SATELLITE OF LOVE SIRIUS, XM SIGNAL MARRIAGE.

Byline: BARBARA CORREA Staff Writer

Aaron Sandler, a television producer of ``Hottest Moms in America,'' subscribes to Sirius satellite radio for NFL games and news.

But his favorite thing about the service is discovering new music before the rest of the world.

``My brother doesn't listen to Sirius and he'll point out a new song like ``Mama's Room'' by Under The Influence of Giants, and I'll say, `I've been listening to that for four months,' '' Sandler said.

``I won't go back to terrestrial radio. Why would you ever?''

With that kind of devoted fan base, satellite radio's two goliaths, Sirius (5.1 million subscribers) and XM (7 million subscribers), should be riding the airwaves all the way to the bank.

But in fact, neither company has yet to turn a profit.

And a recent downgrade of subscription growth by Sirius and expectations for slower sales this Christmas have sent its stock price lower. Now, there's even some serious on-air buzz about a merger of the two satellite radio giants.

The companies aren't quite declaring their love for each other yet, but Sirius CEO Mel Karmazin has said he is open to the idea.

``It's something we have to look at,'' said Paul Blalock, a senior VP at Sirius.

Some industry observers say satellite radio, by its nature, favors consolidation. Like other exciting, new technologies, it builds momentum before it can deliver on investors' great expectations.

While subscription growth for Sirius and XM have risen steadily since they launched in the mid-1990s, it hasn't always grown as dramatically as predicted. Even aggressive marketing efforts, like forging partnerships with automakers to deliver cars that have built in satellite radio systems, have not made up the difference -- although they have been successful.

For example, car buyers who sign on to XM after receiving it in their car account for about half of all XM subscriptions (Sirius doesn't disclose that information).

Christmas 2005 was the breakout season for satellite radio because half a million Howard Stern fans signed up for his anticipated debut on Sirius in January 2006. Stern and Sirius announced with great fanfare that the self-proclaimed king of all media would be leaving standard, terrestrial radio.

Meanwhile, XM started adding new music and sports channels and discounted player units to compete. The result was a buying binge during the holidays last year, setting the industry up for a slowdown this shopping season.

``This Christmas won't be nearly the same growth,'' says Ryan Saghir, editor of Orbitcast, a Web site and blog devoted to satellite radio.

He projects sales will come in up to 30 percent below last season, but he doesn't see that as a problem. ``This year, they're not as concerned about adding new subscribers as they are about making money and controlling costs.''

Lowering subscriber growth forecasts

On Dec. 4, Sirius announced that Thanksgiving sales were not as strong as hoped, and that it was scaling back its forecast for year-end subscribers. Merger talk has been swirling since then.

``I'm surprised, because management had tremendous credibility,'' said Joanne Rosen, a Sirius subscriber and professional investor. ``I don't know what to make of it. Black Friday numbers weren't as strong as they thought and both are doing major hardware discounting so I've heard sales are picking up. At first I didn't see how there could be a merger, I didn't think the FCC would allow it. But now I think the investment communities think there's a possibility.''

A marriage between the two companies might make sense from an investor and a marketing point of view. Walk into any Best Buy or Circuit City, and XM and Sirius marketing material and hardware are stacked up right next to each other, right down to the exact same design on the two companies' gift cards.

But fans of both say their offerings are very different, and they worry that a combination might water down the product.

``(A merger) would be really bad,'' says Mark Slocum, a subscriber to and investor in both XM and Sirius. ``The competition keeps them on their toes.''

Slocum is a CPA who lives in Walnut in the San Gabriel Valley and listens to satellite radio during his daily commute to El Segundo for work. He listens to the Opie & Anthony show, XM's answer to Howard Stern.

Since his musical taste includes ``everything but rap,'' 51-year-old Slocum uses both services to listen to Christmas music, blues and classical. ``I like some country,'' says Slocum. ``XM has half a dozen country genres. You can find a blues station or a bluegrass station.''

Saving country for the Southland 

XM capitalized on L.A.'s lack of a terrestrial country music station when KZLA 93.9 announced last summer that it was ditching country for ``adult contemporary.''

At the time, XM said it was saving country music for Los Angeles fans with its seven channels devoted to the twangy genre. XM says the effort worked, and that country has brought in new subscribers. But there are still plenty of music fans -- both country and otherwise -- who are not convinced that they should pay for radio.

Jeff Arellano, an XM subscriber and coffee company manager living in Monterey Park, says he's not into country music himself. But he suggested to a couple of friends who are big country fans that they should consider XM to fill the void left by KZLA.

``They don't want to pay subscriptions,'' says Arellano, who says he's been subscribing for so long that he remembers receiving an email from XM congratulating the first 30,000 listeners.

Answering the question of why anyone should pay $120 a year for something that has always been free remains a hurdle for satellite radio.

``Younger audiences aren't really subscribing -- it's the 25 to 50 years olds,'' says Saghir at Orbitcast. ``Older people have more expendable income, so they can justify spending $13 a month. But paying for radio is a hard thing for people to get over.''

Aaron Sandler, the television producer, compares satellite radio to cable TV when it first got started. ``People said, `Who will pay for cable?' I'm in the TV industry and I always wish I was in it when cable started. This is the next level of it.''

Satellite radio's advantages over terrestrial radio are fairly obvious: no commercials (for the most part). But the format also has some advantages over other ways of getting music and programming.

Satellite beats Internet radio among commuters

Internet radio offers incomparable freedom of listening choice for free. But a lot of satellite radio subscribers are commuters who listen while driving.

``I have explored Internet music, but you're not always in a position when you can get a connection on the road,'' says John Lopez a lumber salesman and Sirius devotee. He has tried Sirius's Internet radio, free for subscribers. He likes it for Howard Stern, but says it doesn't broadcast all the National Football League games, one of Sirius' big draws.

Joanne Rosen, the investor, says she likes her Sirius portable Stiletto better than an iPod. ``I had an iPod, but the battery sucked and they gave me a hard time replacing it, and I got sick of the music,'' she says. ``I got tired of the same songs. I can record on the Stiletto ... the music helps me get caught up on popular culture. It kind of changed my life.''

barbara.correa(at)dailynews.com

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