Brand XM

XM is starting to get it. I've been pretty hard on XM Satellite Radio (Nasdaq: XMSR  ) on the past. Even though the company is the leader in satellite radio with 4.4 million subscribers, I have always felt that Sirius (Nasdaq: SIRI  ) , despite preaching to a smaller fan base, seems to be the one taking its craft most seriously. It's the one shelling out big money for popular terrestrial radio fare like Howard Stern and the NFL. XM seems to just follow Sirius in everything: setting its $12.95 monthly price point, stripping commercials from its digital music channels, and providing subscribers with free online access to select content.

This doesn't mean that XM is a slouch. It was the first to launch and the first to sign the auto deal with General Motors (NYSE: GM  ) that now finds both players carving up the auto manufacturers with factory-installed receivers. However, until recently, if XM were an ice cream flavor, it would be pure vanilla.

That's starting to change. XM's newest line of aftermarket receivers is very nice, and the company is starting to team up with firms like Time Warner's (NYSE: TWX  ) America Online to really extend its brand.

Yesterday, the satellite radio giant announced a compilation CD series with Starbucks (Nasdaq: SBUX  ) and a partnership with Napster (Nasdaq: NAPS  ) that will allow XM to cash in on introducing new music to its subscribers.

The Starbucks deal is pretty straightforward. Last year, the java heavy teamed up with XM to launch the Starbucks Hear Music channel for XM subscribers. The two companies are now teaming up to sell $14.95 CDs featuring established and emerging artists through the massive Starbucks chain. The deal will help XM in many ways: a little pocket change, brand ambassadorship, and a bit of street credibility in the music space.

It's a nice partnership, but the Napster pairing is even better. With the rollout of XM receivers that also play MP3 files later this year, music fans will be able to merge the XM digital discovery process with Napster's online music distribution. So, for instance, if you hear a song you really like on XM, you can tag it to be purchased later as a digital download. XM and Sirius already had this kind of power through their online streaming site, but that's a more limited audience. Most users prefer listening to satellite radio on the go -- and directly from the tap.

All in all, these are some brilliant moves made by a company that is coming to grips with its awesome power. XM and Sirius are a duopoly in satellite radio, and now these companies are setting themselves up to make far more than just $12.95 a month from their subscribers.

Digital downloads. CDs. Tack on the potential for video streams, expanded sponsorship opportunities, and premium audio content, and it's hard not to get excited about a medium that is expected to own 8.2 million of radio's most rabid listeners by the end of the year.

And even that's just barely scratching the surface of what's possible.

Tune into some of these other related stories:

• David Gardner recently interviewed XM CEO Hugh Panero.
• Maybe traditional radio won't die without a fight.
• Talk shop with sharp Fools who know the sector well in the XM discussion board.

Time Warner is a recommendation of the Motley Fool Stock Advisor newsletter service.

XM is not an active recommendation in our Rule Breakers newsletter service. However, it does possess the "first mover in a disruptive technology" bent that has served the Rule Breaker philosophy so well in the past.

Longtime Fool contributor Rick Munarriz thinks it's cool that Sirius broadcasts The Motley Fool Radio Show four times over the weekend. He does not own shares in any of the companies mentioned in this story, though he is a satellite radio subscriber.He is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.The Fool has adisclosure policy.