Wednesday, November 01, 2006
Music Royalties - Sirius and XM
November 1, 2006
The news regarding the Sound Exchange royally negotiations with Sirius and XM is on the street, and many are seeking out additional information about what all of this means.
First, it should be noted that this will be a long process. Resolution to this issue is likely a 2007 event. That being said, here are some items that should be noted:
-Sirius and XM worked jointly as a sector in presenting their case.
-The current rates were established at a point in time when Sirius and XM were dominated by music content.
-The current rates are not disclosed, but most experts in the field believe that satellite radio is currently paying between 2 and 3% of subscriber revenue for royalties.
-Satellite radio has added a lot of NON-MUSIC programming such as talk radio, news, and sports since the last royally negotiation. This content is NOT part of Sound Exchange. Thus, the likelihood that a subscriber is NOT listening to music is dramatically increased. This would mean, in theory, that a large chunk of the subscriber revenue is generated from content not covered by Sound Exchange., and thus, it could be argued that the subscriber revenue applicable to Sound Exchange could be far lower than $12.95 per month per subscriber.
-Another music service that pumps music through cable television is Music Choice. The current rate for Music Choice is 7.25%. This service is very simple, and has no DJ’s, or other content.
The statutes state that costs for infrastructure, on air talent, etc. need to receive due consideration in the establishment of the rates. Were it not for these costs, the platform would not be available for Music Choice to showcase their wares.
-With each additional subscriber, Sound Exchange already gets more money. To up the percentage to something as ludicrous as 10% is biting the hand that feeds you, and demonstrating a basic failure to comprehend the investments made by Sirius and XM to give an unmatched platform from which Sound Exchanges content can be delivered to consumers.
By statute, the music played on terrestrial radio is royalty free. Having that music available with no cost, and delivering that music to consumers at no cost dilutes the value of the music substantially. Sound Exchange needs to keep this in mind.
-Sirius and XM together submit that there is a substantial portion of revenue that is non music related that has been added to the service over the last few years. It seems appropriate that the rate should go DOWN from current levels rather than UP. Sirius and XM propose a rate of 0.88% of GROSS subscriber revenues.
-Sound Exchange is failing to take into consideration the effect of what caused a person to subscribe. If Howard Stern, or Oprah, or NASCAR, or Major League Baseball, or the NFL were the drivers of consumers choosing to become subscribers why should Sound Exchange benefit? The fact that people subscribe for various reasons is fully considered by the Sirius and XM proposal. This is a compelling reason why the current rate needs to go down.
-Sirius and XM recognize that there is value in the musical content they deliver. Sound Exchange needs to recognize the value of the investment into creating the satellite radio platform, and that there is value in all of the other content delivered by satellite radio. Suggesting a 10% royalty clearly shows that Sound Exchange is not considering this other value.
In a joint statement from Sirius and XM, they said:
Consumers, artists and the recording industry all benefit from satellite radio’s multi-billion dollar investment in a dynamic new promotional platform for music. Together we have paid, and under our fair proposal, will continue to pay significant compensation to artists and their record companies. By contrast, our primary competition, terrestrial radio, pays nothing for the sound recordings it uses.
The music industry has made a proposal which unfortunately makes no sense. Sirius and XM, upon the guidance and recommendation of third party experts, have proposed a sound recording fee that is fair and reasonable to all parties. We look forward to presenting our materials to the Copyright Royalty Board in due course.
11/01/2006 11:06:00 AM
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