This Week in Sirius XM Radio

Things never get dull for the country's lone satellite-radio provider. Shares of Sirius XM Radio (NASDAQ: SIRI  ) moved sharply lower on the week, shedding 5.5% to hit $3.27. The media darling's drop was far worse than the more modest declines for the Dow and Nasdaq.

Sirius XM slipped after Apple (NASDAQ: AAPL  ) unveiled a streaming service and deeper iOS integration in cars. Higher mortgage rates may also be problematic for Sirius XM. Meanwhile, Pandora (NYSE: P  ) made a surprising move that could lower its streaming royalties. But at the same time, the number of shares of Sirius XM sold short did decline slightly in the latest bimonthly report.

There was more going on this week beyond the share-price gyrations, though. Let's take a closer look.

Apple turns up the Radio
There has been iRadio chatter for months, and reports that Apple had struck deals with the final two major labels last week made it a lock for the tech giant to announce its new platform during this week's WWDC.

iTunes Radio will be built into iTunes as a free ad-supported music-discovery service. Users who want an ad-free experience can pay $25 a year for the existing iTunes Match service that will now include ad-free iTunes Radio.

The product itself sounds like a bigger threat to Pandora than to Sirius XM. The model is certainly similar, and the premium offering is even priced less than Pandora's $36 a year.

However, Apple also revealed that it's working with at least five automakers to integrate iOS in their dashboard technology by as early as next year. If iPhone owners can stream iTunes Radio seamlessly from their Bluetooth-enabled car audio systems, does Sirius XM become a luxury instead of a near necessity?

Gaining interest
It may not seem like a big deal now, but mortgage rates hit a 14-month high this week. According to the Mortgage Bankers Association, the average rate on a 30-year mortgage has spiked from 3.59% early last month to 4.15% now. The move has resulted in a 36% plunge in refinancing applications.

How does this play into satellite radio? Well, let's think about car sales. Showrooms are always hungry to make deals, so you can bet that automakers will be aggressive in keeping financing rates low. However, a lot of people who were taking advantage of low refinancing rates and rising home prices to take out money in a refi to buy a new car or other big-ticket item will now be less likely to do so.

Sirius XM relies on new-car sales to grow its subscriber base, so this bears watching.

Pandora goes terrestrial
Pandora turned heads on Tuesday when it announced the purchase of a small radio station in South Dakota.

Legal counsel for the music-discovery website believes that snapping up the FM station will help it qualify for the lower royalties that 16 of the 20 largest Internet radio companies pay. Songwriter royalty collector BMI immediately moved to sue Pandora to block the move, but it will be interesting to see if this move brings to light the great inequity that has different companies paying different rates per song streamed online.

Short people
Bears continued their slow retreat out of Sirius XM. There were 368.8 million shares of Sirius XM held short at the end of May, well off the February peak of 414 million.

The trend has gone in Sirius XM's favor, with shorting activity declining for five of the six bi-monthly reporting periods since late February's peak, but it will be interesting to see whether the weak trading in June and Apple's new iTunes Radio announcement woo back the naysayers.

A Sirius future
It was an interesting week for Sirius XM. The new week isn't likely to be dull.

Even though Sirius XM has been one of the market's biggest winners since bottoming out three years ago, there is still some healthy upside to be had if things go right for it -- and plenty of room for it to fall if things don't. Read all about Sirius in The Motley Fool's premium report. To get started, just click here now.