SoundExchange

MacDonald: "Staggering figure" suggests Pandora, SiriusXM have "a good deal of leverage to extract a fair royalty deal"

Thursday, April 12, 2012 - 11:40am

Angus MacDonaldAccording to new analysis from Live365 general counsel Angus MacDonald (pictured), 90% of SoundExchange's 2011 revenues "came from only two sources": SiriusXM and Pandora.

MacDonald estimates SiriusXM's royalty payments to SoundExchange to be around $200 million in 2011 (based on the company's judicially-filed complaint against SoundExchange from March 23, though "a small portion" of the figure may be non-U.S. statutory payments). And Pandora's royalty payments to SoundExchange totaled $136.3 million in the 12 months that ended January 31, 2012.

SoundExchange's total 2011 revenues were $371.9 million. Combined, Pandora and SiriusXM's royalty payments make up around 90% of SoundExchange's revenues.

"That is a staggering figure," comments MacDonald, "especially if you consider all of the major and not-so-major terrestrial broadcasters who must pay royalties to SX for their simulcasts, as well as all the other types of services that pay royalties to SX... This suggests that Sirius and Pandora have a good deal of leverage to extract a fair royalty deal from SX for their respective royalty proceedings in the CRB."

SiriusXM and Pandora make up 90% of SX's revenue in 2011The finding is also noteworthy considering SiriusXM is trying to avoid paying SoundExchange by reaching its own direct licensing deals with rightsholders (RAIN coverage here). SiriusXM recently filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to reach those direct deals (RAIN coverage here and here).

MacDonald also recently calculated (as published yesterday in Audio4Cast here) that SoundExchange's total royalty collections were up 40% from 2010 to 2011. That growth was mainly fueled by Pandora, which paid out nearly 50% of its revenues to SoundExchange in the fiscal year that ended January 31, 2012, according to MacDonald.

"Another interesting fact: Pandora paid about as much in royalties for its FY 2012 (i.e., $136.3M) as it made in TOTAL REVENUES for its previous fiscal year, FY 2011 ($137.7M).

"With Pandora’s ever-growing listening hours and royalty payments," MacDonald continues, "SoundExchange and the labels need a healthy Pandora as much as Pandora needs a reasonable Pureplay-like rate for the next royalty term (2016-2020). This is especially true if Sirius XM continues to sign up more direct license deals, thereby bypassing SoundExchange (though Sirius XM’s recent antitrust complaint suggests that may be a tough row to hoe)."

Lawsuit against SoundExchange could gain much for SiriusXM, broadcasters, webcasters with little risk

Wednesday, April 4, 2012 - 11:10am

Kevin GoldbergIn the upcoming legal battle between SiriusXM and SoundExchange, the satellite radio broadcaster (along with broadcasters and others) has everything to gain, while SoundExchange and the CRB face potentially serious set-backs. So argues Kevin Goldberg, Special Counsel at Fletcher, Heald & Hildreth, in the CommLawBlog.

Last week news broke that SiriusXM had sued 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 (find RAIN's coverage here).

The eventual outcome of the lawsuit aside, Goldberg (pictured) says SiriusXM "made the right play... litigation is expensive, but not as expensive as the $200 million in royalties that SiriusXM claims to have paid last year," he writes. "Add in the fact that a victory would not only reduce that expense, but also afford SiriusXM more flexibility in future negotiations and the ability to innovate."

Moreover, broadcasters (and, RAIN would add, webcasters) stand to "reap the benefits" of SiriusXM's lawsuit "without any effort." Goldberg echoes Davis Wright Tremaine partner David Oxenford (RAIN coverage here) in reasoning that SiriusXM's direct licensing deals "would provide important concrete data – possibly the only such data – regarding the value of a digitally transmitted sound recording" in future CRB royalty hearings for both SiriusXM and broadcasters.

"This would be especially important if the broadcasters’ own worst case scenario – enactment of the Performance Rights Act – were to occur," writes Goldberg.

The outlook is less rosy for SoundExchange. The royalty collection agency faces, at the very least, a long and expensive legal battle, Goldberg argues. At worst, it could face "possible dismantling... or the imposition of some limiting consent decree... or the forced introduction of a competitor receiving agent."

Quote from Goldberg

The lawsuit may also "be enough to rethink the entire regime" of the Copyright Royalty Board (CRB), writes Goldberg. "From allowing SoundExchange to exist without competition to siding with SoundExchange on virtually every contested fact in the 2007 Webcasting II decision (and many other ratemaking proceedings), the CRB may have created the environment that allowed questionable, if not illegal, activity to flourish."

The constitutionality of the CRB and its appointment process have been repeatedly questioned and challenged in the past (RAIN coverage here, here, here and here).

But who wins or loses this particular lawsuit may be "beside the point," says Goldberg. "The mere initiation of the case may represent an early tremor signaling the onset of a seismic event, an event that would likely, one way or another, fundamentally affect all the players."

You can find Goldberg's extensive analysis and explanation of the SiriusXM lawsuit against SoundExchange and A2IM here.

Digital revenues, including performance royalties, pushed U.S. record industry into the black in 2011

Thursday, March 29, 2012 - 11:55am

Significant growth of digital performance royalties, music subscriptions, and download sales pushed U.S. record industry revenues into positive territory in 2011 for the first time since 2004, the RIAA reports.

SoundExchange distributed $292 million in digital performance royalties (the fees webcasters and satellite radio pay to play copyright recordings) to labels and performers last year, an increase of 17% over 2010.

Music subscription services (e.g. Spotify) paid the industry $241 million in 2011, 13% more than in 2010.

And digital downloads accounted for $2.6 billion, up 17% from the prior year. For the first time ever in a a single year, digital album sales topped 100 million digital albums. In fact, the 9.2% overall digital sales growth offset the decline in physical decrease of 7.7%.

"Overall, digital formats comprised slightly above 50% of total music shipments in the United States, as digital became more than half the market for the first time ever," the RIAA press release reads. "No longer just a niche, digital music has shown it can be a model - or perhaps more accurately a variety of models - for the music industry going forward." Read it here.

Oxenford: SiriusXM's direct licensing deals could affect future CRB Internet radio rulings

Wednesday, 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.

Satellite radio operator complaint accuses record industry groups of anti-competitive behavior

Wednesday, 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.

Pandora listening growth and alliances attract attention from media and critics alike

Wednesday, January 18, 2012 - 11:00am

Pandora has been enjoying some attention from business and mainstream media lately. The webcaster took the opportunity of the International Consumer Electronic Show last week to show off not only their latest audience numbers, but their growing set of automotive- and consumer electronics-alliances.

[According to Pandora's own reporting of their audience, they now have more than 125 million registered users (which comes down to about 40 million "active" users), who listen for an average of 18 hours each month. The Triton Digital Webcast Metrics report for November (here) credits Pandora with its highest-ever share of measured Internet radio listening, 68%.
 
And for the record, more than 450 different electronics devices, from smartphones to DVD players to Dish Network receivers, now deploy Pandora (several of these were announced at CES, see our coverage here, here, and here). With the new alliances with Kia and Acura, Pandora has deals with 16 automotive brands and 7 aftermarket manufacturers.]
 
Jefferson Graham of USA Today interviewed Pandora founder Tim Westergren (with video, here), who said growth still takes precedence over profitability for Pandora (which has had just a single profitable quarter so far). "The opportunity for us is global," Westergren said. "That's the big vision."
 
That won't come at traditional radio's expense, insists Clear Channel CEO Bob Pittman. "Radio is doing very well. It's in every car and most homes. It's embedded in the world. If you want personalized radio, you have to be online, and not everybody can always be online."
 
Currently, Pandora is U.S.-only, because of prohibitive complexities in securing the necessary licensing deals with record labels country-by-country. And Westergren is far from satisfied even with the arrangements here in the U.S., which last year cost the company more than half its gross revenues. "That compares to satellite radio, which pays 7.5% or 8% of gross revenue, and broadcast radio, which is completely exempt from it," he told Fast Company last week (here). 
 
SoundExchange president Michael Huppe told the magazine he finds the comparison unfair. After all, Pandora is focused on growing listening, not profitability, right? "It's a bit disingenuous to simply look at percentage of revenue as a marker that you judge everything by. It's no secret that Pandora's focus over the last five years has not been on generating revenue. They've been trying to work on their product, their brand, and building a huge following. I salute that. But it's not unusual for companies in the early stages to focus on things other than cash flow."
 
Again, you can find the USA Today coverage here; the Fast Company article here.
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