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Although Sirius XM Radio (SIRI) is still the satellite radio giant in today's media, a combination of mounting competition and the possibility of a change in ownership lead me to believe Sirius XM Radio is a stock to stay away from. While the price per share of Sirius XM Radio's stock had been up as high as $2.40, it recently fell below $2 for the first time since early January. With the recent increase in competition and a possible change in ownership stakes, it is hard to tell how Sirius will fare in the future.

Earlier in May, the Federal Communications Commission rejected Liberty Media's (LMCA) bid to take over control of Sirius XM Radio. Initially, Liberty Media urged Sirius to conduct a share buy back program that would leave Liberty Media the majority shareholder of common stock. With no luck, Liberty Media, which is already the major shareholder of Sirius XM Radio with a 46 percent stake, now hopes to increase its ownership by simply buying more shares.

Most recently, Liberty Media has filed regulatory papers in hopes of the FCC backing its position in controlling the smaller company. Sirius XM Radio also filed papers to the Securities and Exchange Commission that suggested CEO Mel Karmazin is distressed over Liberty's efforts to take over the company, but also admitted it was indeed in negotiations about Liberty Media's stake in Sirius. Sirius XM Radio believes Liberty Media should pay a premium for seizing control of the company.

It is hard to say if Liberty Media will gain majority control of Sirius XM Radio, and if it does, what will happen to the company and its stock. One thing is for certain; given an incredibly unstable future I cannot support buying Sirius XM Radio stock, and at best suggest you keep your eye on this storyline.

Ignoring the fact that Sirius XM Radio may be taken over by Liberty Media, Sirius has enough other problems to worry about given quality of a few competitors in the radio industry. Some industry analysts believe Sirius offers a fleeting product, with the huge success of online music streaming. Pandora (P), perhaps the most successful online streaming option, may prove to be Sirius XM Radio's most serious competitor.

Pandora has seen a 52% increase in its number of users since last year, with the number of active listeners currently around 52 million. Pandora has become immensely popular for internet music streaming, whether it be on computers or mobile devices. Pandora seems to have set itself up in position to take on some of the mainstream radio companies, including the satellite radio of Sirius XM Radio.

Pandora posted numbers better than expected for the first quarter of 2012, with huge increases in revenues, but also increases in costs. However, Pandora is working on a model to mitigate costs, and is also working to expand its automobile segment since most radio listening occurs in vehicles. While numbers overall were still down, and Pandora's business model has some challenges ahead, users seems to love Pandora's product.

Another important competitor to note is Clear Channel's iHeartRadio service. This is a service that enters into contracts with radio stations, and then allows its users to stream the stations via their internet connection. This service is not as thoroughly developed as Sirius' satellite radio, but I believe it has a much brighter future and could hurt Sirius XM Radio's business.

Cumulus (CMLS) faces many of the same challenges as Sirius XM Radio. Both traditional and satellite radio broadcasting companies face problems with revenue and cost models. First quarter revenues went up for Cumulus, as well as for most broadcasting companies. However, increasing acquisition costs, and ultimately large operating expenses have hurt the numbers for Cumulus Media. Thus, I do not see Cumulus Media as a concern for Sirius XM Radio. In fact, Sirius could perhaps learn a thing or two about longevity from Cumulus, as it has stayed in relatively stable health as other radio platforms have died out.

Through the struggle between its potential change in ownership, and the stiff competition from both Pandora and iHeartRadio, Sirius XM Radio has taken measures in an attempt to further its success. In hoping to add value for consumers, Sirius and Rotten Tomatoes announced the launch of "Rotten Tomatoes Radio" that would be broadcast exclusively by Sirius XM Radio. It will be a radio show that reviews various films and upcoming blockbusters. While I do think it will add value for consumers, I do not think this partnership will do enough to achieve the final goal of increasing stock price, and value for shareholders.

Sirius XM Radio has also partnered with Ford (F) dealers to provide a free three-month subscription for Sirius' satellite radio service when a customer buys any pre-owned vehicle from the dealership. I think this is a great partnership for Sirius XM Radio, as it increases the number of people who get a chance to test Sirius' service. As a result, the number of people paying for subscriptions should increase, and revenues should rise.

Although Sirius is one of the front-runners in the music broadcasting industry, and it has entered into some intriguing partnerships, I do not think investors should buy this stock. I do not believe the partnerships formed by Sirius will add enough revenue to overcome the increasing competition and the potential fallout from a changing in ownership.

Keep a sharp eye out for news and rumors concerning Liberty Media and Sirius' relationship. Any news could be a major turning point for the company and the stock. Either way, it will be bigger news than deals for new shows or promotions. This is the important news for Sirius, and we'll have to wait to hear how it plays out.

Source: Sirius: Risks Outweigh Rewards