Robert Peck of Bear Stearns issued a note today relating to the pending Copyright Royalty Board (CRB) decision for satellite radio royalty rates. The board had the arguments outlined earlier this quarter, and a decision is expected prior to the end of the year.
Peck expects 10% of revenue to be tagged for royalties, but acknowledges the possibility that that figure may be based on a subset of revenue that is specific to music programming, and not other content such as talk radio and sports.
Satellite Communications - Market Weight
Positive CRB Ruling Expected Shortly
· Our contacts in DC suggest that a positive ruling from the Copyright Royalty Board (CRB) on music royalties is expected relatively shortly. This will remove a major overhang on the stocks, in our view.
· We Think Our 10% Estimate for Total Music Royalties is Relatively Accurate. We were projecting music royalties of about 7% of total revenues, and an additional 3% in royalties for the other four industry associations, RIAA, ASCAP, BMI, and SESAC, for a total of 10% aggregate music royalty rates.
· Actual Rates Could be Based on a Subset of Revenues. Per filings regarding the CRB, the satellite radio companies emphasized talk and other non-music content (and the sub growth related to that) as one of their arguments for lower rates - it is possible that music royalty rates may be calculated on a subset of subscriber revenues attributable to music, rather than total revenues. If this proves to be true, our model (and we believe Street consensus) could prove to be overly conservative.
· We Recommend Investors Take Advantage of Today's Weakness. Given the weakness in the satellite radio stocks today, we recommend that investors take advantage of the dip. Further, we still remain positive on the upcoming DOJ decision.
Other analyst reports issued recently can be found in the Sirius Buzz Forums. Those include:
Position - Long Sirius, XM