News today has begun to surface that Apple (AAPL) is in the early stages of negotiations with record labels to launch a radio service that will be similar to Pandora's (P). The news sent a virtual shockwave to Pandora and sent the equity tumbling as much as 20% in early trading. Sirius XM (SIRI), which is in the midst of losing control to Liberty Media (LMCA), saw very little movement in its stock price.

The first thing Sirius XM and Pandora investors should understand is that this is still in the rumor stage. The next thing to understand is that there is a lot of room in the audio entertainment space for these companies to do well.

While there is little detail as yet, the rumor seems to be that Apple will have a advertising-supported model, which will add yet more ad inventory to an already competitive environment. If this is indeed the case, it will strain Pandora.

Remember all those rumors of a satellite radio chip in an iPhone? The concept sounded great to satellite radio fans, but the facts were that Sirius XM needed Apple much more than Apple needed Sirius XM. Back then I said it was unlikely, and now it seems even more unlikely, at least in the near term. There are a few reasons to do it from both the Apple and Sirius XM perspective. Apps now can now deliver Sirius XM, Pandora, Spotify, Slacker, and more.

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