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The Federal Communications Commission (FCC) told John Malone he needs to buy a lot more Sirius XM (NASDAQ:SIRI) stock if he wants to take over the radio network, Reuters reported. The FCC threw out the bid by Malone's Liberty Media (NASDAQ:LMCA) to take possession of Sirius' licenses as a preliminary move for taking control.

But the FCC did not end Malone's takeover bid. In a ruling released on May 5th, it simply said that the Colorado billionaire and his company need to have more than the current 40% of Sirius stock that they control. That seems to indicate that the commission would transfer the Sirius licenses to Liberty if it could get its hands on a larger percentage of the company. So, it looks like Malone could soon go shopping for Sirius shares.

Reuters quoted unidentified Liberty executives as saying that the company will be able to boost its stake in Sirius to 49.9%. If they could do that, they would be in striking range of taking control of the network. The article did not say where Liberty would get the additional shares, nor did it mention a source, so this rumor should be regarded as hearsay and not as fact.

Interestingly enough, Sirius CEO Mel Karmazin predicted that the FCC would rule against Liberty during his company's first-quarter conference call on Tuesday, May 3rd. Karmazin did not say why he thought the FCC would do this, but it looks like his job is safe at least for now.

It's obvious that this could affect the price of Sirius stock and send shares up, especially if Mr. Malone goes on a buying spree. I anticipate we could see a 15 to 20% gain on this news. It looks like Malone is going to have to do just that if he wants to get his hands on Sirius.

Sirius Had Good First Quarter, Released Strong Figures

Sirius seems to have had a good first quarter in spite of Mr. Malone's takeover bid. During the company's first-quarter conference call, it was revealed that the network had added 404,596 new subscribers during the period. This boosts its customer base to a record 22.3 million paying listeners.

Unfortunately, the number of new car buyers among the new subscribers was not revealed. Many new car buyers historically let their Sirius subscriptions lapse after the initial period of free service runs out. Another problem facing Sirius is that auto sales in April were at a record high.The New York Times reported that vehicle sales increased by around 2% during the month.

This information should send share prices up as long as buyers don't take a close look at Sirius' figures. Since an estimated 70% of those cars contain Sirius radios, it is safe to speculate that it is a record auto sales and not an increased interest in Sirius and its service that is driving the sales. It is also safe to assume that the subscriber numbers will start to drop if auto sales fall off.

In addition to adding subscribers, Sirius also seems to have made some money in the first quarter. The company reported a net income of $107.7 million, which increased share value by two cents. That's a nice increase over the $78.1 million it reported in the same period last year.

It should be noted that at least part of this new revenue came from a price increase at Sirius. It raised the price of its basic package from $12.95 a month to $14.49 a month. Most subscribers did not seem to mind the $1.54 per month increase, according to Sirius' figures. The company reported that its turnover rate for customers was just 1.9% in the first quarter. The turnover figures are questionable because they did not include 4.1 million trial subscriptions paid for by car dealers, the New York Times noted.

Spotify Marching toward Going Public

It looks like Spotify is planning to go public and seems to be serious about launching its own online radio network in the U.S. to compete with Pandora (NYSE:P) and Sirius. Reuters reported that the European-based free music service is looking for $200 million to finance a U.S. network that is similar to Pandora's.

Spotify's boss David Ek told the media that his company will increase in value by 160% this year. Reuters didn't say on what Ek was basing his claims or if he had any evidence to support that wild assertion, but that definitely sounds like a statement from a CEO preparing for an IPO. Spotify is not yet profitable, but it apparently has 100 million users around the world.

So far, Spotify's success seems to be based on its popularity as an App rather than a radio service. This includes popular apps for the iPhone and iPad. This means that it would be hard to justify a purchase of Spotify based on Ek's comments. It is also hard to see how Spotify would be a threat to companies like Sirius.

Pandora currently has around 125 million users in the United States alone. The New York Times called Pandora the biggest name in digital music after Apple (NASDAQ:AAPL) iTunes. The Times noted that since Pandora is a music streaming service and not a store, it can play songs by the Beatles and other artists that have exclusive deals with iTunes. This means that competing digital music services like Google (NASDAQ:GOOG) Play cannot play the Fab Four's classic tunes, but Sirius and Spotify can.

The disadvantage to this is that services like Sirius, Pandora, and Spotify have to pay royalties to the musical acts. That means a large percentage of their earnings end up going back to whoever owns the rights to the song in the first place. and not to stock holders. Many analysts have noted that Pandora has not yet made any money, even though it has been in business for nearly a decade.

The Times also identified the iHeartRadio online radio service, offered by Clear Channel (NYSE:CCO), and Spotify's radio service as Sirius and Pandora's biggest competitors. This would seem to indicate that analysts believe the future of radio is digital and not over the air.

Somebody who seems to agree with the analysts is Mel Karmazin. TheNew York Times reported that Karmazin said his company plans to introduce a Pandora-like personalized radio service later this year during the first-quarter conference call. No details about the service are available, but it could help Sirius expand its role in the growing digital marketplace. One big advantage Sirius would have over competitors is programming besides music, such as sports and talk radio options like Howard Stern.

Sirius Beefing Up Programming Options

Sirius is trying to increase the variety of its programming options. This includes greatly expanded sports offerings such as Major League Baseball.

On May 8, all Sirius subscribers should have access to home and visiting team broadcasts for every Major League ballgame, a Sirius press release indicates. The broadcasts will be available through 30 new baseball play -by -play channels offered through Sirius's satellite service, its's smart phone App, and its internet service. This should allow fans to hear to their hometown announcers anywhere in the world through Sirius.

This should beef up Sirius's cash flow by adding an incentive for more subscriptions. It could also open up more opportunities for advertising revenue.

Sirius started streaming Major League baseball to fans through its SiriusXM Internet Radio App on opening day. The App lets baseball fans listen to home and road games and it is never blacked out. When a game is blacked out, it cannot be broadcast in a certain area, such as the home town, in order to increase ticket sales at the ballpark.

If anything helps Sirius win the digital radio wars, it could be this kind of sports coverage. Neither Pandora nor Spotify has anything close to it. iHeartRadio might be able to offer something similar, but its coverage could be limited by blackouts and other restrictions.

Sirius is also trying to increase its appeal to music fans as well. Another press release indicates that music superstar Usher will appear on the Town Hall broadcast on Sirius' "The Heat" channel on May 16. Usher will answer questions from a studio audience and promote his new album. This seems to be part of a serious effort by the company to generate good will from musicians. Whether that strategy helps its business or not remains to be seen.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Source: Sirius Could Jump 15% On Malone Buying Spree