A blistering satellite-radio rivalry is racing toward equilibrium. With the latest subscriber numbers in, Sirius ( SIRI) seems to have kept the upper hand over Washington-based rival XM ( XMSR) in the market-share growth game. For the second quarter ended June 30, XM added 398,000 net subscribers for a total of 6.89 million users. Meanwhile, New York pay-radio challenger Sirius signed on 600,460 net new users, pushing its subscriber roll to 4.7 million. Shares of XM fell a penny to $14.48, and Sirius rose 13 cents to $4.61 in midday trading Thursday. While XM still has the larger user base, the suggestion that there's a big difference between the two companies may be inaccurate, some industry observers say. The entire satellite-radio market is split between two players that have comparable technology. On the marketing side they have a nearly equal portion of car-making partners and retail outlets. Therefore, the idea that one will emerge clearly victorious may be mistaken, say observers. Barring any major failures or interruptions to the businesses, the race is destined to end in a tie, says Sanford Bernstein analyst Craig Moffett, in a research note. Moffett has a buy rating on both stocks. "Broadly speaking, in any duopoly subscription business, there is a tremendously strong pull toward 50/50 market share," Moffett writes. The debut of Howard Stern has certainly spurred subscriber growth for Sirius, but satellite watchers say that only helps the company recover ground it surrendered by being a year behind the launch of XM's service. "Sirius will rapidly gain share, but only because it is smaller than XM. Once it catches up, its share gains will stop," Moffett says in the note. XM has had
a rough year, and Sirius has sparkled by comparison. With the help of Stern's show, Sirius has shattered subscriber targets. XM has stumbled through a big chunk of insider selling, a copyright lawsuit brought by the music industry and a marketing investigation by the Federal Trade Commission.
Perhaps the most severe blow came when a cost-critic director bolted in February. The cash fire apparently grew too hot for XM board member Jack Roberts, who quit on earnings day, warning that there was "a significant chance of a crisis on the horizon." Now, XM's market value trails its smaller competitor by $2.7 billion. "The relative valuation gap strongly favors XM from here, even though it will inevitably suffer from the 'optical illusion' of Sirius's competitive advantage," writes Bernstein's Moffett.