apple iphoneFor those that have followed satellite radio for a long time, Apple has always been seen as a brass ring of sorts. Over the years many investors were clamoring for a deal with Apple that never came to fruition. It just seemed right and natural to combine the live aspect of satellite radio with the features of the iPod and iTunes. iPods lacked a music discovery aspect that satellite could deliver. Perhaps the fact that a deal was never done was for the best. Apple would have demanded their pound of flesh in terms of revenue share, and either Sirius or XM, competing staunchly for an advantage, would have been forced to whittle away yet again at the bottom line.

Today is a different day. We now have Sirius and XM merged, and the iPod has graduated to the iPhone. No longer will iPods need to have satellite radio chipsets installed at a cost to Sirius XM. Instead, the service can be delivered over the Internet and directly to iPhone and iPod touches.

In their quarterly call Scott Greenstein hinted that the application would feature the ability to stream more than just the Internet feed, but also stream additional channels for talk, sports, and news. Greenstein’s comment likely was overshadowed by the fact that the company actually announced that the long awaited application would actually be delivered in Q2.

Many may not be aware that the Internet feed of satellite radio excludes many channels that are available in the standard satellite feed. News channels such as Fox, CNBC, etc. are not in the Internet package. Nor is there any live sporting coverage (Notre Dame Football is featured) or traffic and weather.

It would appear that what Greenstein insinuated was that the iPhone application would deliver a more robust line-up. This is potentially big news. Imagine if you could catch your favorite teams broadcast on your iPhone. Wouldn’t it be great if channels such as Fox news were included in the service? While the company was not specific about the content offerings that would be included, they did say that the offering would be “enhanced”. Perhaps the timing of the iPhone application and the rumored Baseball news becoming available to Sirius Subscribers has some merit.

In preparation for this launch, Sirius made some great business decisions, and dropping the Internet feed for a standard subscription, while raising the Internet feed sound quality was the first. Now, if you want to listen to Sirius XM over the Internet, you need to pay an additional $3 per month. Yes, consumers may feel a bit scorned, but from a business standpoint, the move makes perfect sense. If the iPhone application delivers a level of content that rivals the satellite delivered service, subscribers that already have iPhones will jump at the ability to combine their satellite radio service into their cell phone. This will deliver an additional $3 per month in revenue, and increase metrics such as ARPU (Average Revenue Per User).

The next positive aspect of the iPhone application is that there is no satellite radio chipset to subsidize, nor does the company spend money on manufacturing and distributing radios. This will trim costs substantially, and have a positive impact on the SAC (Subscriber Acquisition Cost) metric. The iPhone application does not require the company to pay for space on retail shelves, and does not require a sales force. If your iPhone breaks, you will call AT&T, and not Sirius XM customer service. All around, an application for the iPhone and iPod touch saves the company huge amounts of money.

What does the company do with that saved money? Well, they can take some of it and market their new iPhone app, but the real brilliance here is that Apple markets itself. Sirius XM does not need to sell iPhones. They simply need to make the millions of iPhone owners aware that an awesome new application is ready and waiting to be downloaded. A simple yet cost effective ad campaign can perhaps deliver more bang for the buck than anything previously seen (with the exception of the one year Stern promoted Sirius while still on terrestrial radio).

The iPhone app will also appeal to non-subscribers at the existing subscriber price of $12.95 per month (plus perhaps a small premium above that). If you have an iPhone or an iPod touch, do you really want to be tethered to yet another device? Now you wont have to be. You now have an all-in-one solution. Properly marketed, Sirius XM could garner a whole new set of subscribers to the pool.

The iPhone also has positives in terms of the consumer. The consumer does not have to buy a radio. The entry cost to get involved in satellite radio is no longer a hurdle because there is no radio to purchase. Consumers also do not have to worry about getting a radio installed or running an antenna. Becoming a satellite radio subscriber is now as simple as downloading an application!

With millions of iPhones and iPod touches out there, the potential is substantial, but before people run off with visions of 5 million new subscribers in their head, let’s apply some realistic parameters. The iPod phenomenon is biggest in the city. Walk around New York, and you see personal music players, iPhones, etc. everywhere. New York is a city where people don’t drive, the take the train or a taxi. The appeal in a city such as New York will be huge. In the suburbs, people tend to drive more, and thus, get a chance to listen to music, satellite radio subscription, etc. on their commute. These people, in my humble opinion, are less likely to make the jump.

The bottom line is that an Sirius XM iPhone app will be a revenue generator as well as a cost saver. that is a powerful combination that can not be ignored. Look for the iPhone app to be launched in early June.