Media Decoder Blog: Royalties for Satellite Radio Set to Rise Steadily Through 2017

Digital Notes

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Recorded music royalties are set to rise in coming years for Sirius XM Radio, the only satellite radio service in the United States, as a result of a judgment by a panel of federal judges.

The three-judge panel, known as the Copyright Royalty Board, said in a brief statement on Friday afternoon that the rate paid by satellite radio for the use of sound recordings, currently 8 percent of the company’s gross revenue, would climb to 9 percent in 2013, and then rise 0.5 percentage point each year until reaching 11 percent in 2017. That money will be paid to SoundExchange, a nonprofit group that distributes digital royalties to record labels and musicians.

The decision does not cover royalties to music publishers and songwriters, which are negotiated directly. It also does not cover rates for Internet radio, which are in place through 2015 and work under a different, per-stream model.

Sirius’s royalty rate, the subject of nearly two years of litigation, was widely expected to rise. The last time the Copyright Royalty Board set rates for satellite radio, in late 2007, Sirius and XM were still struggling as separate companies; they merged the next year and still nearly went bankrupt before getting a $530 million loan from Liberty Media in 2009.

In their 2007 decision, the judges set rates that rose from 6 percent to their current level of 8 percent. They noted then that 13 percent represented the upper end of the “zone of reasonableness” for such rates.

Since then, the merged Sirius XM has grown substantially and become profitable. It now has more than 23 million paying subscribers. In its most recent quarterly accounts, it reported that it was holding $556 million in cash.

Last year, the company had $3 billion in revenue.

For months, Liberty Media has been increasing its stake in Sirius with the intention of taking it over; it has nearly finished that process, which must be approved by the Federal Communications Commission since it involves the transfer of broadcast licenses. Mel Karmazin, Sirius’s chief executive, announced in October that he would leave the company early next year.

The news of the royalty rates was not widely publicized until well after the markets closed on Friday. Sirius closed for the day at $2.99, up nearly 7 percent.

A spokesman for Sirius did not respond to a request for comment. A spokeswoman for SoundExchange said late Friday afternoon that her organization was still reviewing the decision.

Article source: http://mediadecoder.blogs.nytimes.com/2012/12/14/royalties-for-satellite-radio-set-to-rise-steadily-through-2017/?partner=rss&emc=rss