XM Satellite Radio's share price is down another 3.6% today after plunging 17% on a discouraging report from Goldman Sachs. XM rival Sirius has suffered a similar stumble.

Saying he anticipates "a bumpy transition" as the companies complete their expected merger, Goldman Sachs analyst Mark Wienkes downgraded both companies to a "sell" rating.

"With core demand for satellite radio falling amongst the younger demographics," Wienkes wrote, "vs. rapid increases for MP3 players and other new technologies (3G iPhone streaming audio) ... we see long-term risk to the outlook."

I'm on record as being a fan of satellite radio, particularly as a successor to the increasingly formulaic and tired offerings of terrestrial FM. And while I agree that the competition from other forms of continuous, streamed music is only going to increase, I happen to think that Wienkes is off-base on his bleak assessment. Here's why:

Before TV, radio grew to a dominant place in American electronic entertainment because of three factors: cost, coverage, and comprehensiveness. Ad-supported, it cost nothing; it covered large regions of the country, and it provided a range of entertainment options (Brooklyn Dodgers baseball, live Metropolitan Opera performances, Amos 'n' Andy) that people couldn't get elsewhere.

In the 1970s heyday of "free-form" FM, radio also provided something no other form of broadcast entertainment, including television, can: unpredictability. Like many others, I discovered a raft of bands while listening to late-night FM programs that I would never have heard of otherwise.

And that's the beauty of satellite radio: It has DJs who are more knowledgeable than 90% of their listeners, and it has other stuff besides music. (An incorrigible sports junkie, I often listened to the great Dan Patrick Show on ESPN Radio, via the XM satellite receiver in my car, until Patrick's recent departure for Sports Illustrated.) No matter how wide your circle of pals illegally downloading and sharing tunes, you can't get that with an MP3 player, or with an iPhone with a 3G connection, for that matter.

If you listen to one of the ever-evolving 256 XM channels, like Folk Village or The Loft or Beyond Jazz, you're bound to hear music you'd wouldn't otherwise be exposed to. That's the lifeblood of the music business, and as the conventional record industry goes through its death throes, it will become an even more important outlet -- along with the Web, of course -- for connecting listeners to music they love and music they'll discover. XM and Sirius are classic "long-tail" businesses, and cumulatively their audience will be enough to provide a profitable model.

XM has more than 9 million subscribers, and it's in the process of signing a series of deals with record companies to remove legal challenges to its Pioneer Inno, a satellite receiver with advanced recording features.

Having NBA and Major League Baseball play-by-play doesn't hurt, either.