XM Satellite Radio (NASDAQ:XMSR) is shaking a lot of hands lately.

The country's largest satellite-radio provider announced a settlement with EMI Music this morning, stemming from XM's controversial Inno receiver. All of the major labels sued XM two years ago after it released the portable device, which could record hours of digital audio for later playback. (Consider it the aural kissing cousin to TiVo's (NASDAQ:TIVO) patented Time Warp technique.)

Terms of the settlement aren't public, but XM has spent the past few months turning its major-label enemies into friends. The satellite-radio company struck a deal with Universal Music and Warner Music Group (NYSE:WMG) six months ago and made nice with Sony BMG back in February.

Perhaps the most sobering aspect of this settlement is that -- as cool as gadgets such as XM's Inno and Sirius Satellite Radio's (NASDAQ:SIRI) Stiletto are -- XM and Sirius are minor players in portable media devices. Subscriber growth at both companies has relied upon hardwired receiver installations in new car models. XM and Sirius are faltering at the retail level. New cars come in with jacks to plug in MP3 players. Even Research In Motion (NASDAQ:RIMM) is making its latest BlackBerry smartphones iTunes-compatible. In short, satellite-radio portable systems aren't the key driver for an industry now up to nearly 18 million subscribers.

That may not explain why the labels have warmed to XM's handshake, but perhaps it's an admission that satellite radio -- already paying the record companies royalties for its commercial-free music broadcasts -- is the least of the prerecorded-music industry's concerns.

With the simmering merger between Sirius and XM nearing completion, the record labels are rightfully realizing that satellite radio is the key to reaching music fans with the disposable income to throw at radio subscriptions. The labels don't want to burn that bridge, especially when so many others are going up in flames.

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