Aretha Franklin Dies

Copyright Royalty Board Raises Rate for SiriusXM, Lowers It for Music Choice

Getty Images
    

SoundExchange CEO Michael Huppe responded, "It is long past time for Congress to change the standard that currently forces music creators to subsidize flourishing companies."

The Copyright Royalty Board has determined that Satellite Audio Radio Services, i.e. SiriusXM will pay 15.5 percent of revenue for the next five years beginning in 2018 to 2022, although the full determination has yet to be posted on the CRB's website while the participants scrutinize the document to make sure proprietary data is not publicly revealed.

That represents a nearly 41 percent jump from the 11 percent the service was paying in the current year, although it's short of the 23 percent that SoundExchange was advocating to the CRB judges, who are appointed by the U.S. Librarian of Congress. But its better than the static rate that Sirius was hoping from the judges. While apparently happy for the higher rate, SoundExchange issued a statement urging Congress to change the "grandfathered" disposition that allowed the Judges to take into consideration the cost of building and launching expensive satellites in the early days of the industry when Sirius and XM were still separate entities, competing against each other, and losing money.

"Yesterday's decision confirms the need to change the so-called Section 801(b) rate standards under which satellite radio and the 'grandfathered' cable radio services operate, and which permit the CRB to adopt rates different than what the market would provide," according to SoundExchange. "As a result of that rate standard, SiriusXM has paid below-market rates for years, and the recording artists and rights owners SoundExchange represents have subsidized the company's growth."

In the first nine months of this year, Sirius has generated net income of $691.3 million, or 14 cents per diluted share, on revenues of $4.02 billion.

"There's no reason recording artists and record labels should subsidize a company as profitable as Sirius XM," SoundExchange president and CEO Michael Huppe said in a statement. "Everyone should play by the same rules, and it is long past time for Congress to change the standard that currently forces music creators to subsidize flourishing companies whose success is built on top of the music."

In another move that will be viewed as disappointing to artists and labels, the CRB -- a royalty setting tribunal created by Congress that is part of the U.S. Copyright Office of the Library of Congress -- ruled that pre-existing subscription services (Music Choice and MUZAK) will enjoy a reduced rate of 7.5 percent of revenue for the next five years. That is down from 8.5 percent of revenue in the current year that the two services are paying to the industry.

"Music Choice and Muzak pay significantly lower rates than their non-grandfathered competitors offering the same service," SoundExchange noted in a statement; and urged Congress to establish rate standard parity so all digital services are subject to a "willing buyer/willing seller" standard.

"SoundExchange is dedicated to our mission of ensuring that creators are properly recognized and compensated for the use of their work," Huppe added in a statement. "And while the Copyright Royalty Board did not adopt the rates we proposed for SiriusXM, its ruling demonstrates an important step in the right direction toward valuing the contributions of the music creators represented by SoundExchange."

SoundExchange is a not-for-profit agency created by Congress to collect and distribute royalties to artists and labels for music played by SiriusXM, Music Choice, and other programed digital music services.

As the news unfolded about the rate, other organization’s put out statements on the decision. For instance, the RIAA said the decision is a move in the right direction but rates remain short of what music creators deserve. 

“For more than a decade, SiriusXM pocketed billions of dollars on the backs of music creators by paying below-market rates while the company crowed about record profits and boasted a market cap about the size of the entire recorded music market,” according to an RIAA statement. “At the same time, SiriusXM continues to go out of its way to file lawsuits to deny fair compensation to legacy pre-1972 artists who depend on that income for their living. That’s no record to be proud of.”

Similarly, the American Federation of Musicians of the U.S. and Canada welcomed the rate increase but its president Ray Hair said in a statement that the copyright system is broken because it “allows this wildly profitable company to underpay for recorded music based on a below-market standard.”

 musicFIRST also expressed disappointment in the decision. “The rate SiriusXM will pay the artist may have changed but the facts surrounding the company’s sweetheart deal have not,” the organization’s executive director Chris Israel said in a decision. “This decision virtually guarantees the company will pay an unfair, below market royalty rate for the music that it plays well into the future.” 

He further said that SiriusXM has benefitted from a below-market rate at the expense of music creators for nearly two decades, during which time they “dragged legacy artists through the courts rather than pay them what they deserve.” He called uponCongress to pass Fair Play Fair Pay Act, which would apply willing buyer, willing seller standards across all music licensing platforms.

At press time, the SiriusXM company website hadn't yet acknowledged the CRB's decision, nor did the company respond to a request for comment. But in a filing with the Securities and Exchange Commission, Sirius said, “We are in the process of studying and evaluating the rates and terms announced by the Copyright Royalty Board.  We also expect to evaluate changes in our pricing, including the amount of our U.S. Music Royalty Fee.”

Sirius stated that the decision will result in an increase in the company’s annual royalty expenses, but the company is not yet able to estimate the impact of it on the company's financial statement, although the filing notes that the additional royalty expense could be material.

While many in the music industry have long complained that Sirius rates are not set by "market" consideration, the company nevertheless has one of the highest per play rates in the U.S. industry, paying some $25-$30 per play, according to industry sources and as disclosed in the settlement the company made with the Class Actions lawsuit led by the Turtles.

Sirius, Music Choice, Muzak and Sound Exchange have 60 15 days to move for a rehearing. Once that process plays out, i.e. if there is a rehearing motions and responses to such motions, the CRB hands of the determination to the Register of Copyright who has 60 days to review the determination for legal error. If the Register signs off on the determination, it is published in the Federal Register, after which the parties have 30 days to appeal the decision to the U.S. Court of Appeals in D.C.

On news of the rate increase, the Sirius share price fell 5.1 percent to close at $5.37 today from yesterday’ close at $5.66.

Meanwhile, the industry is still anxiously awaiting other rate setting decisions from the CRB, such as the mechanical rate record labels and on-demand digital services that use the compulsory license have to pay publishers.