BusinessWeek sheds light on XMSR vs. RIAA
XM vs. the Industry--And CongressJUNE 21, 2006
News Analysis, BusinessWeek.com
By Carlos Bergfeld
The recording feature of the satellite service's new radios has drawn a double whammy: A lawsuit and the threat of legislative action XM Satellite Radio (
XMSR ) has faced plenty of static in its short life. Questions about whether its technology will work as billed. Doubts about whether there's a substantial enough audience for its $12.95-a-month service. Competition from rival Sirius Satellite Radio (
SIRI ), where shock jock Howard Stern has attracted his enthusiastic flock.
More recently, XM has come under attack from two more fearsome foes: the Recording Industry Association of America (RIAA) and the U.S. Congress. Senator Dianne Feinstein (D-Calif.), Senator Lindsey Graham (R-S.C.), and Senate Majority Leader Bill Frist (R-Tenn.) introduced legislation that could be voted on in the near future that would make XM's newest line of satellite radio players illegal. The RIAA filed a lawsuit against the company in May, alleging that the service's newest portable players already infringe on copyright law and asking for some costly reparations—up to $150,000 per song downloaded by its subscribers. Several XM devices, including its inno, allow listeners to record music for later listening, though they can't move songs off the devices.
Now, XM is fighting back by enlisting the help of a group 6.5 million strong: its listeners. The satellite radio company has sent out a call to its subscribers, asking them to voice their opposition to both the Senate's legislation and the record industry's lawsuit. On its site, under "Defending the XM Nation," the company proclaims: "The music industry wants to stop your ability to choose when and where you can listen. Their lawyers have filed a meritless lawsuit to try and stop you from enjoying these radios." XM has even set up on its Web site a way for subscribers to easily solicit their congressmen. Listeners can plug in their zip code and get a list of the senators and congressmen for their area. They can then send either a standard form letter or a personalized appeal. RALLY CRY MAY FAIL. The RIAA is supporting the Senate legislation (called the PERFORM Act for the "Platform Equality and Remedies for Rights Holders in Music Act of 2006") and filed its lawsuit because it wants tougher copyright laws for music.
But some experts say the recording industry's 33-page suit against XM would set precedents for copyright issues well beyond satellite radio, possibly even for video recording equipment. Fred von Lohmann, senior intellectual-property attorney for the Electronic Frontier Foundation (EFF), has elaborated on
this point on the EFF's Web site, writing, "Court rulings, after all, continue to cast a legal shadow long after the technologies involved have disappeared." He says consumers' ignorance of these far-reaching implications could spell legal trouble for technology innovators in the near future. For the average satellite radio user, the minutiae of copyright law may not be something they're particularly aware of or interested in. "These are such fine distinctions and the consumer couldn't care less—they just want their music," says Laura Behrens, principle research analyst on the media industry at researcher Gartner. Behrens says the copyright issue is not clear-cut for either party, as both have vested interest in the issue and much reason for wanting the public on their side. "All of these companies say they have the consumers' best interest at heart, all of them claim to know what consumers' best interests are—seldom is it as simple as all of that," she says.
The recording industry says it should be able to win its case against XM, even with the current laws on the books. The lawsuit concerns the features of a few recently launched portable satellite radios—the inno made by Pioneer and the Helix from Samsung—that allow the recording of streamed satellite radio. The digital players have fairly restrictive settings: The devices can't be programmed to record individual songs, and recorded content cannot be transferred off the devices. The devices allow XM subscribers to record blocks of programming, minutes or hours of the feed from a certain satellite channel, onto the players.
DIGITAL DISTRIBUTION AT ISSUE.
What the recording industry doesn't like is the fact that subscribers can go back to a block of recorded programming and chop it up into different songs automatically with the help of the players, which label the songs individually. The PERFORM Act would make this illegal, but the RIAA says XM is already breaking the law. "We believe that this is a case of direct infringement where they are offering a distribution service without a distribution license," says Mitch Glazier, external vice-president of government relations at the RIAA. The recording industry wants XM to pay royalties to record labels on either a per-song or a subscription basis, on top of the performance charges, in the same way other music distribution services like Rhapsody and iTunes do. The complaint against XM references some of the buzzwords and slogans the company has used as evidence of the infringement, referring to XM's use of the term "XM + MP3" as well as the catchphrase, "It's not a Pod, it's the Mothership," both as supposed evidence of the company's intent on digital distribution. Will XM's appeal for its subscribers' support work?
The company says it has had a positive response thus far. "It's an opportunity to educate our subscribers, both in terms of how their subscription fees benefit artists and labels, and at the same time to educate them on how the big record companies are pressuring Congress to pass laws that hurt satellite radio and its subscribers," says Nathaniel Brown, XM's senior vice-president of corporate communications. It's hard to tell if XM listeners will heed the call. Recently, technology companies like Google (
GOOG ) and (
YHOO! ) Yahoo! had a huge setback in Congress with the passage of legislation without provisions for Net neutrality (see BusinessWeek.com, 6/8/06,
"Web Titans' D.C. Blues"), a cause the big tech companies were also asking the public to support. Fighting the lawsuit may prove costly for XM. The company has yet to turn a profit, in part because it is spending heavily on marketing and on-air advertising to boost its number of subscribers. Analysts have said the company would reach profitability by 2008 (see BusinessWeek.com, 4/13/06,
"Coming Soon to XM: More Commercials"). But it's possible that costly legislation or a new round of fees for music rights could push profitability back even further.
6/22/2006 08:38:00 AM
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