Despite the Noise, Sirius Isn't Cheap

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One of the real paradoxes of this tech investing season is the concurrent success of two totally different approaches to the acquisition and consumption of music.

On one hand, there is Apple Computer's (AAPL Quote) iPod, a device that lets users completely customize their music experience. On the other hand, there's digital radio from Sirius (SIRI Quote) and XM Satellite Radio (XMSR Quote), which jams music and talk programmed largely by robots down users' throats.

It shouldn't be a big surprise to anyone that Apple is winning this fight, as freedom is just another word for nothing left to lose. Shares of the music device leader have outperformed those of Sirius and XM by a wide margin this year.

All You Need Is Technology That Works

Why the differential? Consumers don't care much about such things, but on the financial side of the ledger, the gee-whiz quality of commercial-free satellite radio has been obscured by the oh-my quality of its incredibly capital-intensive business model. Buyers of devices just want the technology to work well; buyers of stocks want the income statement to work well too.

For Apple, the coolness of the iPod costs little more than a year's worth of industrial design and testing and a few bucks worth of satin-smooth metal, a handful of transistors per unit and some pixie dust. No big deal. Apple earns a return on capital of 5%. It's not fantastic -- the computer industry overall earns 13.5% -- but it's good enough.