People who love music love to hate the major record labels. Those pesky record companies put restrictions on how often you can hear music, charge royalty fees that make it difficult to enjoy music, and are forever in million dollar lawsuits against the unsuspecting parents of some teen that downloaded 500 songs illegally.

Sirius XM listeners are well aware of the presence of record companies. The satellite radio provider tacks on an additional $1.40 per month onto the base subscription cost of $12.95. It is also royalties that play the biggest role in the ultimate success or failure of other audio entertainment providers. To add salt to the already open wounds, the industry is differentiating between air-play, satellite play, Internet play, and likely mobile play. The landscape is awash with confusion!

There is however a silver lining in all of this. The music industry is cracking down on "illegal" services all over the place. Yesterday Google announced that the GrooveShark app will no longer be available in the Android Market. Apple made a similar move last year, and both made their respective moves under direct and heavy pressure from the labels.

Grooveshark allows their users to upload their own tracks to the site and allows others to stream and sample the music files. The file sharing company has no licenses, and like Limewire has been hit with many lawsuits. EMI has already sued and settled with GrooveShark, while other suits are still pending.

This pressure by the record labels may be the best possible news for satellite radio investors. File sharing sites are popular because they are free. With free options disappearing faster than a cup of water in the Sahara, consumers will need to look elsewhere to satisfy their music appetite.

Royalty paying services, which do not carry the threat of lawsuits, offer the consumer some safety and stability. The more freebies that go down, the more the legitimate companies begin to shine. Sirius XM, Pandora, Slacker, MOG and others stand to benefit from their status as "good music citizens."

Sirius XM is currently trying to get a temporary price freeze, that was implemented as a condition of the merger, removed. The company already charges a premium over most of their competitors, but elasticity in their ability to raise prices is better with fewer free services in the competitive landscape. Certainly Pandora, Slacker, MOG, etc. will give Sirius XM some reigns on their price increases, but who is to say that these other services do not follow suit as well when companies like GrooveShark and Limewire are being sidelined like never before?

The record companies are not necessarily the enemy. Artists and performers are due some consideration for their work. The biggest issue seems to be the disparity between who pays royalties, what rates are paid, and how costly those rates are. The most recent CRB decision raised the cost of doing business substantially. Seeing that the rates established by the CRB were harmful to the industry, the labels agreed to lower prices for many legitimate services, while at the same time trying to collect royalties from terrestrial radio, which at this time pays none.

The issue is still in flux. Amazon recently launched their cloud service, Cloud Drive, without licensing in place. Amazon argues that licensing is not needed. Record companies feel otherwise. Google and Apple are also preparing cloud based services of their own. Certainly they are watching the Amazon issue closely, as should anyone invested in the media sector.

For SIRI investors, royalty uncertainty and record labels flexing their muscles is good news. It is helping to level the playing field. A level playing field means Sirius XM could have a distinct advantage because of their exclusive non-music content such as Howard Stern, Oprah, the NFL, and more. If royalty costs for all music services are the same, it boils the issue down to content. That is exactly where Sirius XM wants it to be, as they excel in that department.

Sirius XM has been up big over the past few days. While some other matters may carry some overhang, the one area where the company has a clean slate is with the labels. Their good relationship should breed confidence over the competition.

Position - Long Sirius XM Radio