(FORTUNE Magazine) – A Sirius Challenge

Sirius Satellite Radio sure knows how to make waves--witness the high-profile hirings of Howard Stern and Mel Karmazin. But new CEO Karmazin's test will be to see if the company can make money. Though Sirius is on track to reach one million subscribers by year-end, it is about as close to profitability as its three satellites are to Earth. In the third quarter of 2004 alone, Sirius lost $169.4 million on revenues of $19.1 million. Even its NFL football package--whose $220 million cost also made a big splash--hasn't lessened rival XM's lead. Sirius added 182,000 new subscribers during the third quarter--prime sign-up season for football--which was up 41% from the second quarter but less than half the 415,000 subscribers added by XM that period. Moreover, XM's cost of acquiring subscribers is far less because it gets 50% of them from automakers' installations, while Sirius depends far more on retailers. Karmazin, who left Viacom in June after a lengthy power struggle with chairman Sumner Redstone, comes from a $26 billion media conglomerate, of which radio was a small part. To succeed at a one-product startup, he'll have to draw on his earlier career building Infinity into a radio empire back in the '80s. In other words, this imperial COO must return to his roots as an entrepreneurial CEO. -- John Helyar