Sirius XM Sees ‘No Hope’ of Royalty Rate Accord with SoundExchange
Sirius XM is “interested” in settling its royalty rate dispute with SoundExchange, but it “holds out no hope” of reaching an agreement short of the Copyright Royalty Board decision this month, Sirius Chief Financial Officer David Frear said Monday at the UBS conference in New York.
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Sirius XM and SoundExchange expect the CRB decision by Dec. 14 on what the satellite radio service will pay SoundExchange for the next five years. SoundExchange has argued the rate Sirius XM pays should be increased significantly from the 8 percent of revenue it’s currently charged. SoundExchange officials weren’t available for comment.
"We continue to be interested in reaching a settlement with the music industry, but I don’t believe we will be successful in doing so,” Frear said. “There is a long history of negotiating with SoundExchange and with the negotiations being nonsensical. I hold out no hope that we will be able to reach a settlement."
While Sirius XM views as an “option” increasing subscriber fees to partly offset an increase in royalty rates, the satellite radio service competes with a “free-to-consumer” product and “raising prices is something that we take very seriously in terms of its impact on subscriber demand,” Frear said.
Meanwhile, Sirius XM will introduce its personalized radio product “soon” and is readying a seventh generation of its satellite radio chipset, Frear said. He declined to release details of personalized radio or the new chipset. But the personalized radio project is said to offer to Internet subscribers the ability to tailor music channels to their tastes. Sirius’ Internet subscribers are a “single digital percentage” of its total customers, Frear said. The personalized radio service will be free to customers, Frear said. Subscribers interested non-music channels are the majority of Sirius’ Internet subscribers, Frear said. Sirius is forecast to end the year with 23.7 million subscribers.
While Sirius XM is increasingly a factory-installed feature in new vehicles -- 68 percent of them come with the service pre-installed -- the retail aftermarket will remain a “valuable segment” of distribution, Frear said. “The dominant portion of our additions comes from” automakers and as “new cars turn over it does encroach on people’s need to get a satellite radio from retail,” Frear said. “The combination of the increasing number of cars having the service and the Internet app does suppress the long-term demand for retail.” But Sirius’ retail business is profitable and “it’s a great way to work out new technologies and introduce them,” Frear said.
Sirius XM’s plans for IP/satellite radio service for Internet-connected vehicles will “be some years out,” given automakers’ design cycles and the time needed to address security concerns, Frear said. The dual offering could be part of Sirius 2.0 platform that’s being built into 2013 models from Chrysler and others. But Sirius 2.0 features aren’t “game breakers,” but something that “deepens relations and engagement” with customers so “that as you provide a more fully featured product you have better customer retention and acquisition,” Frear said. While Sirius XM products use four different chipsets, automakers will shift to the XM ICs “over the next several years” to help in developing a “more fully featured product on a lower-cost, more robust platform,” Frear said.