Satellite Radio Is Asked to Pay More
Music Group Wants Royalty Increase

By Chris Kirkham
Washington Post Staff Writer
Wednesday, November 1, 2006; D04

A music industry group is asking XM Satellite Holdings Inc. and Sirius Satellite Radio Inc. to pay at least 10 percent of their revenues for the right to play songs over their networks.

Unlike land-based radio stations, which pay royalties only to songwriters and music publishers, federal law requires satellite radio, digital cable and Internet companies that broadcast music to pay the artists and record companies.

The two subscription satellite radio companies have been paying about 6.5 to 7 percent, analysts estimate, although the figures are not publicly disclosed. That agreement expires at the end of this year, and the Copyright Royalty Board, an arm of the Library of Congress, will determine the rates the companies pay for the next six years.

Both District-based XM and Sirius, based in New York, have offered to pay less than 1 percent of their revenues in royalties, a figure the music industry regards as excessively low.

"I'm not even sure that amount would pay the talent fees for Howard Stern's guests, and that's just insulting" said John L. Simson, executive director of SoundExchange, the nonprofit group representing artists and record labels that proposed the 10 percent rate. "It's clear that we are a major component of their success, and we ought to be treated as such."

SoundExchange suggested that XM and Sirius pay either 10 percent of revenue or $1.10 per subscriber, whichever is higher, during the first year of a new contract. At the per-subscriber rate, XM could face royalties of about $9 million, assuming it achieves its forecast of signing up as many as 8.2 million subscribers by the end of the year.

XM, like Sirius, has yet to make a profit, and its stock price is down for the year.

Under SoundExchange's proposal, rates would gradually increase to 23 percent of sales, or $2.75 per subscriber, by the year 2012, because of the projected increase in the number of satellite radio subscribers.

In a written statement, the satellite companies countered that "consumers, artists and the recording industry all benefit from satellite radio's multibillion-dollar investment in a dynamic new promotional platform for music."

They also took issue with SoundExchange's proposal to increase rates over time, noting that the value of a performance shouldn't change.

The Copyright Royalty Board will hold hearings before it decides on new rates, a process that many say could take 18 months. Until then, XM and Sirius will continue to pay the current rates. If an increase is approved, they will be required to pay the difference retroactively.

SoundExchange is responsible for distributing royalties to artists and record labels based on the number of times a song is played on satellite radio or satellite television or by webcast.

Because of the way copyright laws have evolved, performers still get a small amount of royalties compared with the publishers and songwriters, who control the copyright.

Last year SoundExchange said it collected $43 million in royalties and expects to collect about $55 million to $60 million this year. That's compared with about $780 million collected by music publishers and songwriters, SoundExchange said.