "Educate" in your company slogan... Don't lie and be misleading!

    How many hours have you logged listening to Pandora.com? I have been a long time user and its not even a similiar technology nor does it provide services that sat radio does. So far, it has been free... but like all things (Zecco.com) for example.. only stay free long enough to bait customers then they charge fees... Pandora will do it. Just wait. Pandora is loaded with visual ads, repeats music quite often, and only is able to play select songs compared to whats on the market due to licensing requirements.

    Sat radio can offer soooooo much more.

    This isn't even worth explaining.

  • Report this Comment On July 11, 2008, at 1:51 PM, edpeters2000 wrote:

    Satellite radio has something Pandora doesn't, content I would rather listen to.

  • Report this Comment On July 11, 2008, at 1:52 PM, edpeters2000 wrote:

    You forgot to mention you can now get Sirius on your IPhone.

  • Report this Comment On July 11, 2008, at 3:05 PM, philfarns wrote:

    A couple things:

    - internet + cell phone = the quickest way to go through a battery, unless you are near an outlet

    - Howard Stern

    - Football, Anything NCAA, MLB, NASCAR

    -It better be free if you are shelling out $200 for a phone + $100 a month for service

    -Why doesnt anyone talk about the $500 lifetime membership w/ SIRIUS?

    -HOWARD STERN

    -Content on SIRIUS has something for EVERYONE!

  • Report this Comment On July 11, 2008, at 7:30 PM, powerhour wrote:

    and you can get XM on the iPhone

  • Report this Comment On July 12, 2008, at 11:00 PM, madapaka wrote:

    $13/mo I shell out for SIRI radio is cheap and all for the privileged of listening for sports coverage where ever I happen to be driving anywhere in this vast country of ours. All the plentiful music is all gravy to me. Keep it going SIRI...!

  • Report this Comment On July 15, 2008, at 6:16 AM, Matt8265 wrote:

    Yes, but how does any of this impact my chances of getting a job at the FCC once the Dems take the Presidency, House and Senate?

    Debra Taylor Tate

  • Report this Comment On July 16, 2008, at 8:13 PM, Tulane75 wrote:

    This is a stock column, not a debate, per se, on the merits of Sirius vs. everything iPhone. I hear you loud and clear. Change is on the way!

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