Sirius XM Prepares Bankruptcy Filing

Sirius XM Prepares Bankruptcy Filing - NYTimes.com: "Sirius XM Satellite Radio has been working with advisers to prepare for a possible bankruptcy filing in a move that could put pressure on the satellite company EchoStar, which owns a substantial amount of the company’s debt."

I'm sure the service will continue one way or another. The question I have is will they split off the programming side from the transport/distribution side. Much of the heavy debt was brought about by the technology side of the company, not the programming side. (Not to say that they didn't pay a fortune to get some of the programming they carry; they did... but maybe a spun-off programming division can make some more money syndicating that programming other ways- like they're doing with net radio now, and might even do with terrestrial stations.)

I'm also curious how bankruptcy will affect their royalty payments to SoundExchange.

CRB denies SoundExchange's request for rehearing for Satellite radio rates

The CRB ruled that Sat Radio would pay 6.0% (increasing to 8.0% by 2012) of their adjusted gross revenues. Apparently, SoundExchange doesn't like the exceptions to the gross revenue that the CRB allowed.

On December 3, 2007, the Copyright Royalty Judges (“Judges”) issued a Determination of Rates and Terms in this matter (“Initial Determination”). Pursuant to 17 U.S.C. § 803(c)(2) and 37 C.F.R. Part 353, SoundExchange, Inc. (“SoundExchange”) filed a motion for rehearing “to reconsider the definition of Gross Revenues set forth at pages 28-31 of the [Initial] Determination; and, in light of recent predictions that approval of the XM/Sirius merger is imminent, reconsider its unwillingness to assess the impact of a merger as part of its [Initial] Determination.” The Judges permitted a response and XM Satellite Radio, Inc. (“XM”) and Sirius Satellite Radio, Inc. (“Sirius”) (collectively, the “SDARS”) filed a timely response, opposing the motion. The Judges now deny this motion. Nevertheless, as discussed below, the Judges have determined that one limited area of the Initial Determination warrants clarification.

PDF of full decision here.

CRB sets satellite radio royalty rates.

and guess what? They're lower than internet radio!

AP is reporting:

``Satellite Radio will pay a performance license rate of 6 percent of certain revenue this year for sound recordings played over its network, according to Copyright Royalty Board decision`` and ``also will pay a performance license rate of 6 percent of gross revenue subject to the fees for 2008, which will then increase by 0.5 percent annually before reaching 8 percent in 2012.``

Just to put that into context, Net Radio up until 2006 paid 10-12% of their revenue. And of course, unless we get a deal from SoundExchange that's codified by Congress, most net stations are going to pay what amounts to 300-600% of their revenues. That's right: 3-6 TIMES their revenues.

Perhaps it is time to start turning up the heat on Congress again to do something?

Defending Issa (and other politicians)

Will Wheaton comments on the Issa/HD radio issues I wrote about recently:

I would like to know why complete idiots like Issa, who clearly have such problems understanding technology, are given the responsibility of crafting legislation that affects technology, and those of us who use it.

I met with Jason Scism, Issa's Counsel on issues of copyright and new media, and I must say that Scism is extremely bright and totally up to speed with these technologies and the state of these copyright issues. I'm drafting a letter to Scism now about the HD radio "issue", as he asked me to stay in touch with him on the things we discussed.

What I've learned from the time I've spent in DC is that you have to be smart to get there. But being smart does not mean being "clueful" about all the issues. Congressmen have to deal with so many different issues that frankly it's amazing they don't come off far worse than they do.

I've also learned that in these hearings, you need to listen to not the exact words that are said, but try to figure out what's behind those words. While Issa used HD radio as his example, he would have been better served by talking about digital audio delivery mechanisms in general. Because he does have a point; as more devices come onto the market, the technology may improve to the point that recording from the radio will be as good as buying the CD/digital download.

But the counter-point is that there are already barriers to making copies from radio that would be as good as a CD. And if you want a bad copy, you've been able to do that since the days of tape recorders. Stream-ripping in most cases is a trojan horse.

But why do they keep bringing this up?

Because XM and Sirius sell devices like the Stiletto, SKYFi and Inno which all feature the ability to record and access individual songs.

When XM uses the tagline, "Hear it. Click it. Save it.", then they are obviously touting their devices as a music-purchasing replacement.

Now people think that these type of devices will come out for HD Radio. And they might (although with the current lack of adoption of HD radio, it's hard to imagine that).

So there are legitimate fears, but in the case of terrestrial radio are these fears warranted?

Most terrestrial broadcasters "production values" are such that they put ads or promo announcements over the beginnings and ends of songs. They also tightly segue songs, unlike Satellite radio. And in the specific of HD radio, the "metadata" or PAD as broadcasters call it is not sent frequently enough to reliably separate songs. Having a copy of the song with the first 5 seconds cut off, or talking over the last 10 seconds of it is not the same as having the real song.

Satellite Royalty Rates: now and in the future

Yesterday at the Future of Music Coalition Policy Summit, I learned that XM and Sirius aren't paying royalties on a percentage of their revenues, they've been paying a flat annual fee for the last few years, "while they were getting started". Last year, that fee worked out to be under 3% of their revenues.

According to SEC filings:

XM revenue 2006: $925.55
Sirius revenue 2006: $636.01 million

Total Revenues for both satellite companies: $1.561 BILLION.

Yet SoundExchange states (on page 2 of this PDF) they've received $43 million in royalties for 2006. And that is ALL the royalties they've received, not just satellite radio. Yet 43 million is 2.8% of $1.561 billion. So we know that Satellite Radio is paying less than 2.8% of their revenues in royalties to SoundExchange. That's also less than half of what webcaseters are asking for in the Internet Radio Equaliy Act (which is 7.5%).

There are over 12 million XM and Sirius subscribers. At $12.99 a month, that's over $1.8 billion a year in revenues for satellite radio. SoundExchange said it anticipates collecting roughly $55 million to $60 million this year. That's still less than 3.3% of sat radio's gross revenues. And that is the total royalties they expect to collect, not excluding the revenues paid by webcasters and cable music services (like MusicChoice).

But SoundExchange and the RIAA are negotiating for higher rates for Satellite. According to Forbes.com, the CRB is considering new rates ranging from 10% to 23% of total revenue each year through 2012. That's a serious jump. And since webcasters would be trated the same way as satellite radio is if HR.2060 passes, these numbers are good to keep in mind.