Stifel Note On XM vs RIAA Issue

Blair Levin of Stifel issued a note regarding the XM Copyright Suit. Report Excerpts are as follows:

A federal judge last Friday rejected an XM request to dismiss a recording industry copyright suit against

"XM + MP3," which allows customers to store, record, and retain the satellite radio provider's programming.

• While it is difficult to win a motion to dismiss at this stage, the ruling was a blow to XM, as not only does it face the prospect of the lawsuit going to trial, but the judge indicated general sympathy for the copyright infringement arguments of the recording industry parties, which include Sony BMG, Warner Brothers, and Atlantic.

• XM may decide to seek to "certify" the legal question immediately to an appeals court, but there is no guarantee the court would agree to take the question.

• If the case does go to trial, we believe it would take more than a year to arrive at a ruling on the merits. If it loses, XM could face significant financial penalties as well as an injunction against a new product meant to compete with iTunes and other services.

• In the meantime, the broader battle continues, with negotiations over satellite radio copyright royalty payments, debate in Congress over legislative proposals, and speculation that XM could try to merge with Sirius, which was not sued because it negotiated a separate license.