Starbucks Jams to XM

Fans of Hear Music -- the smooth-music station that resides on XM Satellite Radio 's (Nasdaq: XMSR) channel 75 -- may be spitting out their Frappuccinos this morning when they find that their beloved tunes have been silenced.

Didn't XM promise otherwise, literally?

XM's programming, including Major League Baseball, Oprah & Friends, Bob Dylan, Opie & Anthony, and commercial-free music channels, will not be interrupted by the merger.

That was part of the promise that the company sent out to its subscribers, in the form of an open letter, shortly after it announced its plans to combine with Sirius Satellite Radio (Nasdaq: SIRI) back in February.

One could argue that XM already broke that promise when it booted Opie & Anthony off the air for 30 days two months ago. Is the company now doing the same with its 69 commercial-free music channels?

Not so fast, satellite-radio bear. Hear Music is actually merging with the similarly lounge-flavored streams of XM Cafe over on channel 45.

XM has new channels in the works to fill the programming void, including one airing a "program of the day" format of the exclusive XM music programming that has been broadcast over several of the provider's channels. XMX, as the new station is being called, begins broadcasting on channel 2 tomorrow. Come September, a new station will dedicate itself to following the 2008 presidential elections.

But let's not get ahead of ourselves. The real kicker here is that channel 45 is being renamed Starbucks XM Cafe this morning. The branding is important. Sure, Hear Music has been billing itself as "the sound of Starbucks" for years. And Starbucks values the "Hear Music" brand. It has opened funky music stores that bear the name. It has released CDs -- including the new, hot-selling Paul McCartney disc -- under the Hear label.

But it's still pretty impressive that Starbucks is willing to slap its actual name on the new channel. That's more than a contribution. It's a commitment.

Hear here
Up until now, java-sippers may have failed to spot the connection, especially if the music played on the channel isn't their cup of Tazo. They may have blazed past the dozens of XM channels, moving on to their alt-rock or hip-hop channel of choice.

But you won't need to smell the coffee now to wake up to the connection. If hearing the channel streaming at your local Starbucks isn't enough, having the marquee brand on the channel's moniker is a dead giveaway.

On a grander scale, maybe this will inspire XM to seek out other branding opportunities. There is only one other music channel that's corporate-branded, even though Disney 's (NYSE: DIS) Radio Disney is not exclusive to XM. Over on Sirius, Playboy (NYSE: PLA) has its own channel, but the talk station really is exclusive Playboy content.

Why aren't more of the music channels tied to some form of subsidized sponsorship? It may sound like heresy. Corporate sponsors on commercial-free stations would be a contradiction. However, is there any future fan of Starbucks XM Cafe who will be turned off by the bean-water titan's name?

I doubt it. So what are you waiting for? Step up, Jones Soda or Volcom , to claim one of the alternative-music channels. I'm not sure whether General Motors (NYSE: GM) would move more of its light trucks if XM were to launch Chevy's Country Road channel for country-music lovers, but would it hurt?

GM is already betting big on XM. It was an early investor. It has outfitted 5.5 million cars with its factory-installed XM receivers. Why not go whole hog and lend your name to a platform that you are banking on for new-car sales?

Ads and subtraction
Both XM and Sirius can use a little sponsorship loving. XM posted a dip in ad revenue per subscriber this past quarter. This also happened at Sirius this quarter and last. This isn't terrestrial radio. No one is expecting these companies to be sonic billboards.

However, it has to be a pretty juicy group to reach. Folks who are willing to pay $13 a month for radio -- a medium where the majority of its consumers are settling for the free alternative -- make up the ideal audience with disposable income to spend. As a subscriber to both XM and Sirius, I'm surprised at how even the channels that play ads often find themselves recycling the same number of spots and often filling that space by promoting other channels.

Branded music channels and a healthier fleet of sponsors are easy ways to eat at the massive losses that XM and Sirius are collectively producing. The merger will help, if it goes forward. Still, I like the implications of flipping my XM dial to channel 45 and finding the Starbucks XM Cafe on the air today.

Let the marketing wars open up new revenue streams, one satisfied latte drinker at a time.