Reality May Be Catching Up With Satellite Radio Hype

If you missed your chance to invest in cable television in the 1980s, and then missed your chance to invest in personal computers in the early 1990s and then missed your chance to invest in the Internet in the mid-1990s, then the market gods are giving you one more opportunity to get ahead of the crowd: You can invest in satellite radio right now, right here in the early '00s.

Satellite radio is an idea that seems to have been around forever, but that's only because hype over the technology got started long before the service actually became available. Now the situation seems to be inverted, as there might actually be less hype than the market opportunity merits, with one of the two leading companies just barely poking above penny-stock status last week, after the recent announcement of surprisingly strong sales growth and a vote of confidence from a key customer.

Static at the Start

Some history first: The concept of beaming commercial-free CD-quality radio down from geosynchronous orbit to cars and trucks across the country was undeniably cool when first introduced in the early 1990s. The initial player in the business -- Sirius Satellite Radio(SIRI) -- had no trouble raising enough money in the capital markets' bubble years to spend a billion dollars on infrastructure to make it happen.

A short while later, along came a second player -- XM Satellite Radio(XMSR) -- with a slightly less ambitious and costly plan. And it, too, easily raised hundreds of millions of dollars in debt and equity to put the idea on an upward flight path.

Predictably, however, the technology took a lot longer to get off the ground than anyone suspected, and both companies suffered long delays in putting their birds in the air. Sirius launched at around $4 in 1994 and climbed as high as $69 in 2000. But, as hope faded, debt mounted and creditors cried for blood or bankruptcy court, the shares crashed all the way to 40 cents two months ago. Meanwhile, shares of XM, which launched at around $12 in 1999 and climbed as high as $50 in 2000, sank as low as $1.66 in November.

But a single masterstroke of financial engineering combined with the desperation of automakers rescued both, just as investors had all but given up.