Sirius and XM are in the midst of mediation with the Copyright Royalty Board. The current deal in which Sirius and XM pay a percentage of revenue has expired, and the parties could not come to agreement on how royalties would be handled going forward.

This situation is being closely watched by many, as there are many issues that need to be considered now that simply did not exist less than 10 years ago. For the purpose of this mediation, Sirius and XM are negotiating on one singular front.

The current rate, and estimated by many is between 4.5% and 7% of revenue. In the first round of negotiations Sirius and XM proposed a figure of less than 1% (0.89%), while the CRB was seeking a tiered system starting at 8% and capping off at 23% over time. Obviously the two groups were not seeing eye to eye, and thus the mediation.

In the latest proposal, Sirius and XM turned the debate on it’s ear by proposing a flat rate per performance of $1.20. This number would rise over time as subscriber targets are met, and the audience is larger.

What Sirius and XM have on their side is that they are seeking a solution that ties to the music, and not all revenue. Why should CRB get a portion of revenue derived from the NFL, MLB, Howard Stern, or Oprah? In point of fact they shouldn’t. The safety net for Sirius and XM is that they can control their royalty expenditures by either airing songs or not airing songs. The more they play, the more they pay…the less they play, the less they pay.

So what does this $1.20 per performance boil down to? Well, if we assume 15 songs per hour played on 65 channels, 24 hours per day, and 365 days per year we arrive at $10,249,200 per year from Sirius as well as XM. It is not the unique songs that come into play, but rater any performance of a song.

Reasonable thinking tells you that it is perfectly fine to get paid on an artists performance, but not so right to get paid on the work of someone else such as a talk show host. This new methodology seems far more logical, no matter what the “per performance” rate ends up being. Artists and performers get paid for their work only, and not the work of other non musical talent. Good music will be played, and the reward comes in the form of a check each time a song is played.

There are protections for each party in place with this type of proposal. As the subscriber base grows (the audience), the amount per performance grows. If music is not cutting it, Sirius and XM can trim back. The key is that they are paying for what they are using.

Position - Long Sirius, Long XM