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Satellite Radio: Not Dead Yet

Only a month ago, satellite radio seemed to be on its deathbed. The merger late last year of Sirius and XM didn't improve the medium's prospects. The new Sirius XM was bleeding money almost as badly as the New York Times. Bankruptcy, and perhaps extinction, were just months away.

Well, give CEO Mel Karmazin credit. Sirius XM is not quite dead yet. In fact, he thinks there might be a way out of the current predicament.

First, Karmazin secured a $530 million cash infusion from Liberty Media, which also owns DirecTV. Now, he's setting his sights on iPhone and fending off Internet radio.

In an extensive interview with Fortune Magazine, his first since the Liberty deal last month, Karmazin laid out his battle plan:

Karmazin doesn't dismiss the threat posed by Internet radio. In fact, Sirius XM is about to join Pandora and AOL Radio in offering its own Apple (AAPL, Fortune 500) iPhone application, thereby allowing iPhone users to stream Sirius or XM via 3G wireless. Still, he's dubious that computer-generated song playlists can compete with Howard Stern or Bob Dylan.

"I'm starting at a premise that says radio is not just recorded music - radio is discovery of new music," he says. "Some people would like to be able to hear songs they haven't heard before and that are not on their iPod. Some want to listen to CNN or Howard Stern, and not just to music. That's why we have a laserlike focus on getting content - because we think that content is what wins."

Sirius stocks has seen an uptick since the Liberty deal, trading at roughly 40 cents a share, up from the depths of 6 cents.

Karmazin may have gotten a lifeline and a bit of breathing room, but he knows he doesn't have a lot of time to turn things around. Not in this economy. Not with Detroit's Big Three - satellite radio's best promotional tools - teetering on the brink. And in fact, some in the industry think that nothing will prevent satellite radio from going under.

In the same article, Martine Rothblatt, the founder of Sirius, says satellite radio was doomed by FCC bureaucracy that delayed its launch more than 10 years ago. In the meantime, terrestrial radio and Internet radio have had time to regroup and improve, respectively, to squeeze out satellite radio's potential advantage.

(Martin Rothblatt founded Sirius in 1990 and had a sex-change operation four years later and became Martine. Stern, the megastar of Sirius, has referred to her as the "Martine Luther Queen of radio". But we digress.)

"There has been a huge growth in terrestrial alternatives," says Rothblatt. "As we move from third-generation to fourth-generation cellular, there's going to be ever more bandwidth available to distribute content totally via terrestrial cellular infrastructure. And that will leave fewer and fewer unique market attributes to satellite radio. ... Technologies have their ideal times and places, and in my opinion the better time for satellite radio was 10 years ago."