Legal Issues

Here we go again, it has only been a few months since the March 11th rate hikes that drove subscribers into a frenzy and already Sirius XM is announcing another rate increase for their subscribers. This time around Sirius XM is laying blame to the ever increasing Music Royalty Fee.

In a recently created memo posted on the XM website the company notes that, effective July 29, 2009, a U.S. Music Royalty Fee will be added to subscriber invoices. The fee is slated at $1.98 a month on their base subscriptions ($12.95) and $.97 for base plans that are eligible for a second radio discount.

Sirius XM is quick to point out that “Unlike terrestrial radio, both Sirius and XM are required to pay copyright music royalties to recording artists, musicians and recording companies who hold copyrights in sound recordings.” Sounds like the guys at Sirius XM are more then a little bitter about their current situation and for good reason. The bottom line is that both Terrestrial and Satellite Radio generate revenue by playing the works of others and the method in which they generate that revenue (whether ad supported or subscription based) should not matter.

For those of you legal buffs who might be concerned with the legality of this fee increase being consistent with Sirius XM’s merger commitment not to raise prices for three years, Sirius XM has this to say “This fee is consistent with our commitment not to raise the base price of specific service plans for three years after the merger. The FCC decision approving the merger between SIRIUS and XM permits the companies beginning July 29, 2009 to pass through to subscribers any increases in music royalties since March 20, 2007, the day the companies first asked the FCC to approve the merger.”

You can find further details on the U.S. Music Royalty Fee increase on the XM website.

Michael Hartleib and his following at SaveSirius were at it again today. In an official press release (scary) SaveSirius is demanding (by law) a boatload of documents from Sirius XM for, get this… “the benefit of Sirius XM Satellite Radio shareholders.” Thanks Mike!

Pursuant to Statute 220 of Delaware Law, SaveSirius will now have access to the following documents.

• List of current shareholders
• All documents related to the Shareholder Vote approving the merger between Sirius and XM including documents from the tabulator and proxy firm of said vote
• All documents, including internal memorandums, regarding the companies’ compliance with the FCC Interoperability Mandate
• All documents from Interoperable Technologies LLC regarding the development of interoperable radios and plans to market said devices. These documents are to include the white paper report by Michael Deluca which was held under double protective orders during the FCC merger proceedings and was withheld from the DOJ Anti-Trust Division
• Un-redacted draft of the Joint Development Agreement between Sirius and XM which led to the creation of Interoperable Technologies LLC
• Correspondence between Mr. Karmazin and Mr. Leon Black involving discussions of privatizing Sirius XM, including any related internal memorandums
• All correspondence between Sirius General Counsel, Patrick Donnelly and Simpson Bartlett and Thatcher in regards to the litigation entitled “Gregory Brockwell v Sirius Satellite Radio”

Music FIRST, and organization dedicated to fair and equitable royalties in the audio entertainment sector is asking terrestrial radio to join them in ensuring that artists get a fair and equitable royalty when their music is played.

Citing a loophole in the copyright law, Music FIRST points out that the terrestrial radio industry enjoys billions in ad revenue when the very artists that sing the songs get nothing.

The Music FIRST press release states, “Terrestrial radio is the only music platform that enjoys this loophole. Satellite Radio, Internet radio and cable music stations pay a fair performance royalty.” Terrestrial radio pays only for those that listen on-line.

At this time of year, as holiday tunes grace the airwaves, some singers are wondering how to pay their electric bill. Music FIRST seeks a fair royalty that will apply across the board. Terrestrial radio, and the National Association of Broadcasters is fighting the issue calling it an unfair tax. First, a royalty is not a tax, and second, if everyone else is paying the royalty, isn’t terrestrial radio getting special treatment?

Music FIRST Press Release

In the midst of a judges ruling that dismissed their case with leave to amend, the Save Sirius website went down. Today, a new Save Sirius website took the place of the old one. While the new site has a clean look, it does not yet have all of the functionality of the old ones. Forums, and the ability to search the site are not aspects that are available at the time of this writing.

Save Sirius, founded by Michael Hartlieb faces many challenges. Organizing people is a monumental effort. Getting all of those people to focus in one given direction is a task that many are not successful at.

Save Sirius has both supporters as well as detractors. One issue that is a potential hardship on the organization is that some people feel the efforts of the organization are going too far. Wanting to stop a reverse split, and the addition of new shares to the authorized count is one thing. Unwinding the merger, and sending people to jail is quite another. For this reason, the act6ivities of Save Sirius will always be polarizing.

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The case naming Sirius XM Radio, the Board of Directors, and management of the company has had resolution. According to court documents:

“PROCEEDINGS: (IN CHAMBERS) ORDER GRANTING WITH LEAVE TO AMEND DEFENDANTS’ MOTION TO DISMISS [filed 11/17/08].

Having read and considered the papers presented by the parties, the Court finds this matter appropriate for disposition without a hearing. See FED. R. CIV. P. 78; LOCAL RULE7-15. Accordingly, the hearing set for Monday, December 8, 2008, at 1:30 p.m. is hereby vacated and off calendar.

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The Class Action lawsuit brought on by Greg Brockwell and Terry Johnson against Sirius Satellite Radio has been withdrawn without prejudice. This does not mean that the suit is totally dead, but the likelihood of it reappearing may well be minimal. The plaintiffs appear to continuing their actions as individuals, but no longer represent the class (shareholders) in this matter.

Position - Long Sirius, Long XM

Total Choice is a concept launched by the music label industry to enter into an arena that would bolster profits and be a competitive force for the audio entertainment landscape. The Total Choice concept is the brainchild of Universal Music, and has been proposed to the three other largest record labels, however, even in it’s infancy of planning, the Department of Justice is already sending letter of inquiry to the labels seeking additional information.

As a concept Total Choice would deliver music from the entire library of participating labels by combining a “gadget”, on line or wireless delivery into a service that has a flat subscription fee.

The obvious target of such a service is Apple and their iTunes store, but the inclusion of wireless delivery should get the attention of terrestrial radio, satellite radio, as well as services such as Slacker.

If the Total Choice concept were to come to fruition, the music label industry would effectively control the music itself as well as a distribution platform, and this is perhaps one reason why the DOJ is getting involved early in the process. The advent of so many choices for music listening, and the ability for consumers to effectively buy songs on a track by track basis, or access music commercial free has had a large impact on CD sales. The music industry has been chasing higher royalty rates in every conceivable venue, and has even proposed a royalty structure for terrestrial radio. Clearly they are trying to maximize profits.

Whether the DOJ inquiry gets more involved as time passes, or it derails the concept, one thing is clear. The music industry is looking for every avenue to increase their share of the pie.

Thank JR

[ via Wall Street Journal ]

XM satellite Radio announced today that they have settled a lawsuit with Sony BMG over their Inno and Helix portable receivers. This represents the third music industry group to settle with XM in a lawsuit that is two years old. Previously XM has settled with UMG and Warner. While the overall suit is not yet fully settled (some music labels still need to come to terms), the largest players are out of the way.

Terms of any of the settlements have not been disclosed. The UMG and Warner agreements transpired in Q4 of 2007. Sony BMG is the first news on the suit in 2008. Settlement terms likely include “bounties” on each unit sold, but no word has been given on whether capabilities in existing or future devices will be modified.

In my opinion the reason we have not seen a new portable from XM is this litigation. Some detail on what the settlements entail may be offered in the quarterly report of XM which is anticipated to be released this month. The Suit was massive in scale with the RIAA seeking what amounted to billions of dollars. XM was staunch in their position that their devices were legal. Obviously the parties met somewhere in the middle, but likely much closer to XM side than the billions the RIAA was seeking.

The news is positive in that the issue is now off of the table. The only unknown is what costs the settlement incurred.

Position - Long XM