XM vs. Sirius: This Is Serious

If you want a satellite radio system, you have only two provider choices today: XM Satellite Radio (NASDAQ:XMSR) and Sirius Satellite Radio (NASDAQ:SIRI). What's the difference between the two, you say? For the consumer, the devil's in the details, but these companies offer very similar services with digital coverage from coast to coast, and the companies feel such a kinship that they want to merge.

For an investor, the separation should be easier. After all, there are good old fundamentals and business-sense signals that can help us make the distinction, right?

Right?

Bird's-eye view of the battlefield
Let's see. Here's a quick rundown of the significant differences in this narrowly defined sector.

So there you have it, the winner is Sirius in a clear-cut decision. How did this happen? XM was supposed to be the big, bad voodoo daddy here, right? Well, let's take a closer look.

Blow by blow
Stern, Playboy, and full-contact pro football versus Oprah, baseball, golf, and college kids? You can tell which service wants to appeal to the bad-boy demographic here.

Stern and Oprah aren't the new hotness on the air anymore, so most of the loyal celebrity fans have already chosen a camp. And why pick a poison today when you don't even know whether the services will stay separate or blend together, in case the FCC actually approves the merger? There's a dearth of dual-service receivers today, after all. Still, Sirius has come out of a recent growth slump to beat XM's subscriber additions, hands-down, once again. The market leader might have a new name soon.

As for the distribution agreements, you can buy your equipment at any big-box electronics retailer, regardless of which provider you prefer. So the market edge comes down to which carmakers are offering which service. Sirius has only one real stud in its stable, and that would be Ford, surrounded by Koreans and the smaller Japanese auto designers. That's easily balanced out by XM's GM deal, and then surpassed with Honda, Nissan (NASDAQ:NSANY), and the rest.

The leadership change at XM looks like preparations for the merger, as if it were a done deal. The company now has an interim CEO, though the real force here might be chairman Gary Parsons, who would become the combined company's board chief, too. But it's putting XM in a weak position right now, and there are no guarantees that the deal will ever happen.

Finally, the fundamental weakness runs deep on both sides of the fence. Satellite launches are expensive, and both Sirius and XM have debt-addled balance sheets that only go deeper into the red ink with every passing quarter. I gave the edge to Sirius because XM is bleeding worse, but really, it's a bad situation either way.

Foolish takeaway
So if I had to pick a satellite-radio stock today at gunpoint, I'd go with Sirius simply because I think it's in a better position to survive a denied merger. But without the firearms, I'd turn both of them down. From that angle, you could probably call this an unbreakable tie. A merged entity could have a chance against the sea of online, offline, and over-the-air competition it would face, but divided they shall fall.

You may have a different point of view that changes the picture entirely -- and if so, please feel free to click on over to our Motley Fool CAPS community, to share your thoughts with the rest of us.

More radio for thought:

• Satellite Radio Hands Out Appetizers
• The Day My Satellite Radio Died
• Satellite Radio's Collapse in Spirit, If Not in Letter

XM is a former Motley Fool Rule Breakers pick, and Playboy is a current one. To find great companies with growth potential in emerging industries, take a free 30-day trial.

Nissan is a Motley Fool Global Gains recommendation.

Fool contributor Anders Bylund is a Nissan shareholder, and he owns one Nissan and one Toyota. He holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure is your best ringside companion.