Back in the hey day for satellite radio stocks, today's news that Sirius Satellite Radio (SIRI) has partnered with Martha Stewart Living (MSO) to create a 24/7 radio channel would have most likely resulted in a 10% jump in Sirius stock. Not so today though, as MSO added 6% while Sirius lost 1% of its value.

I think there are many reasons why Sirius shares were down on this news. First, I highly doubt this channel is going to prompt hundreds of thousands of women to sign up with Sirius. Perhaps even more problematic for Mel Karmazin's company is the structure of the MSO deal. Once again, Sirius's business model is flawed with this new channel. MSO is putting nothing into the joint venture. That's right, no cash outlay whatsoever. In essence, they are taking on no financial risk, and getting free marketing in return. Sirius, meanwhile, is footing the entire bill, and not getting anything except hope that women will flock to Sirius to tune in.

XM Satellite Radio (XMSR) continues to lead the industry, with 3 times as many subscribers as Sirius. Even worse, the majority of new subscribers are going to XM. The Sirius model is not working from a financial perspective, as evidenced by their far inferior margins. Deals such as the one inked today are not going to help this company reach cash-flow positive, which is needed for the stock price to prove reasonable.

Interestingly, XM's market cap still trails Sirius, despite having more than 200% more subscribers and a better path to profitability. Makes for an interesting arbitrage opportunity for the aggressive investor.