Some settlements aren't meant to settle.
Objections are starting to creep into the low-key resolution of a class action lawsuit against Sirius XM Radio (NAS: SIRI) , and Bloomberg reports that a federal judge is hearing from the dissenters before moving ahead with the accord.
Let's flesh out the backstory. When regulators approved the merger between Sirius and XM three summers ago, one of the stipulations was that the satellite radio giant wouldn't raise its primary rates for three years. Sirius XM has, in fact, kept its basic rates glued to $12.95 a month. However, over the past three years it has introduced a music royalty fee, narrowed the discount available to secondary receivers in the same account, and started charging for streaming access.
All of these moves appear to be perfectly fine given the language of the agreement. Regulators even recently lifted the freeze on primary rate increases, which is something they would have been unlikely to do if Sirius XM was coloring outside the lines of their arrangement.
However, a disgruntled subscriber initiated a class action lawsuit two years ago. The settlement reached three months ago was pretty inconsequential, though Sirius XM agreed to pay the plaintiff's legal fees, hold off on any primary rate increases until 2012, and make small non-cash concessions to its disappointed subscribers.
Sirius XM got off easy, but wasn't that because it had the better legal argument?
Well, 67 of the 15 million subscribers represented in the original settlement have voiced formal objections. It's a small sliver of the satellite radio membership base, but there's no harm in hearing them out -- or is there?
"I rely on satellite radio every day for weather and news," one of the objectors told the judge, as recounted by Bloomberg. "I have no alternative. Combining Sirius and XM created a firm with monopoly power in rural South Carolina."
Really? Despite her long daily commutes, am I really to believe that terrestrial radio stations aren't providing local weather and news updates? Is it really Sirius XM's fault if there's a lack of coverage in certain rural pockets? If it costs more to have a smartphone with access to weather apps and news podcasts, is that also Sirius XM's fault?
Toyota's new Entune dashboard platform allows drivers with Bluetooth-enabled smartphones to access current weather, news, and traffic. Ford's MyFord Touch can be set up with one-touch shortcuts for area weather and traffic. Now, no one should be telling someone that they need to buy a new car with fancy gadgetry to get something that they're getting from satellite radio, but it's not fair to call something a monopoly when coast-to-coast alternatives do exist.
The rapid growth of Pandora (NYS: P) and Spotify in streaming music and Apple's (NAS: AAPL) iTunes for podcasts makes a lot more sense these days given the wider adoption rate of smartphones than when the FCC originally cleared the merger between Sirius and XM. Satellite radio is not a service that is easy to duplicate, and 21 million subscribers prove that point. However, arguing over a 3-month-old settlement of a nearly 2-year-old lawsuit seems to dismiss the field-leveling technologies that have taken place in that time.
When Sirius XM suffered a rare net subscriber decline during the first half of 2009, it was easy to blame the weak economy and the automotive slump. However, maybe some of the defectors were those who were either unhappy with Sirius XM's pricing moves or its decision to consolidate many of its musical genre stations. Drivers do have a choice, you know. They always have.
Let Sirius XM be. Let the free markets decide.
Do the objectors have a legitimate beef? Share your thoughts in the comment box below.
At the time thisarticle was published The Motley Fool owns shares of Apple and Ford Motor. Motley Fool newsletter services have recommended buying shares of Ford Motor and Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.Longtime Fool contributor Rick Munarriz has been a subscriber to Sirius since 2004. He does not own shares in any of the stocks in this article, except for Ford. He is also a member of theRule Breakersanalytical team, seeking out the next great growth stock early in its defiance.
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