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Sirius ( SIRI) is one of those stocks that used to plague me when I was a broker. When XM and Siriuis went public years ago, not a day would go by without calls from clients urging me to pick up some of these stocks for their portfolios. These two stocks were their own little Internet bubble.

I always thought that both were too leveraged and that the technology would not be quite a big a hit as everyone thought. Of course, this just got worse after Howard Stern was signed. The thought at the time was that Howard would turn out to be worth the price, and everyone would cash in a big way. They were partially right. Howard cashed in very big indeed. No one else did.

If I look at this company in a rational manner, I believe it will disappear from the landscape. The subscribers will go to another tech or entertainment company in bankruptcy proceedings. Subscription radio just does not have that much appeal to most people. The people I know who have satellite radio in their cars have new cars and are still enjoying the first free year. In talking with people, I find that the renewable rate is incredibly low. Even those who liked some of the various programs did not believe the renewal rate was worth the service.

I also see significant competition for the company going forward. Most of the younger people I know have iPod docks in their vehicles for listening to music. Smartphones are bringing music and podcasts to mobile consumers. E-reading machines have wireless connections that can eventually deliver content on a subscription or pay-per-use basis. I really do not need the sports channels from Sirius if I can watch and listen to the games I want on my phone. As time goes by, satellite radio will be viewed as a stepping-stone technology that was replaced by smartphones and other portable media devices.

Every time I look at this company, I can hear Walter Schloss in his talk at Columbia University. "I don't like debt," the legendary investor repeated throughout the speech. Sirius on the other hand loves debt, to the tune of over $3 billion. Liberty Media stepped in earlier this year with a $530 million cash infusion. Sirius has repaid the loan from Liberty, but it had to dilute shareholders' equity by 40% just to stay alive. Given the CCC rating on its outstanding debt, it is not impossible that it may approach the precipice again.

When I go through the actual earnings release, I see a lot not to like. Over 3 million subscribers chose not to renew their subscription. While total subscriptions were up about 180,000 from the second quarter, I suspect that the number would have fallen without Cash for Clunkers in the quarter. On a year-over-year basis, the total subscriber count was down. Interest expense was up about 60%. Long-term debt outstanding inched up in the quarter as well. All the company accomplished was to extend the day of reckoning, in my opinion.

To believe that this stock has long-term value, you have to think that the economy gets better sooner rather than later. The company is heavily dependent on auto sales, and I suspect that Cash for Clunkers bought forward an enormous amount of vehicle demand. If I am right, then the forecasts for 2010 car sales are far too optimistic. Consumers are cutting back across the board, and satellite radio is the ultimate discretionary expense. Nobody needs to listen to Howard Stern. In most markets you can hear ballgames on free radio, and NPR and the all-news stations are a viable alternative to laying out subscription fees for talk shows. Individuals who are worried about their jobs are going to be very content with free radio content.

The combination of a weak economy, competing technologies and way too much debt will doom this company, in my opinion. The companies that have other media technology are far better financed than Sirius, and that will eventually be the end of this company.

Eventually somebody, most likely John Malone, ends up with a very nice collection of satellites bought cheaply during the bankruptcy.
At the time of publication, Melvin had no positions in the stocks mentioned, although positions may change at any time.

Tim Melvin is a writer from Stevensville, Maryland, who spent 20 years a stockbroker, the last 15 as a Vice President of Investments with a regional firm in the Mid Atlantic area. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Melvin appreciates your feedback; click here to send him an email.