The Satellite Radio Race

The inevitable happened. Howard Stern. The NFL. It was too much for XM Satellite Radio (Nasdaq: XMSR  ) to take. For the first time ever, Sirius Satellite Radio (Nasdaq: SIRI  ) landed more new net subscribers than market leader XM. In dueling press releases, Sirius announced that it had picked up more than 1.1 million new satellite radio fans during the fourth quarter, while XM rounded up "nearly 900,000."

XM fell short of its goal to top the 6-million subscriber mark by the end of 2005, though it has since lapped that mark. It's the first time that XM came up short on its headcount; in the past, it had to boost user projections.

I should point out that I predicted this would happen 12 months ago. I even nailed the quarter. OK, so in that article I was brilliantly wrong about the fate of other stocks like Apple Computer (Nasdaq: AAPL  ) and Krispy Kreme (NYSE: KKD  ) . However, I said that "I believe Sirius will sign up more new users in this year's final quarter than XM." It seemed pretty outlandish then, because Sirius had signed up just 440,000 new subscribers in the final quarter of 2004. That was well off the 700,000 listeners going with XM.

Yes, Stern has earned his keep for Sirius, and he's still a few days away from taking to the satellite radio airwaves for the first time.

Now the real test becomes how the subscriptions play out as 2006 wears on. Sirius expects to have 6 million total subscribers by the end of the year, while XM is standing by a target of 9 million. In other words, both companies expect to attract 3 million new net subscribers apiece this year. It's likely to be a tug-of-war all year long.

Sirius is positioned to come out ahead in the first quarter with Stern's migration. XM has a good chance of regaining the lead in the second and third quarters once the baseball season rolls around. Then Sirius may wrestle the lead right back in the fourth quarter with the NFL.

Naturally, it couldn't play itself out that easily. At this point, especially coming off its disappointing fourth-quarter subscription numbers, XM needs to announce the kind of industry-shaping content acquisition deal to get its name back out there. Stern has been a shrewd marketer for Sirius, even when he was still shackled to his old contract at Viacom (NYSE: VIA  ) .

Three months ago, XM was recommended to subscribers of the Rule Breakers ultimate growth newsletter service. XM offered -- and still offers -- the cheaper market cap play in satellite radio, and it just happens to be the market leader. Then again, you have to lead by example. Satellite radio will be one of the most compelling growth industries over the next few years. Let's hope that XM doesn't squander its lead.

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Longtime Fool contributor Rick Munarriz is a Sirius subscriber but does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.


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