Sirius XM Radio Adds 334,000 Subscribers in Third Quarter
Sirius XM Radio Adds 334,000 Subscribers in Third Quarter

Sirius XM To Dive Into Personalized Radio
Internet radio is going to become even more competitive. Sirius XM is following Clear Channel and Pandora into the personalized radio business, the company announced Tuesday.

CEO Mel Karmazin mentioned the upcoming service in the company's earnings call. "[L]ate this year, we plan to debut a Sirius XM version of personalized music online, allowing subscribers to tailor their favorite Sirius XM music channels to their tastes," Karmazin said. The personalized radio stations will not have commercials and will be free to subscribers who have Internet listening included in their Sirius XM subscription plans." Karmazin did not spell out the details, but it should be obvious that satellite radio broadcasts are not interactive whereas Internet radio is interactive. Thus, the personalized radio features will be available only on Internet-enabled devices.

Sirius XM Posts Record 22.3 Million Subscribers, 38 Percent Earnings Boost

Make no mistake, Sirius XM is targeting the likes of Pandora and Spotify. "Free and freemium competitors online will have a tough time matching the commercial-free aspect of Sirius XM-branded music combined with the unique sports and talk content we offer," Karmazin boasted.

Sirius XM's personalized Internet radio will be a feature rather than a core component. The company competes mostly on its wide coverage area (enabled by satellite technology) and programming that covers wide range of news, talk and sports channels. Karmazin told analysts that advertising-based Internet radio fees are "extraordinarily high" and the smartphone offers "limited opportunities" to monetize listening. But Sirius XM wants to give people music "where they want, not just in the car," and that means expanding their options. "It's not that we think [Internet radio] is such a great business to be in the Internet radio business… we are doing it to supplement the experience that our subscribers get," Karmazin said.

Competing Internet radio stations such as Pandora and Clear Channel's iHeartRadio shouldn't be written off just because Sirius XM is encroaching on their turf. But Sirius XM's entry into personalized Internet radio shows this is a very competitive space. News that Spotify is working on a pure-play Internet radio service also highlights the level of competition in the space. On-demand subscription services are usually hailed as the future of music, but Internet radio will be the more mainstream and more widely adopted of the two products.

The War Over Webcasting Royalties Continues
Digital music is a war of inches. The difference between profit and loss can come from small changes in churn rate, customer acquisition costs or content acquisition costs (the royalties a service pays for playing music).

With Sirius XM now planning a personalized Internet radio service, expect the company to become even more vocal about the webcasting royalties paid by services such as Pandora and iHeartRadio. On Tuesday Sirius XM CEO Mel Karmazin called webcasting royalties "extraordinarily high." It doesn't like its current royalties for satellite transmissions, either. In March the company sued the American Association of Independent Music for allegedly interfering with its attempts to obtain direct licenses that are less expensive than statutory licenses.

So, once again, SoundExchange is under fire. The organization that collects royalties for digital transmissions of sound recordings is "the #2 digital revenue source behind iTunes" for most U.S. record labels and a "very real source of income" for performers and labels, president Mike Huppe said in an interview with attorney Chris Castle. Sirius XM would continue to be a good source of income even if the company had direct licenses with record labels, but artists would no longer get checks directly from SoundExchange for those performances. SoundExchange pays out 50% of net royalties to the owner of sound recordings, 45% to the recording artists and 5% to the performing artists. Direct deals would route royalties to record labels and would be applied to individual artist's accounts. Unrecouped artists would not receive those royalties. SoundExchange royalties aren't huge, but this could end up being a big wedge issue.

In any event, SoundExchange wants people to know its fate is tied to the success of the services that pay royalties (and services put out of business by high royalties certainly don't pay royalties). Huppe admits SoundExchange will "squabble over royalty rates with the service providers" but insists the organization wants only what's best for all parties. "In the long run, we want them to succeed. It's in their best interest, our best interest and the best interest of the consumer to have a very full and vibrant webcasting market." ( Huffington Post)

Ditto Music Signs With Vevo
Digital distributor Ditto Music has struck a partnership to make its music videos available through the online video service Vevo. The company joins a host of other distributors on Vevo: INgrooves Fontana, Sony RED and distributors not affiliated with the majors such as the Orchard, IODA, Beggars Group, PIAS and Cooking Vinyl.

Ditto already allowed artists to monetize their videos through iTunes - it distributes single videos and allows videos to be bundled with audio tracks - but streaming services were another issue. "The problem you have is you can't get a YouTube channel that makes money without having 'X' amount of plays," Ditto Music CEO Lee Parsons tells That "X" threshold varies but might be as many as 100,000 views, judging from comments on various online message boards. Parsons says Ditto has had a lot of artists that shoot high quality videos but couldn't make money on YouTube because their traffic was still too low to merit a revenue-sharing deal in YouTube's partner program.

Ditto's deal with Vevo will allow Ditto means all views, not just the views above a certain threshold, will be monetized. The royalties are relatively small - they are streaming royalties, after all, not purchase royalties - but Parson says Vevo pays more than YouTube and streaming music services. "If somebody goes on Vevo and gets 100,000 views, they're going to make significant money." ( Ditto Music press release)