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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Radio Companies Try To Force Satellite Radio Devices To Play HD Radio Too

from the let-us-tag-along! dept

Well, the terrestrial radio companies failed to stop the XM-Sirius merger from a happening with a rather ridiculous campaign against the merger, but that doesn't mean they can't continue to try to cause problems. The latest is that they've convinced Representative Ed Markey to introduce legislation requiring all satellite radio devices to include the ability to play HD Radio (terrestrial radio's attempt to provide a better quality product to compete with satellite). The FCC had just begun investigating whether or not such an HD Radio mandate made sense, but apparently Markey can't wait and is pushing to have the mandate pushed through as law before the FCC can study the issue. Is it worth mentioning that the NAB, the lobbying arm of the terrestrial radio stations (and the group that resorted to all sorts of questionable actions in trying to prevent the Sirius-XM merger), is one of Markey's biggest campaign contributors? Oh, and that XM CEO Mel Karmazin contributed to Markey's campaign back in 2001 (when Karmazin worked for Viacom), but apparently hasn't contributed more recently? Feel free to express your thoughts on the bill with this voting widget (if you're reading in RSS, click through to see it):

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Is The FCC Just Toying With XM And Sirius Now?

from the and-next...-we-want-you-to-clean-our-offices-with-just-a-feather! dept

The 18-month saga of XM and Sirius trying to merger just keeps getting more and more ridiculous. Yesterday, we pointed to all of the silly hoops the FCC was trying to make the companies go through, that often had absolutely nothing to do with antitrust issues, and today comes the news that the FCC has fined the companies nearly $20 million for technical violations as some sort of precursor to merger approval. What do these technical violations have to do with the antitrust questions the FCC is supposed to be deciding? Absolutely nothing. Instead, it appears that the FCC is simply using its position as the decider over whether or not the merger goes through to get whatever licks in that it can against the two satellite radio companies, knowing that they'll have to obey quietly. Its like hazing. Because XM and Sirius need the approval of the FCC, it can just do anything it wants to them, such as adding bizarre requirements or even asking them to hand over $20 million.

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FCC Setting Conditions For XM-Sirius Merger (Finally)

from the what-took-so-long? dept

It's not clear exactly what Kevin Marin and the FCC have been doing over the last year and a half since XM and Sirius announced plans to merge. The Justice Department gave its approval of the deal back in March. That had already taken over a year, and then everyone turned to the FCC to get its approval. From the length of time it took, perhaps the FCC had just figured that the DoJ wasn't going to approve the merger, and had to scramble to figure out the details before granting (or not) its own approval. FCC boss Kevin Martin has now sent around to the other commissioners his recommended concessions to approve the merger, and it includes things like a temporary ban on raising prices (for a few years) as well as requirements for some channels to be turned over to noncommercial and minority programming. While XM and Sirius eagerly agreed to these concessions (after all this time, they just want the damn thing to be over), other commissioners may try to impose additional requirements as well -- so this might not be over just yet.

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DOJ Finally Approves XM-Sirius Merger

from the took-'em-long-enough dept

It only took over a year of ridiculous protests from traditional radio stations, but the Justice Department has finally decided that XM and Sirius can merge without creating a monopoly. It will be interesting to see if the NAB's own lobbying efforts helped disprove its point. The NAB, representing terrestrial radio stations argued vehemently that if XM and Sirius merged, it would create a "monopoly." The only problem with that statement is that if that were the case, it would mean that terrestrial radio wasn't competing in the same market. And, if that were true, why would the NAB care? So, by arguing so vehemently against the merger, it effectively showed what we all knew: terrestrial radio and satellite radio compete in the same market. Of course, the merger isn't a done deal yet, as the FCC still needs to weigh in. But given the amount of time it has already taken for the DoJ to make its decision, you would hope that the FCC was at least close to being done with its review as well. Update: No surprise here, the NAB is "astonished" by the decision.

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And So We Wait Some More For XM And Sirius To Merge

from the how-long-will-it-take? dept

The Justice Department and the FCC sure are taking their sweet time on approving (or denying) the XM/Sirius merger. The two companies' merger agreement was about to run out, so they've now had to extend it a few more months as they wait patiently for the government agencies to figure out whether or not satellite radio is a unique market or if it actually competes against other forms of audio entertainment. It's hard to justify what could possibly be taking this long. Terrestrial radio stations, as represented by the National Association of Broadcasters, have been the most vocal against the merger, claiming that to allow the merger would create a monopoly in satellite radio. However, the very activity of protesting the merger suggests that they know that satellite radio isn't an independent market and actually does compete with terrestrial radio. Still, the NAB must be thrilled it's been able to hold off the merger approval for this long, even if it eventually does get approved. The real question, though, is whether they've done anything else to try to compete with satellite radio, or if they're just hoping that the miracle of a blocked merger will simply force the satellite competition into bankruptcy.

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Political Gamesmanship In XM-Sirius Merger Rolls On

from the the-fun-never-ends dept

While comments filed with the FCC in support of the merger of satellite radio companies XM and Sirius outnumber those opposing it by nearly a four to one margin, they're not seen by many people to carry the same influence as those arguing against the merger. For instance, more than 70 Congressmen have told the heads of the FCC, DOJ and FTC that they should block the merger, and as stock pundit Jim Cramer points out, this has little to do with anything other than legislators' self-interest, since they don't want to upset local broadcasters in their constituencies. He adds that since XM and Sirius are up against such powerful opposition, they've had to go for broke, by announcing pricing plans that, if the merger's approved, could slice their average per-subscriber revenue. The plans offer consumers the ability to choose channels on an a la carte basis -- a move that looks like it's designed to appeal to FCC Chairman Kevin Martin, for whom indecent programming is always an issue. At the outset of the merger announcement, Martin said that XM and Sirius would have to show that "consumers would clearly be better off with both more choice and affordable prices" before the FCC would approve the deal. These new plans would appear to deliver consumers more choices and control over the content they receive, and do so at lower prices. But it's still hard to see that being enough to overcome politicians' objections, fueled by the National Association of Broadcasters' clout.

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Company Says If XM and Sirius Merge, It Wants To Enter The Market

from the man-behind-the-curtain? dept

Originally, four companies bid on the licenses to operate satellite radio networks in the US; XM and Sirius were the only two left standing. However, one of the losing companies, Primosphere, is now requesting that if XM and Sirius merge, it be given half their spectrum so it can launch its own service. This is a particularly interesting development. On the face of it, the request by Primosphere would seem to take care of the supposedly pro-consumer concerns of the National Association of Broadcasters, which objects to the merger since it would only leave one satellite radio company. However, a merged XM-Sirius would resist giving up half its spectrum, since that would reduce its programming capacity, so it seems like there could be a catch-22 for the companies. Merge, and lose half their spectrum, or keep the spectrum and remain independent. The fact that Primosphere's popped back up after requesting its license application be withdrawn in 2004 has led some to speculate that another player could be motivating it. Given the way the debate over this merger has played out so far, that wouldn't too surprising.

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