Why Isn't Sirius XM on the iPhone?

With the U.S. auto market suffering, many are wondering why Sirius XM's programming isn't available yet on mobile handset devices.
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Sirius XM

(SIRI) - Get Report

does more than simply install satellite radio receivers in the dashboards of automobiles. So why has the company thus far been lax in pursuing other revenue streams, such as distribution of its content on different wireless providers and handset devices?

The lone satellite radio provider in the U.S., formed in the July 2008 merger between Sirius and XM, has seen its stock price spiral over the past year from $3 a share to only 13 cents. The shares have struggled as concerns have mounted over the company's ability to repay its debt load this year, as well as the dramatic slowdown in the U.S. automobile business.

Sirius XM is not a one-trick pony, despite its strong dependence on the automotive side of the business. In addition to auto installations, the company has portable radio devices sold at retail and it offers Internet streams for most of its programming to paying subscribers. Sirius and XM programming is also available on

Sprint Nextel's

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wireless network on an assortment of handsets, as well as

Research In Motion's

(RIMM)

BlackBerry.

While Sirius and XM's Web sites advertise car receivers and Internet radio feeds, it's hard to find mentions of the availability of the companies' content on other devices, such as the Sprint and BlackBerry services. Sirius XM has said these methods of content distribution are considered trials rather than working partnerships, and likely aren't worth the promotion.

But with so much made about competition from

Apple's

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iPod and iPhone product lines, it's curious as to why Sirius XM hasn't pushed its trials with Sprint or BlackBerry better or sought out new deals with different wireless carriers. The relationship Sirius XM has with Sprint is not an exclusive one, so the satellite radio shop is not restricted from having a tie-in with

AT&T

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or

Verizon

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.

It's easy to imagine a native application for the iPhone 3G that streams Sirius XM's Internet offering over AT&T's high-speed network. While cell phones and other devices are not equipped with a satellite chip, many have high-speed wireless data connections that could access Sirius XM's Internet streams.

In fact, rogue software developers have already brought XM and Sirius streams to several different devices, including the original

Microsoft

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Xbox and the

iPhone

, although installing the software requires some technical know-how.

These software programs and the demand for them show that subscribers want to find Sirius XM content somewhere other than in their car. If Sirius XM were truly agnostic to the distribution platform as long as they get their subscription money, why not increase distribution channels for its content? Why isn't Sirius XM delivering its Internet programming to the iPhone or

Palm's

(PALM)

Treo?

For one, royalty rates are extremely prohibitive. While reports of the death of Internet radio have been greatly exaggerated, the service faces considerable hurdles in the form of royalty fees. One example, Pandora radio, comes to mind. Pandora and other Internet-radio companies were blindsided by a controversial ruling from the U.S. Copyright Royalty Board in 2007 that dramatically increased the royalty rates they must pay out.

Sirius XM pays a separate royalty rate for its satellite radio broadcasts, but it also pays a slightly larger fee for its Internet streams, regardless of the destination. Even though the company charges a subscription fee for access to the Internet streams, unlike other free Internet-radio broadcasters, the revenue amount is small and costs run high.

"The online product has a few cons. One, it costs them somewhat more because they have to pay for streaming rights for the music," said James Ratcliffe, analyst with Barclays Capital. "Secondly, not all of the content is available online, as they don't have licensing for it all. That includes a lot of the sport content, as something like Major League Baseball doesn't want the service to compete with its own online service.

"There's also no indication AT&T or Verizon is champing at the bit to get Sirius or XM on their networks," Ratcliffe adds.

Simply put, the portable device market simply hasn't been a success for Sirius XM. The flagging retail side of its business has forced the company to focus more on in-dash installations on automobiles, even if vehicle sales are down in the U.S.

"The portable device market has not taken off for satellite product," Ratcliffe said. "At the core, radio is an in-car product. That's where people listen to radio. There's still a very large addressable market in the U.S. For a large number of Americans, taking a train is simply not an option."

Sirius XM is also facing a plethora of problems it must address immediately. The company has roughly $1 billion in debt obligations in 2009, with the first round due in February. Sirius XM has done its part thus far in attempting to reduce the debt load, but a significant amount set to mature remains.

So should we assume they're working with other carriers and Apple to craft a new delivery channel?

"A year from now, once they're fully integrated, once the financing is fully in line, and if they've adjusted deals with automakers, it's definitely a good idea," Ratcliffe said. "While they're certainly open to such a deal, it's not their primary focus. Right now, they have other fish to fry."