Satellite radio fans, prepare for another brutal blow. The uSirius StarPlayr app for Apple's (NASDAQ:AAPL) iPhone, which has been in development since last year, apparently won't hit the market anytime soon.

"As of yesterday, the uSirius StarPlayr Application for iPhone still had a status of In Review with Apple," explains app developer NiceMac on its site. "Late last night, we became aware that the application could not be approved at this time."

"As fans, we are committed to continuing to work with all parties involved as necessary in any capacity required to see this product to market. It is our goal, as it has always been, to release this application at as low of a price point as possible, if not free of charge."

Dissed app, disappointment
Since Sirius XM Radio (NASDAQ:SIRI) is apparently in no hurry to put out its own player for the iPhone or Wi-Fi-enabled iPod touch, interest has been swelling for NiceMac's solution.

Why did Apple nix the program, which would allow existing Sirius and XM subscribers to stream the satellite radio provider's online channels? It's not as if the App Store is a hotbed of highbrow utilities. Some of the more popular downloads at the moment include a "That's what she said" soundbite button, and a life expectancy calculator with its own countdown clock. In that light, what's so objectionable about satellite radio?

And if Apple's not to blame, could the intereference here come from Sirius itself?

Stream a little stream
The iPhone is no stranger to Internet radio. Some of its more popular free offerings include Pandora, Slacker, CBS' (NYSE:CBS) Last.fm, and Time Warner's (NYSE:TWX) AOL Music.

One can argue that Sirius XM doesn't want to be lumped in with entirely free content. Before the merger, XM and Sirius were striking deals with wireless carriers for premium streaming services. Last year, for instance, XM struck a deal with Research In Motion (NASDAQ:RIMM), in which BlackBerry owners could pay $7.99 a month for access to 20 XM channels.

In other words, Sirius XM sees smartphones as another revenue stream, instead of a retention tool. Netflix (NASDAQ:NFLX), on the other hand, wisely decided to make its online video service free to existing subscribers, which has successfully kept them from straying elsewhere.

Sirius XM is actually flipping the Netflix playbook upside-down. It wants to command an online premium for Web streaming, even as its competition is more than happy to roll out free, mostly ad-supported platforms.

In short, Sirius XM's strategy is wrong, cocky, and a recipe for disaster.

What does Sirius XM want to be when it grows up?
Sirius XM has been able to ignore its retail weakness because it's still an auto-showroom belle. Car companies continue to install satellite receivers in their new vehicles, hoping to collect a piece of the action if drivers eventually pay for satellite radio.

I've never heard the company deliver concrete numbers on how its deals with wireless providers have panned out. But I've also never met an actual wireless-only subscriber. Have you?

Sirius needs to realize that it's better off tearing down barriers, not building them. Between weakness in new car sales and a discretionary-income-draining recession, maybe this isn't the best time to hike rates on secondary accounts and charge subscribers more for Internet access.

Sirius XM expects to close out the year with reasonable subscriber growth, but I can't be the only one who won't be shocked if it ends 2009 with fewer listeners than it started with.

I am not suggesting that Sirius XM take down its costly satellites and become just another Web streaming company, but it does have to face reality. The company can milk its satellite radio model through automakers for a few more years, but in cyberspace, it'll have to play by a different set of rules. Instead of a walled garden, Sirius XM should be building brand equity in its proprietary channels by inviting free exposure. It can cash in on referrals for digital downloads through Apple, concert ticket sales through Live Nation (NYSE:LYV), and online ads. And even if the company doesn't want to spend time and effort on such a strategy, why not let third-party developers do the heavy lifting?

So what's the deal, Sirius XM? Are you the one holding up an anticipated app that would help further your cause? If so, change that channel, and fast.

Sirius-ly, we've got plenty of further Foolishness:

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Longtime Fool contributor Rick Munarriz is such a fan of satellite radio that he subscribes to both Sirius and XM. He does not own shares in any of the stocks in this story, save for Netflix. 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.