SoundExchange Sues SiriusXM Radio Over Royalty Calculations

SoundExchange has filed a lawsuit against SiriusXM Radio that contends SiriusXM "systematically underpaid" royalties from 2007 to 2011. The complaint was filed on Monday (Aug. 26) in the U.S. District Court for the District of Columbia. SoundExchange seeks compensatory damages of $50 million to $100 million or more, plus late fees and interest.
At the heart of the lawsuit is the way SiriusXM calculates the gross revenue figure to which its statutory royalty rate -- 6% in 2007 to 8% in 2012 -- is applied. SiriusXM is permitted to exclude some revenue from gross revenue. Examples of carve-outs include subscription revenue related to non-music programming such as sports and talk and hardware sales.
The complaint states that SiriusXM excluded from gross revenue calculations performances of pre-1972 recordings, as well as incremental revenue from three subscription packages. Pre-1972 sound recordings are not protected under federal law. However, SoundExchange believes SiriusXM was wrong to exclude from its royalty calculations performances of pre-1972 sound recordings even though federal law does not cover those recordings. The complaint cites the CRB's recent royalty decision that says an allowable deduction "must be precise and the methodology transparent."
The rules are now clearer on how SiriusXM should treat pre-1972 sound recordings. In its latest rate determination for satellite and cable radio, the CRB established a mechanism by which SiriusXM can exclude pre-1972 recordings from royalties paid from 2013 through 2017. SiriusXM is allowed to calculate a deduction for pre-1972 recordings using its webcasting data (which allowed for easy audience measurement) as a proxy for satellite radio transmissions (which does not allow for audience measurement).
SoundExchange also takes issue with the way SiriusXM accounts for revenue from some subscription packages when calculating gross revenue. The basic package is called SiriusXM Select and now costs $14.49 per month. Extra channels -- all of them talk channels -- can be acquired in the $17.99-per-month SiriusXM Premier package.
Again, the issue is accounting. SiriusXM excludes $3.50 per month from SiriusXM Premier subscriptions when calculating gross revenues, according to recent testimony by a SiriusXM executive. SoundExchange argues that SiriusXM would be allowed to exclude that $3.50 of incremental revenue if the extra channels were offered for a separate charge (for example, a $3.50 fee on top of the basic subscription plan). Other subscription plans -- "Family Friendly" and "Mostly Music" -- follow the same pricing structure as SiriusXM Premium, according to the complaint.   

SiriusXM declined to comment at press time.
Monday's lawsuit differs from the one filed against SiriusXM earlier this month by the Turtles. As Broadcast Law Blog explains, that lawsuit takes issue with SiriusXM's reproduction of songs in the digital transmission process and by some features of SiriusXM's online service. The complaint, filed in California Superior Court in Los Angeles, says SiriusXM has "disregarded" the Turtles' "exclusive ownership" of their pre-1972 sound recordings and impairs the group's ability to sell, exploit and control those sound recordings as permitted under California law.