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.