Wednesday, May 17, 2006

XMSR vs RIAA: An Assessment of Note From the L.A. Times

May 17, 2006

Labels Sue XM Over Its Device
The music groups say the satellite radio firm should pay higher licensing fees because its new Inno gadget allows listeners to record tunes.
By Charles DuhiggTimes Staff Writer

Major record labels sued XM Satellite Radio on Tuesday, alleging that a new device the company sells allowing subscribers to digitally record songs violates music copyrights.The lawsuit, filed in federal court in New York, is the latest salvo in a battle over the size of licensing fees the fledgling satellite radio industry should pay music companies when enabling customers to record.At issue is XM's new Inno radio — a $400 device that receives XM's 170 satellite stations and can record 50 hours of music.XM pays the labels a small "performance rights" fee to broadcast songs.

The record companies contend that because the Inno and related devices allow XM listeners to pick and choose which songs to save — creating playlists of as many as 1,000 tunes — XM is in effect a music distributor. As a result, they argue, XM should pay the higher fees demanded of online music retailers such as Apple Computer Inc.'s iTunes. "XM wants to offer listeners what is essentially a free version of iTunes without paying the music companies for the right to sell their songs," said Mitch Bainwol, chief executive of the Recording Industry Assn. of America. "It's a great deal for XM because it drives subscriptions. But it's fundamentally unfair to songwriters and labels and threatens to puncture the integrity of the digital music marketplace right as it is growing."XM said in a statement that it would fight the suit. It also said the Inno and related devices are legal and "allow consumers to listen to and record radio just as the law has allowed for decades." The company called the lawsuit "a negotiating tactic on the part of the industry to gain an advantage in our private business discussions."

All four of the major record companies — Universal Music Group, Sony BMG Music Entertainment, Warner Music Group and EMI Group — are plaintiffs in Tuesday's suit, either directly or through subsidiary labels. The companies seek $150,000 in damages for every song copied by XM customers.XM competitor Sirius Satellite Radio Inc. has agreed to pay a special fee per device sold to record companies.Similar talks between XM and music labels broke down. Congress is debating legislation that would force companies to pay higher licensing fees.XM's more than 6.5 million subscribers pay $12.95 a month to hear the company's broadcasts. XM has sold several thousand Inno devices since it was released last month.Executives close to XM, who requested anonymity because of the issue's sensitivity, said the company had offered to pay the record labels about $18 per device sold for the right to allow users to record individual songs, reportedly a better deal than the labels received from Sirius.Those sources said the labels refused the offer because they wanted to help decide the functions XM's devices offer, including scaling back on recording.But record company executives, who also requested anonymity, disputed that account. They portrayed Tuesday's lawsuit as an attempt to pressure XM into abandoning its stance that the current licenses are within the law. Those sources also said the industry was supportive of satellite radio devices that offered full recording capacities, but wanted appropriate licensing.Both sides expect the issue to be resolved before it is litigated because neither party wants to be stuck with a precedent-setting court decision if it goes against them.In the meantime, XM continues to sell the Inno."When I was the head of the RIAA, I knew that trying to regulate technology is not a good strategy," said Hilary Rosen, who now is a consultant to XM. "In the end it was always better to get as much money as you could upfront."

here is the link: http://www.latimes.com/business/la-fi-xm17may17,1,5072598.story?coll=la-mininav-business

5/17/2006 09:49:00 AM

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