Sirius XM Files Antitrust Suit Against SoundExchange in Royalty Rates Battle
Sirius XM’s antitrust lawsuit against SoundExchange and the American Association of Independent Music (A2IM) is the latest chapter in a long-running battle that’s been waged for more than six years over royalty rates paid music labels for performance rights. The company sued SoundExchange and A2IM Tuesday in U.S. District Court in New York, arguing that the music rights organizations are violating the federal Sherman Act by interfering with Sirius efforts to secure cheaper direct licenses through another organization that pay 5-7 percent royalty rates instead of the 8 percent statutory rate for master rights owners. Sirius seeks an injunction barring the groups from interfering with its bid to get direct licenses, about 80 of which have been secured so far. The suit asks that SoundExchange be dissolved or an independent monitor be appointed to oversee the group’s compliance with antitrust laws for 10 years.
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Direct licensing, which Sirius XM is pursuing through Music Rights Inc. (MRI), would “produce substantial benefits” for music labels, resulting in “faster and more transparent” royalty reporting minus SoundExchange’s administrative costs, the suit said. The labels also would be able to grant broader rights to Sirius XM, providing them with “wider exposure and access to new media,” the suit said. MRI contacted more than 500 independent record labels in July 2011 about direct licensing agreements, the suit said. SoundExchange has maintained that artists with direct licenses would be forfeiting 45 percent of royalties immediately paid and that its 6.9 percent administrative rate in 2010 was one of the lowest in the industry (CD Oct 31 p10).
To counter Sirius XM’s push for direct licensing, SoundExchange sought to “suppress competition” by refusing to work with labels approached by Sirius XM, the suit said. SoundExchange has 12,700 members comprised of labels and artists who own copyrights for their own recordings. It also represents non-members, for a total of 20,000 rights owners and 45,000 artists and has collected $900 million in statutory royalties. A2IM represents independent labels that combined account for 30 percent of U.S. sound recording sales, the suit said.
"The unlawful purpose of this boycott has been to force Sirius XM into a single avenue for procuring the rights it needs: dealing exclusively with SoundExchange, as the labels’ collective licensing agent,” the suit said. “Numerous record companies that otherwise were prepared to enter into negotiations with Sirius XM and potentially sign direct licenses have, by agreement with the defendant associations and other record companies, refrained from doing so.” While SoundExchange hasn’t received a copy of the suit, it said that based on news reports, Sirius XM’s claims appear “wholly without merit."
Among the labels that negotiated direct pacts with Sirius XM but later withdrew them was Paracadute, the suit said. Paracadute entered into a direct license with Sirius XM on Nov. 28, but asked to be released from it in February after being pressed by SoundExchange and A2IM, the suit said. The band OK Go began Paracadute in 2010 after leaving EMI and has since signed the band Pyramids. Other artists and labels didn’t sign licenses for fear SoundExchange and A2IM “would disfavor them financially, among other ways,” the suit said.
Sirius XM, which has commercial-free music on 71 of its more 135 channels, paid $200 million in statutory royalties in 2011, the suit said. Sirius XM began developing a direct licensing program in 2010, two years before the expiration of royalty rates that had been set by the Copyright Royalty Board (CRB). The rates began at 6 percent and increased to 8 percent this year, the suit said. In the recently begun CRB proceedings, SoundExchange and A2IM have sought rates of 13-20 percent of Sirius XM’s annual gross revenue for 2013-2017, the suit said.
The issue of satellite radio’s payments for music performance rights and the different interpretations of the value of music stretches back to the mid-2000s (CD Nov 2/06 p3), when then-independent XM and Sirius filed with CRB. SoundExchange then argued that without music, satellite radio would be nothing. SoundExchange initially sought a royalty structure that would start at 10 percent of gross subscription revenue and grow to 23 percent over six years. Sirius and XM were paying 4-7 percent royalty rates in 2006, industry officials have said. The satellite radio companies, which combined in 2008, argued at the time that royalty rates should drop to 0.88 percent of gross subscription revenue plus ad revenue on music channels. The music industry shouldn’t benefit from talk and other non-music programming revenue, the satellite radio companies said then.