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

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

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

The two subscription satellite radio companies have been payingabout 6.5 to 7 percent, analysts estimate, although the figures arenot publicly disclosed. That agreement expires at the end of thisyear, and the Copyright Royalty Board, an arm of the Library ofCongress, will determine the rates the companies pay for the nextsix years.

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

"I'm not even sure that amount would pay the talent fees forHoward Stern's guests, and that's just insulting" said John L.Simson, executive director of SoundExchange, the nonprofit grouprepresenting artists and record labels that proposed the 10 percentrate. "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 percentof revenue or $1.10 per subscriber, whichever is higher, during thefirst year of a new contract. At the per-subscriber rate, XM couldface royalties of about $9 million, assuming it achieves itsforecast of signing up as many as 8.2 million subscribers by the endof the year.

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

Under SoundExchange's proposal, rates would gradually increase to23 percent of sales, or $2.75 per subscriber, by the year 2012,because of the projected increase in the number of satellite radiosubscribers.

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

They also took issue with SoundExchange's proposal to increaserates over time, noting that the value of a performance shouldn'tchange.

The Copyright Royalty Board will hold hearings before it decideson new rates, a process that many say could take 18 months. Untilthen, XM and Sirius will continue to pay the current rates. If anincrease is approved, they will be required to pay the differenceretroactively.

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

Because of the way copyright laws have evolved, performers stillget a small amount of royalties compared with the publishers andsongwriters, who control the copyright.

Last year SoundExchange said it collected $43 million inroyalties and expects to collect about $55 million to $60 millionthis year. That's compared with about $780 million collected bymusic publishers and songwriters, SoundExchange said.