Sirius XM Passes RIAA Tax On To Consumers

from the but-of-course dept

Not quite sure how I missed this earlier (update: oops, turns out we didn't miss it -- so consider this an encore presentation), but Bret alerts us to the news that with the ever increasing royalty rates pushed by the RIAA in the form of its "spin-off" Sound Exchange, and codified by the Copyright Royalty Board (for whom I still do not understand how anyone can justify its existence), that Sirius XM has simply added a $2 RIAA tax to everyone's monthly bills to help pay for the new performance royalties. Yup, because the RIAA and its members haven't been able to come up with a business model that works, they get the courts to tax you for listening to your satellite radio (on top of what you already pay and what they already pay to songwriters and publishers) and that gets passed on to you. Just imagine what will happen if the RIAA gets its wish and gets to add a similar tax to terrestrial radio stations as well. If you thought radio was chock full of commercials before...

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Sirius XM Passing Music Royalty Rates On To Subscribers, Raising Lots Of Questions

from the disparity dept

Beginning at the end of July, Sirius XM satellite radio subscribers will see an extra charge of about $2 per month on their bill, as the company will begin passing along the music royalty rates it must pay to subscribers. We've written a lot about music royalties and licenses, particularly about how they serve to stifle the very innovation the music industry needs to survive, in favor of upfront demands for cash -- money which seems to have a hard time making its way to artists. This news from Sirius XM not only is likely to raise the hackles of its subscribers, but also raises some questions about the royalty system, and how it affects consumers.

First, the royalty rate for Sirius XM was set by the CRB at 6.5% of gross revenues for 2009, increasing by half a percent per year over the following three years. So why, then, is Sirius XM charging a $1.98 fee -- or 15.2% -- on its $12.95 monthly subscription fee? That seems like much more than "passing along" the royalty rate. As part of the governmental approval for the merger of Sirius and XM, certain conditions were placed on the company, including a three-year price freeze. The company has gotten around this before by separating out services, like online listening, that used to be included in the general subscription fee, then requiring an additional charge for them. Now it looks to be getting a boost by "recovering" a significantly higher percentage of its subscription fees than it must pay out in royalties. The FCC's merger conditions allow the company to pass the royalty fee on to consumers -- but why would they let the company pass on a fee almost three times as high as the actual royalty rate? Mobile phone companies have used similar "fees" to pad their revenues for some time, and the FCC apparently doesn't mind that, either.

Second, and perhaps more importantly, this situation highlights the disparity in how the music royalty rates are applied. Terrestrial radio broadcasters, unlike satellite broadcasters, don't have to pay musicians (or, rather, their labels) royalties. Satellite radio was presumably, an easier target for the likes of the RIAA, given its relative lack of lobbying strength, so the industry cartel defined it as an "interactive" service -- industry-speak for "pay us more money." It's hard to see how satellite radio is really any different than terrestrial radio, except for a different business model, albeit one with the same end, so it's also hard to understand why the two should be treated differently from a royalty perspective. The RIAA and its cronies have been working to change this -- by trying to force terrestrial broadcasters to pay up as well. They call radio "a kind of piracy", again ignoring the fact that radio, whether it's satellite or terrestrial, promotes their products. The National Association of Broadcasters, which represents traditional broadcasters, likely doesn't really mind the fact that Sirius XM has to pay royalties, given its well-documented disdain for the company. But by standing idly by while Sirius XM gets hit with the royalty mandate, it weakens its own argument against its members having to pay royalties. The equitable solution here isn't really to force terrestrial broadcasters to pay up, to level the proverbial playing field. It's to eliminate the royalties that are hamstringing new services and promoting music. Sooner or later, the industry will figure this out -- but at this point, it looks like that realization will come only after it's run itself into the ground.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Sirius Founder Says The Company Is Screwed

from the cracks-in-the-crystal-ball dept

It's no secret that Sirius XM's business has been hurting. Its recent brush with bankruptcy merely highlighted the huge obstacles the company faced from the beginning: massive capital outlay on satellite infrastructure, and huge spending to attract subscribers. But one key issue for the company that many people didn't foresee was the rise in popularity of internet radio, podcasts, and portable music players. Included in that group was Martine Rothblatt, Sirius' founder, who now says competition from those media, spurred on by growth in mobile networks, have doomed satellite radio (via Paid Content). Sirius XM CEO Mel Karmazin, of course, disagrees, saying the company has enough unique content to succeed. But what happens when streaming services become even more pervasive, more portable, and available to a wider audience? Sirius XM's exclusivity to certain types of content in locales like automobiles will slip, and being tied to its proprietary hardware and subscription model could become a liability. The company is growing its efforts in this area, such as with its recently announced iPhone app, but more fully embracing online radio would seem to be a brighter strategy.

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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Should Satellite Radio Ditch The Satellites And Go Online Only?

from the kill-two-birds dept

In discussing the troubled satellite radio business, we noted that two of the major difficulties faced by the industry were the huge capital costs required to build and maintain the business, combined with the rise of (somewhat unexpected) competition in the form of internet radio and internet downloads combined with portable MP3 players like the iPod. Over at Slate, Farhad Manjoo has a suggestion that would solve both of those issues: Sirius XM should ditch the satellites and become a web only broadcaster. It's an interesting idea, but it seems unlikely (even though they offer online streams currently). Sirius XM still remains so car focused, it still thinks that being in automobiles is a competitive advantage. However, as Manjoo points out, it's actually damaging the company, because it's had to pay large sums to automakers to get the devices installed in cars. Instead, if it went to an internet-only solution, and cut the subscription prices, it could reach a much larger audience, much more easily and cheaply. Build mobile apps, and people can use their phones to listen to content. Add downloadable podcasts of popular shows, and anyone with a portable device can time shift. It's so reasonable that it'll never happen.

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Was Sirius' Bankruptcy Inevitable?

from the possibly,-but-it-had-help dept

Back in 1999, when plans for satellite radio were first talked about, I thought it was destined to fail. I had two reasons for why: I didn't think there really was that much demand and having just closely watched the disaster known as Iridium, I was intimately familiar with the massive and business-strangling capital costs associated with running a satellite-based business. It just seemed so capital intensive that any underestimate in terms of demand would kill you. And, in fact, Sirius has a pretty long history of being on the verge of failure.

With the news of Sirius XM preparing for bankruptcy, it's worth revisiting those original thoughts. While I'd love to claim credit for calling this a decade ago -- I think my reasoning turned out to be wrong. I vastly underestimated the number of folks willing to sign up for satellite radio (though, I think I was correct in recognizing that the number of subscribers would need to be massive and that would be difficult to achieve). And, while the capital expenditure costs were large, it seems like they, by themselves, may have been imaginable. What I hadn't fully expected, was the massive expenses the companies (now company) would ring up trying to lock up "talent" to drive subscriber numbers up. Also, I didn't expect ridiculous regulatory restrictions. The 18 months it took federal regulators to approve the merger between XM and Sirius, combined with the ridiculous restrictions that were put on the combined company significantly contributed to satellite radio's troubles. And, finally, additional competition in the form of internet radio and podcasts/portable media really have put pressure on satellite radio -- none of which I foresaw at the time.

While the company is clearly looking to restructure and keep going, you have to wonder if it even makes sense at this point. With those alternatives increasingly becoming popular in the market, it's difficult to see how satellite radio can possibly provide enough excess value to pay for the increased capital costs compared to the competition. Even if the company restructures and comes out of bankruptcy, who's willing to bet it will have to through this whole process again in a few years?

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