Affiliate marketing is taking a step back this week, as XM Satellite Radio (NASDAQ:XMSR) sends out notices of the cancellation of its XMiREP program. The program, run through privately held Ocenture, had allowed subscribers to earn as much as 20% in referral fees for recommending the satellite-radio service to friends.

"After thorough evaluation, XM and Ocenture have decided to discontinue the XMiREP program, effective September 12, 2007," reads this morning's email. "As such, we are asking all of you to immediately cease all XM-related marketing activity and close your individual iREP sites by September 12, 2007. Additional communications will follow that will provide more guidance as termination of the program transitions."

The promotional plan seemed ambitious at first. I wrote about it back in March, when XM was blasting the iREP ads on its stations that run commercials. Subscribers could sign up for free iREP accounts and then direct friends, family, and associates to a promotional landing page. The iREP member would receive a cut of any successful conversion. In a nod to multi-level marketing, if a referred member signed up to become a new iREP promoter, the original iREP member would get a 7% commission on any subsequent transactions.

If I lost you along the way, just know that it was a program to encourage the marketing of XM's service at the grassroots level. Think Amway for the satellite-radio set.

The end of iREP doesn't necessarily mean the end of affiliate marketing at XM, but it's just one more step in the sector's reluctance to pay up for retail leads. Rival Sirius Satellite Radio (NASDAQ:SIRI) used to pay as much as $40 for leads generated through websites that are affiliates through ValueClick's (NASDAQ:VCLK) Commission Junction. Now it offers no more than $20 for a hardware-related purchase.

There are two ways to look at this trend. The bear would see this as a pair of companies that are running out of cash. That isn't true, though. Both companies are holding gobs of debt, but they also have plenty of short-term liquidity at their disposal. A bear may also argue that this is an indication that XM and Sirius are failing at the retail level. There is some truth to that, given that the majority of new XM and Sirius subscriptions are coming from car buyers who just happen to have one or the other service as a factory-installed offering.

However, satellite bulls would counter that spending less in acquiring new subscribers is a good thing. That much is clear. One would expect the XM/Sirius merger -- if approved -- to result in even less money being spent in actively promoting the companies' services. XM investors knows all too well the pain of ramped-up spending -- the company ramped up its marketing budget during the 2005 holiday season in a failed attempt to thwart the publicity that Sirius was generating on the pending arrival of Howard Stern. It has scaled back since then, but neither company wants to get into a battle of promotional greenbacks again.

A bull may even interpret this move as a show of internal confidence that the merger deal will go through. XM wouldn't be scaling back its marketing overhead if it thought it would have to be an aggressive promoter in the future. 

So if XM is turning down the marketing music, it may not be a bad sign at all.     

Tune in to related Foolishness:

Rick recommended XM to Rule Breakers subscribers in 2005, but the position was liquidated last year. A 30-day free trial is available if you want to read up on the active recommendations.

Longtime Fool contributor Rick Munarriz is a Sirius and XM subscriber, but he does not own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.