XM: It's All About the Oprah

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I can see it now.

The next time Oprah Winfrey feels like bestowing her studio audience with gifts, don't be surprised if an XM Satellite Radio (Nasdaq: XMSR) van pulls up behind her.

"You get a satellite radio! You get a satellite radio! You get a satellite radio!"

Yesterday, XM announced that Oprah had agreed to a $55 million three-year deal to bring an "Oprah and Friends" channel to the leading satellite radio service.

Shares of XM rose 10% on the news yesterday, but it's important to put this news in proper perspective: This cannot be the company's only response to Sirius (Nasdaq: SIRI) landing Howard Stern.

Sure, Oprah is great. According to Nielsen, her TV talk show attracts nearly 50 million viewers a week. That's more than the audience that Stern was commanding on terrestrial radio. But there's an important distinction here, in that Stern's radio show replaced his popular show on Viacom (NYSE: VIA). Oprah has no plans to give up her prime TV gig. Folks who need an Oprah fix will still be able to check her out for free on the tube every weekday.

That's why Oprah's deal breaks down on an annual basis to just a sixth of what Stern commanded to join Sirius last month. It's not like going cold turkey on Stern if you didn't rush out to get a Sirius receiver activated.

Still, that doesn't make the Oprah deal a bad one. Her XM show will be a once-weekly broadcast, and she's likely to program the rest of the channel with a lot of the talent that she features on the show. This will make the content complementary to Oprah's growing media empire and generate enough female subscribers to make back that contract investment a few times over.

The big unknown here is whether Oprah will prove to be the same type of juicy ambassador that Stern was for Sirius. Stern spent the past 15 months of his terrestrial-radio contract pitching Sirius whenever possible. That's likely what helped Sirius sign more subscribers than XM did this past quarter -- even though XM still commands nearly twice as many users overall.

Oprah's channel on XM won't launch until September, but if she is able to plug the programming to her huge television audience in the meantime, that will be a major catalyst for driving more XM subscriptions. And because Oprah will still command the sizeable audience through her television show, it may actually give her an advantage over Stern's marketing reach at the moment. That's why this deal is great for XM. But the company will need another hit or two if it wants to take over Sirius to become the more valuable satellite-radio stock in terms of market cap.

Come on, Oprah. What else have you got?

XM was recommended last year to Rule Breakers newsletter subscribers. You can read the buy report and discover the rest of the premium stock research service's picks through a free 30-day trial.

Longtime Fool contributor Rick Munarriz has been a satellite radio subscriber since last year. He does not own shares in any of the companies mentioned in this story. The Fool has a disclosure policy. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.