In a research report issued today, Stifel analyst Blair Levin notes that the CRB's royalty rate decision is higher than anticipated because, they feel, it does not cover the performance aspect of royalties. While this may be the case, the music industry no longer has access to certain revenues such as advertising from non music channels, data services, equipment sales, etc. This aspect of the decision takes non music channels off the table as far as royalties are concerned.

REPORT EXCERPTS

Copyright Royalty Board Decision Looks Incrementally Negative for XM-Sirius

Blair Levin, Rebecca Arbogast, David Kaut

• The Copyright Royalty Board has set the royalty rates that XM (XMSR) and Sirius (SIRI) will pay to SoundExchange as collector of payments to artists and labels. The new rates escalate from 6% of gross revenue for 2007 to 8% for 2012.

• In addition to these payments to the artists and labels, XM and Sirius pay music publishers separately.

• Both existing royalty rates are confidential, but it is generally viewed that the current total payment was 7% of revenue, with roughly half going to Sound Exchange and half going to the publishers. Many had predicted that the total rate would increase from 7% to 8.5% - 9.0% of gross revenue, which translates to a payment to SoundExchange of roughly 4.25%-4.50% of revenue.

• Thus, the CRB decision appears to have increased the payment to Sound Exchange from 3.5% to 6.0% initially and 8.0% by 2012, which reflects a higher rate of payment than expected.

• We understand that the royalty rate for the publishers is not directly tied to the Sound Exchange rate, and that they are not automatically entitled to a matching rate. Thus, the total rate paid by XM and Sirius is not necessarily going to be 12% (2007) to 14% (2012). However, we would expect the entities representing the publishers, ASCAP, BMI, and SESAC, to be encouraged to seek an increase. We understand that they each have different expiration dates to their contracts.

Position - Long Sirius, XM