So the question now is: Will Sirius now move ahead with the reverse split its stockholders approved back in May?

Why? A few reasons. First, there’s the government’s “cash for clunkers” program, which will likely stimulate new car sales and new Sirius subscriptions thanks to the satellite radio trials often packaged with new cars.

Then there are rumors of new iPod-related hardware that may or may not debut at the company’s holiday gift-guide event next week. Scheduled for Wednesday, that gathering promises “a new line-up of accessories…for the home, office, vehicle and beyond.” This has led some folks to speculate that we’ll soon see a Sirius dock for the iPod/iPhone.

From XMFan, which claims to have insider details on the device.

The XM SkyDock is a docking station for your iPod Touch or iPhone that turns it into a SATELLITE XM Radio receiver! Included is an XM antenna, power cord (also featuring the new transmitter technology), and docking station that turns your iPod/iPhone into an actual XM Satellite Radio receiver using the SiriusXM app.

XMFan says the dock is expected to retail for under $100 and speculates that it could drive a lot of new subscriptions. I suppose we’ll find out next week–if the device is actually announced.

[Image Credit: XMfan]

During a call with analysts Thursday to discuss second-quarter earnings, Sirius CEO Mel Karmazin said the app, which is currently the iTune App Store’s fourth most popular app in the music category and the 88th most popular overall, was intended more as a means of tempering subscriber churn than a means of driving new subscriptions.

“…unlike an awful lot of applications on the iPhone…we’re not offering free service,” Karmazin said. “What we are offering is the free download and a week’s trial, so this was never designed that we believe we were going to get a significant number of new subscribers. We are seeing an increase in the number of subscribers who are signing up for the $2.99 fee, to be able to stream the product in addition to having it, so a satellite radio subscriber who also has an iPhone is now able to do that with an incremental $2.99.”

So the app is bringing in some new revenue. How much isn’t clear though, since Sirius doesn’t break iPhone app numbers (subscribers or revenue) out. Karmazin admits, however, that it’s not much. “You should not consider them to be a very significant number related to our number of subscribers,” he said, adding, “It’s the right thing for us to do, we continue to believe in it, we’ll continue to do more of these things.”

The company’s shares spiked, rising about 20 percent to 54 cents on news of the government’s expanded “Cash for Clunkers” program and the positive impact it should have on new car sales and, by extension, new Sirius subscriptions. That analysts had been predicting a second-quarter loss for the satellite radio company, along with the loss of thousands of subscribers, did little to temper enthusiasm. Though it seems to have done so today, now that those predictions have proven true.

Reporting second-quarter earnings this morning, Sirius posted a net loss of $157.3 million, or four cents a share on revenue that rose one percent to $590.8 million. Excluding one-time charges, though, Sirius lost only a penny a share, matching analyst estimates.

As analysts had foreseen, subscriber count slipped again. Sirius ended the quarter with 18.4 million subscribers–a one percent drop from a year ago. All told, the company lost 185,999 net subscribers during the period. And that’s prior to the addition of a $2 royalty fee.

Looking ahead, the satellite radio operator raised its outlook for the year, cautiously optimistic that the car sales that drive subscriptions will pick up in the second half of this year.

“Based on these results we are increasing guidance again and expect to exceed over $400 million in adjusted income from operations during 2009,” CEO Mel Karmazin said in an earnings release. “Growing our revenue in the face of broad declines in the advertising and automotive markets is a remarkable accomplishment, and we are well positioned for a rebound in auto sales.”

Shares in Sirius are trading down 7.41 percent at 50 cents as I write this, which is still 10 times their 52 week low. And, to be fair, they are up almost 10 cents in last 10 trading days and up about 320 percent year-to-date.

“Reaching more than 1 million downloads so quickly is a strong testament to our world-class programming and Sirius XM’s instant brand recognition,” Scott Greenstein, president and chief content officer, said in a release trumpeting the milestone. “Our goal is to give people access to the best audio entertainment wherever they go with what we think is the best music and audio entertainment application available on the App Store.”

The app, which debuted on June 18, quickly became the top free offering in the the App Store’s music category and has held that spot for some time now. So it’s certainly one of the more popular music apps available. That said, it’s also one of the most poorly rated. Sirius XM’s app has an average rating of just two stars out of a possible five. Of its 56,952 user reviews, just 8,822 give it five stars. But 37,818 rate it a single star. And most of those do so citing Stern’s absence as the reason. So while it’s true that Sirius XM Premium Online is the the top free app in the music category, it’s also seems to be its leading disappointment. Makes you wonder how many of those one million downloads were deleted, either after the user noticed Stern’s absence or the $2.99/month subscription fee.

In a filing with the Securities and Exchange Commission, Sirius XM said it will raise Karmazin’s base salary to $1.5 million from $1.25 million beginning on Jan. 1, 2010, and grant him an option to purchase 120 million shares at an exercise price of 43 cents a share. His reward for steering the company clear of bankruptcy after driving it right up to its very edge, I suppose.

Sirius (SIRI) investors who’ve seen their stock plunge to 46 cents from $2 a share can be forgiven for questioning the wisdom of such a move and wondering if perhaps there wasn’t a better use for a quarter of a million dollars at a time when the company is buried in debt. But there’s nothing much to be done about it now. Suffice it to say, the odds of Karmazin being forced out at this point are likely pretty slim.

PREVIOUSLY:

• Fee Increase Coming for Sirius XM Subscribers [Internal Doc]
• Sirius Founder: You’re 10 Years Too Late, Karmazin
• Call Me Mel “Save-My-Own-Keister” Karmazin
• Sirius-EchoStar-Liberty: Ménage-à-Blah
• Sirius: Give Me Liberty or Give Me Ergen
• A Bankruptcy Filing, Mel? Surely You Can’t Be Sirius…
• Sirius Rolls Out New 24 Hour Investor Keening Channel
• Sirius Debt Problems? Call EchoStar! No Upfront Fees!
• Sirius XM: The Beginning of the End or the End of the Beginning?
• Your Report Card Is Your Stock Price? Guess Sirius Is Making Straight $.13’s…
• Trade You 77 shares of SIRI for 1 Month of “Sirius Everything”

Absent from the new Sirius app are a number of the broadcaster’s more popular channels, among them Howard Stern’s, which Sirius often claims are responsible for driving more subscriptions than any other. Also missing: MLB Play-by-Play, NFL Play-by-Play and Sirius NASCAR Radio.

That the company calls this app “Sirius XM Premium Online” when it fails to include much of the broadcaster’s more popular content is ironic. That it expects subscribers to pay an additional $2.99/month to access it after a week-long free trial is silly (Note: If you are already a Sirius XM Internet subscriber or subscribe to the company’s Premium Online service, Sirius waives that fee). Without Stern and those other channels, there’s really no reason to. There are far too many other ways to listen free music on the iPhone that don’t require a monthly subscription fee–Pandora, for example. Or Last.fm. And NormSoft’s Pocket Tunes app has been streaming Stern for months now.

Surely, Sirius knows this. So why not include Stern et al? Did a rights issue prevent Sirius from doing so? Did it convince itself that Jimmy Buffett’s Radio Margaritaville and Oprah Radio were compelling enough reasons to download the app? Or perhaps the company is planning a standalone Stern app for which it will charge separately. Or maybe Stern is working on that himself.

And seriously, doesn’t Sirius XM pay Stern too much not to include him?

In any event, the app is an enormous disappointment. Which is too bad. Because Sirius really could have used the few additional subscribers Sirius XM Premium Online might have attracted. With the souring economy weighing heavily on the auto industry–-a mainstay of Sirius’s business–-and partner Chrysler navigating bankruptcy, the struggling company is bracing itself for nasty subscriber losses this year.

If this is all that Sirius XM has to offer on the iPhone, it would have been wiser to do what Netflix (NFLX) did with its Watch It Now online streaming service–provide it gratis to active subscribers as a loyalty bonus. Without Sirius XM’s top-tier content, there’s little to differentiate its iPhone app from Pandora and Last.fm. And Pandora and Last.fm are free.

UPDATE: A quick review of the Sirius Internet Radio FAQ reveals that it is indeed licensing restrictions that prevent Sirius XM from offering NFL, MLB and NASCAR via the Internet and presumably via the iPhone as well. Those same restrictions, however, do not seem to apply to Howard Stern’s channels, which all appear in the Sirius Internet Radio lineup.

UPDATE: Sirius XM has declined comment on the Stern issue beyond what was already said in this morning’s press release.

US Music Royalty Fee Overview
As an ongoing part of our business, SIRIUS XM must pay copyright music royalties to music companies and music publishers. These royalties have risen dramatically over the past few years, as a result of decisions of the Copyright Royalty Board (CRB). SIRIUS XM has tried to keep these fees as low as possible but in the end, the company has very limited influence over these payments. The FCC decision approving the merger between SIRIUS and XM allows the company to pass through to Subscribers any federally mandated increases in music royalties that we must pay, since March 20, 2007. The FCC decision allows us to pass through this fee increase to our Subscribers and the company has chosen to do this with the U.S. Music Royalty Fee.

The US Music Royalty Fee will be applied to all music subscriptions that SIRIUS XM offers. The fee will be implemented on July 29th, 2009. The existing Subscriber base will receive this fee on their first billing after this date. The fee will be applied to all satellite plans with music content on a Monthly, Quarterly, Semi-Annual and all Annual Savings Plans. Lifetime Subscribers, who have purchased prior to July 29th, will never receive the US Music Royalty Fee. Since the online products are not satellite based they will not incur the U.S. Music Royalty Fee. Once the fee is introduced on July 29th, any new activation or conversion will include the fee. As we go through this training, you will gain a better understanding of how this fee is applied and how to explain it to the Subscribers. We will be going through different scenarios so you can understand why we are passing this fee onto our Subscribers, how to diffuse irate Subscribers, and how the Subscriber can truly benefit by adding longer term plans.

FAQ

Below are examples questions you may receive from Subscribers regarding the US Music Royalty Fee. Use Answers below (as verbatim) when answering questions about why there is a US Music Royalty Fee or costs associated with the US Music Royalty Fee.

What is this US Music Royalty Fee?
Unlike land based radio, both SIRIUS and XM are required to pay copyright music royalties to recording artists, musicians and recording companies who hold copyrights to lyrics and music.

Why are you increasing your price?
We are not increasing our base price which will remain at $12.95/month for most Subscribers.

Why are you charging me this fee?
US Music Royalty rights were established by Congress and are a product of the copyright ACT, the copyright royalty board which sets the rates SIRIUS XM must pay the music industry has increased the rates dramatically. Unfortunately we can no longer absorb these increased costs.

Who makes up the Copyright Royalty Board (CRB)?
The Copyright Royalty Board consists of three Copyright Royalty Judges who determine rates and terms for copyright statutory licenses and make determinations on distribution of statutory license royalties collected by the United States Copyright Office of the Library of Congress. The Board, made up of three permanent copyright royalty judges, was created under the Copyright Royalty and Distribution Reform Act of 2004, These administrative judges are appointed by the Librarian of Congress

Why does it cost so much?
The Copyright Royalty Board which sets the rates SIRIUS XM must pay the music industry have increased the rates dramatically. Unfortunately the Company can no longer absorb these increased costs and must pass them on to subscribers as a US Music Royalty Fee. Is there any way to avoid this charge? Absolutely, for our Subscribers who previously purchased a long term plan, we will continue to absorb these costs until the next renewal date. If you renew and extend your current subscription before July 29, 2009 we will continue to absorb these increased royalty costs until your next renewal date. I can tell you about some our great savings plans.

FCC Ruling stated you can’t raise your price, why are you doing it?
This fee is consistent with our commitment not to raise the base price of specific service plans for three years after the merger. The FCC did however permit us to add this fee to our price beginning July 29, 2009.

How does this relate to the March Increase?
It is unrelated; the US Music Royalty Fee is to recover royalty cost increases that are outside of the control of SIRIUS XM.

I just locked in for MRD, why are you increasing it again?
If you purchased a multi-month plan to lock in a lower price or to retain free streaming, the US Music Royalty Fee will not affect you until the next renewal date for the Plan you purchased.

Who gets the money?
The US Music Royalty Fee will be used to offset payments from SIRIUS XM to the music industry.

Do you foresee any changes in the fee?
The Copyright Royalty Board sets the fees that SIRIUS XM is required to pay. The fee is expected to increase by one half percent per year through 2012.

Why did you decide to charge a US Music Royalty Fee rather than adding the increase to the subscription fee?
The FCC order requires that we detail the royalty increase for our Subscribers.

Why is the US MRF taxed?
Under applicable tax regulations, it has been determined that the US MRF is a taxable charge.

I only listen to news and talk radio, so why should I be charged the US MRF?
I understand, however, it would be impossible to calculate the US Music Royalty Fee based on individual listening patterns of our Subscribers.

You recently increased the price of my second radio by $2.00. Now you are adding a US MRF of $.97. Isn’t this too much?
The discounted second radio price of $8.99 is still a 30% savings over our standard fee. The addition of a US Music Royalty Fee is necessary due to the dramatic increase in royalties that we have been forced to pay the music industry.

Was I paying this fee previously as part of my subscription price and now am I paying for it separately?
Until July 29, 2009 the FCC required SIRIUS XM to pay the royalty increases, however the order provided the ability for us to pass along these royalty cost increases beginning July 29, 2009.

If I have an A La Carte subscription am I only paying the fee on the music channels?
That’s a great question, SIRIUS -XM is obligated to pay the US Music Royalty Fee based on the content available in packages, unfortunately we are not able to customize the fee for individual Subscribers.

Is there a way to reduce this cost–can I switch my subscription package to mostly music
You may switch to a mostly music package, which will save you $.45 a month in US Music Royalty Fees, but if you do that, you will be giving up over xx channels (different for SIRIUS and XM) of great programming. However, let me tell you about some of our great savings plan which will allow you to delay the US Music Royalty Fee for the term of that plan.

I have an online radio subscription; do I pay a royalty fee on that?
No, the music royalties associated with satellite delivery and internet delivery of music content are different. The royalties associated with internet listening is absorbed in the subscription price.

I have 2 subscriptions a Best of and a SIRIUS Everything why is the fee the same on both subscriptions?

The US Music Royalty Fee is based on music; the channels included in the Best of portion of your package do not include large amounts of music, so no US Music Royalty fee is due on that portion of your subscription.

UPDATE: Looks like someone leaked this doc to XMFan as well. Lot’s of interesting discussion there, if you’re interested in reading further.

Quite the altruist, that Karmazin.

But let’s be honest here. Given that the options, of which 24,000,000 were vested and 6,000,000 unvested, had an exercise price of $4.72 per share and that Sirius’s stock is trading at about 35 cents, they really weren’t worth anything. So a nice addition to the company’s incentive plan, but an ironic one in that Karmazin had little incentive to keep the Sirius (SIRI) options he’s forfeiting.

“Chrysler’s bankruptcy and announced factory shut-down will impact second quarter numbers by reducing the number of prepaid bundled subscriptions associated with the production and shipment of new cars,” Jim Meyer, Sirius’s President of Operations and Sales, said during a conference call last week. “There will be a noticeable hit to subscribers in the second quarter, as a result of these production halts.”

A noticeable hit. What does that mean? Sirius didn’t say at the time, but a filing the company made with the SEC today gives us a clearer picture–and it’s not a pretty one. Chrysler sent quite a bit of new business Sirius’s way. From the Risk Factors item in the company’s 10-Q filing:

We do not expect to generate a significant number of new subscribers from Chrysler while its plants are closed. During the year ended December 31, 2008, Chrysler produced approximately 900,000 vehicles which included a satellite radio and a prepaid subscription to our service. These subscribers represented approximately 16% of our gross subscriber additions in 2008.”

 
Now, there’s no telling how long the Chrysler factory shutdown will last, so it’s impossible to know how much of an impact it will have on Sirius. That said, if the company’s bankruptcy proceedings drag on for any length of time, it obviously does not bode well for Sirius, especially since XM is potentially facing a similar scenario with General Motors (GM). Again, from the Sirius 10-Q:

There is also significant uncertainty surrounding General Motors’ future and potential filing for bankruptcy protection. A bankruptcy filing by General Motors could have similar effects on our subsidiary, XM.

And that would be grim news indeed. Because while Sirius has stopped counting on its auto partnerships to drive sales, it hasn’t yet established other means of driving subscriptions.

And it was a nasty decline.

The company ended the quarter with 18.6 million subscribers–up 3.5 percent from a year earlier but down 404,000 subscribers from the preceding quarter. Sirius added 1,338,961 new customers. But it lost 1,743,383.

Given that and the state of the auto industry on which the company is so dependent for new subscribers, how will it ever attain CEO Mel Karmazin’s goal of 20.6 million subscribers by end of ’09? Hard to say, especially when Sirius expects to see another “noticeable hit” to its subscribers in its next quarter. That didn’t stop the company from raising its 2009 forecast to $350 million, adjusted from more than $300 million. Karmazin said that “satellite radio is now a cash flow growth story.”

Tell that to your subscribers.

But the same cannot be said for Martine Rothblatt, the entrepreneur who founded Sirius (SIRI) nearly 20 years ago. She feels Sirius’s chances for real success may have died years ago–dealt a mortal blow by the FCC, which delayed its launch, depriving it of the competitive advantage it might have had over MP3 players like the iPod and later free Internet radio services.

“There has been a huge growth in terrestrial alternatives,” Rothblatt told Fortune. “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.”

So much for that first-mover advantage…

A grim assessment for Sirius, which had just seemed to be getting an edge on its daunting troubles. But Rothblatt has a point. Internet radio is gaining traction and once cellular networks evolve to the point where they can deliver it to cars and other devices, how can satellite compete? Howard Stern’s going to retire sooner or later…

PREVIOUSLY:

• Sirius to Shareholders: Put Down the Mylanta
• Call Me Mel “Save-My-Own-Keister” Karmazin
• Sirius-EchoStar-Liberty: Ménage-à-Blah
• Sirius: Give Me Liberty or Give Me Ergen
• A Bankruptcy Filing, Mel? Surely You Can’t Be Sirius…
• Sirius Rolls Out New 24 Hour Investor Keening Channel
• Sirius Debt Problems? Call EchoStar! No Upfront Fees!
• Sirius XM: The Beginning of the End or the End of the Beginning?
• Your Report Card Is Your Stock Price? Guess Sirius Is Making Straight $.13’s…
• Trade You 77 shares of SIRI for 1 Month of “Sirius Everything”

A wise move, since Sirius needs to drive sales and consumers are cutting back on the purchase of new cars, one of the company’s main sources of new subscribers. Indeed, in its latest quarter, Sirius said net subscriber growth slowed markedly, falling to 82,900 from 1.1 million.

Good thing too, because that uncertainty was pretty worrisome. Buried in the company’s recent Notification of Late Filing with the SEC, along with the now standard warning about the souring economy’s effect on business, was this little disclosure:

Management has not yet completed its evaluation as to whether substantial doubt exists relative to the Company’s ability to continue as a going concern for a reasonable period of time. A significant element of that evaluation relates to uncertainties associated with funding of amounts stipulated in the aforementioned Investment Agreements. These uncertainties may not be resolved by the time the Company files its Form 10-K with the Securities and Exchange Commission. In the event such uncertainties remain unresolved, management anticipates that KPMG LLP’s auditors’ report relative to the Company’s 2008 consolidated financial statements will contain an explanatory paragraph indicating substantial doubt about the Company’s ability to continue as a going concern.

In addition to resulting in termination of further funding pursuant to the Investment Agreements, the inclusion of such a paragraph by KPMG LLP would result in a default under certain indebtedness of the Company, XM Holdings and XM Satellite Radio Inc. (“XM Inc.”) which defaults, if not cured or waived prior to the expiration of the applicable grace period, would result in an event of default under other indebtedness of the Company, XM Holdings and XM Inc. Such events of default, if they occur, provide the lenders the right to demand all amounts due under the respective agreements immediately due and payable.

What this means is that if KPMG’s assessment of the company is that it’s not able to continue as a “going concern” and the company had not at that time resolved its debt issues, it would automatically default. Presumably, now that Sirius (SIRI) has closed the Liberty (LINTA) deal, that’s no longer a possibility. Looming crisis averted.

Sirius XM’s deal with Liberty Media appears to be moving ahead as planned. This morning the company said that it has received the necessary Nasdaq approval to issue Liberty (LINTA) 12.5 million shares of Sirius (SIRI) preferred stock without shareholder approval. Normally, the company would be required to seek such approval, but because of its dire financial straits Nasdaq has lifted the requirement.