Sirius XM Radio (Nasdaq: SIRI) was singing sweet music early in 2011, but lately seems to be picking up mostly static. The stock continued its unbelievable turnaround to start off 2011 before peaking at $2.44 in May. Because of promising subscriber numbers it's now moved up around $2 after trading much lower for the past six months. Increased competition has helped cool off the stock, but Sirius has finally put up consistent profits and its balance sheet has stabilized. With 2012 shaping up to be an exciting year in the radio industry, let's take a look at whether Sirius is still a smart investment today.

Buy
Improving financials: Sirius has gone from being a speculative bet to being a reasonably solid company, posting three straight profitable quarters, and Moody's and S&P have upgraded their credit ratings in the past year. Though last quarter's revenue was only up 6.3%, the years of losses have also given Sirius a boatload of tax loss carry-forwards.

New technology: Sirius 2.0 finally rolled out this holiday season and will offer listeners 30 new channels and some access to on-demand programming. Fellow Fool Rick Munarriz sees a big opportunity with the new 2.0 Lynx receiver, saying it may be able to stream movies and link to smartphones to provide users larger screens.

The improving financial numbers are certainly a welcome sign, but the high price of the Lynx, $249, has me questioning how many listeners are going to make the upgrade.

Sell
Competition: Broadcast media is a fast-changing industry. While satellite radio might have seemed cutting edge in the '90s, Internet radio may be leapfrogging it today. Pandora's (NYSE: P) IPO further bolstered its capabilities, and the free Internet radio service boasts more than 90 million subscribers, many more than Sirius' 20 million paid subscribers. Spotify's entrance into the U.S. market, Clear Channel's rollout of iHeartRadio and CBS' last.fm also raise the ante in the battle for listeners.

Talent drain: Howard Stern is Sirius' biggest draw. Stern made waves when he first signed with Sirius in 2004, but the 57-year-old shock jock has said he's leaving after his current contract expires in 2015. That may be a ways away, but Stern's also cut his workload down to four days a week and has threatened to make it three. The satellite radio provider lost another big name when Rosie O'Donnell's Rosie Radio ended its run earlier last year.

Sirius seems to be unable to draw younger stars or create its own homegrown talent, relying instead on such big names from the outside broadcast world as Dr. Laura Schlessinger, Oprah Winfrey, and Opie & Anthony, and I'm afraid this is hurting its ability to draw a younger demographic and offer exclusive and unique programming.

With the encroachment of Internet radio and free media such as podcasts, I fear that Sirius is losing its content advantage. Its music offerings are no longer a selling point in and of themselves, which means the company will need to shift its focus from music to compelling listening in its talk shows, news, and sports. Developing talented on-air voices will be key to adding subscribers in the years to come.

Hold
Price increase: Subscriptions start at $12.99 right now, but Sirius raised the rates for most of its listeners starting Jan. 1 by $1 to $1.54. The price hike could be a make-or-break moment for the broadcaster. Netflix torched shareholders in 2011 when it raised subscription prices from $10 to $16. Sirius is only raising rates by about 10%, though, and if it can hold on to its subscriber base, most of that money should go to the bottom line.

Auto sales: Sirius' fortunes are attached at the hip to the auto industry's. Most radio listening takes place inside a vehicle, and every new car purchased gives the satellite radio provider a potential sale. New car sales are still well below their prerecession levels, and some analysts believe consumers can only avoid those purchases for so long. A General Motors executive said he thought industry sales in the U.S. would grow slowly this year, while Edmunds.com projected a 6.3 % increase in vehicles sold. Honda Motor said it expects U.S. sales to increase by 23% this year, and Toyota is eyeing an 8% increase as both automakers recover from problems caused by the tsunami earlier last year.

These two factors will be the most determinative of Sirius' success in the near future. If subscribers absorb the rate increase and car sales pick up, then revenues for the entertainment provider should rise along with them.

My call
Hold. I'm waiting to see how the rate increase affects subscription figures. If subscribers don't flinch, then 2012 should be a good year for the media company. Longer term, I'm concerned about the growing threat from Internet radio, and I'd like to see Sirius make some bolder moves to create new talent and reach out through alternative channels like a partnership with a car-sharing service like Zipcar, for example.

Zipcar aims for 40% usage for its fleet, meaning its cars should be occupied for about 10 hours a day, much more time than an individually owned car. Zipcar and Sirius XM could partner up to charge users a small fee for satellite radio in their rental car, and in turn a younger demographic could sample the premium service. Though they aren't car owners now, they will likely be someday, and in the meantime this could help Sirius add Internet and smartphone subscribers.

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