RAIN 3/28: Sirius XM sues SoundExchange and A2IM, alleging interference in its efforts to secure direct licensing

Paul Maloney
March 28, 2012 - 12:45pm

U.S. satellite radio provider Sirius XM has filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to directly license the sound recordings. The complaint accuses SoundExchange and A2IM of being in violation of federal antitrust law, and New York state law.

The satellite radio firm, like webcasters, pays the owners of recording copyrights (that is, record labels) royalties to play music. Sirius XM reportedly pays SoundExchange 8% of its gross revenues for all the music it uses on its over-the-air programming, which SoundExchange distributes to the labels.

But this agreement ends this year, and the record industry will likely be pushing for significantly higher rates beginning in 2013. Moreover, Sirius XM says it wants a single license covering all its platforms (satellite, Internet, and mobile). So, "instead of relying exclusively on licenses either negotiated with SoundExchange acting as the record industry's collective or on the outcome of regulatory rate-making proceedings," Sirius XM felt it could get more competitive royalty rates by licensing music directly from the labels themselves, cutting SoundExchange out of the equation. In 2010, it began what it calls its Direct Licensing Initiative, offering labels rates of 5%-7% of "defined" revenues (see more RAIN here and here). Though they met with some success (Sirius XM says it has managed to secure almost 80 direct licenses with copyright owners), the company insists it would have been able to get many more if not for the alleged interference.

Sirius XM now contends that SoundExchange and A2IM, "along with major music industry organizations, have organized a boycott to prevent independent record companies from negotiating direct licenses with SiriusXM," alleging an "orchestrated effort" to prevent potential licensing partners from negotiating directly with Sirius XM.  

Sirius XM published a press release on the suit, which you can read here. There's coverage from The Wall Street Journal here, and Reuters here, Radio-Info here, and more here.

Industry legal expert David Oxenford examines the implications of this news for webcast licensing, in today's B story.

Michael Schmitt
March 28, 2012 - 12:45pm

David OxenfordThe outcome of SiriusXM's lawsuit against SoundExchange and A2IM may be "very important to the future of digital music" -- webcasters included -- according to industry attorney and Davis Wright Tremaine partner David Oxenford (pictured).

The direct licenses SiriusXM has been trying to obtain could impact future CRB rulings, Oxenford writes, as such deals "between music users and rights holders are traditionally the best evidence of the value of music." That's a good reason why SoundExchange and A2IM would oppose such direct deals, says Oxenford.

He writes:

"Were SiriusXM to be successful in its suit, and if it is in fact able to negotiate direct music licenses for substantial catalogs of music at rates lower than what it has paid under previous rate decisions, it would presumably introduce such evidence in proceedings before the Copyright Royalty Board (which is now in the process of setting the rates for the public performance of sound recordings by SiriusXM over its satellite service for the next 5 years), and argue that these direct deals are the best evidence of what a willing buyer and willing seller would agree to in a competitive marketplace."

But direct licensing deals between SiriusXM and rights holders could also impact future Internet radio royalty rate decisions.

"One of the biggest issues in all rate proceedings heard before the CRB has been establishing what a willing buyer and willing seller would agree to pay in a competitive marketplace like the one for which the rates are being set," writes Oxenford. "In most cases, as there are no direct licenses, the CRB has to extrapolate what willing buyers and willing sellers would pay for sound recording performance royalties in a noninteractive market from evidence of what companies pay in other markets...

Davis Wright Tremaine"Lower direct licensing rate could impact not only the rates paid by SiriusXM, but also other proceedings dealing with the sound recording royalty rate, including potentially proceedings for webcasting royalties (proceedings that will also affect the rates that broadcasters pay for streaming their signals)."

The next CRB proceeding for Internet radio begins in 2014 to set royalty rates for 2016-2020.

You can find Oxenford's full analysis of the SiriusXM lawsuit at the Broadcast Law Blog here.

Oxenford will interview U.S. Copyright Office General Counsel David Carson on-stage at RAIN Summit West 2012 in Las Vegas, on Sunday, April 15. You can find out more here.

Michael Schmitt
March 28, 2012 - 12:45pm

Internet radio on smartphonesAccording to new data from Edison Research and Arbitron, weekly Internet radio listening in the U.S. grew 30% from 2011 to 2012. "This is the largest year-over-year increase we’ve seen since we began tracking this stat in 1998," writes Edison VP Tom Webster. And it's likely thanks to smartphones.

The data is part of Edison and Arbitron's report, "The Infinite Dial 2012: Navigating Digital Platforms," which will be released in full on April 10.

The companies found that 29% of Americans 12+ used Internet radio (including AM/FM streams and pureplays) weekly in 2012, up from 22% in 2011.

Webster points to smartphones and mobile web access as the catalyst. "In a sense, the continued penetration of smartphones is encouraging something of a radio renaissance, though it doesn’t look like your father’s Victrola," he writes.

"The ability to pick songs is now an algorithm. The Internet radio services of tomorrow have to show me how that content matters, if they want to matter."

You can find more from Edison Research's blog here.

Michael Schmitt
March 28, 2012 - 12:45pm

Drew HillesJelli has appointed Drew Hilles -- a former executive at Google and Clear Channel -- COO. He joins Torsten Schulz, a former Yahoo exec, who was recently hired as Vice President of Engineering.

Hilles (pictured) was a senior sales director at Google, working with both YouTube and Google audio advertising initiatives. Schulz joined Jelli in 2011 from Yahoo!, where he was senior director of engineering of the mobile platform engineering team.

Jelli offers crowdsourced radio services to AM/FM stations, allowing listeners to control radio playlists through real-time voting and gaming elements.

You can find Jelli's press release here.