Sirius XM Winds Up on the Right Side of an Antitrust Complaint
Sirius XM Radio (NAS: SIRI) is involved in an antitrust lawsuit -- only this time it's on the accusing end of the legal fisticuffs.
The satellite radio giant is filing a complaint against SoundExchange and American Association of Independent Music, arguing that the organizations are getting in the way of Sirius XM's ability to negotiate royalty rates directly with individual record labels that they represent.
According to Sirius XM, it already has secured 80 direct licenses, but it could have even more if SoundExchange wasn't asking for higher statutory licenses as an intermediary.
For once, Sirius XM is part of a legal complaint where it really doesn't have much to lose beyond legal fees. If its complaint doesn't hold up, Sirius XM is back to where it is now. If it has merit, Sirius XM should be able to strike better licensing terms with labels that value the promotional power of being broadcast to the provider's 21.9 million subscribers.
Some of the early reports indicate that this could provide a big boost to Sirius XM's bottom line, but I'm not so sure. Sirius XM is passing along what it shells out in statutory licenses to users through its music royalty fee. If successful, it's more likely that Sirius would have to reduce those fees than simply pad its already-fattening bottom line.
That wouldn't be a bad thing, of course. If Sirius XM is cheaper to consumers -- even if it's in the form of lighter monthly music royalty fees -- it should result in more subscribers.
Sirius XM has already claimed that the likely bump in monthly churn to 2.1% this year from 1.9% last year -- accounting for roughly 500,000 more cancellations throughout 2012 -- is solely the result of the 12% rate increase that began kicking in two months ago. If the music royalty fee shrinks, even by a meager amount, shouldn't it result in more price-conscious subscribers sticking around?
Some will argue that success on this front will move Sirius XM closer to beefing up its digital offerings to the point where it can take on the customized streams now being served up by Pandora (NYS: P) and Clear Channel's (OTC: CCMO) iHeartRadio. Sirius XM is already moving in that direction, but striking more direct licenses will make it easier for Sirius XM to dream out loud to make Sirius XM 2.0 the game-changing platform that it has (so far) failed to live up to.
Pandora may have posted a quarterly loss after surprising the market with back-to-back quarters of profitability, but it's growing too quickly to ignore. Clear Channel is obviously better known for its terrestrial radio empire than its digital pursuits, but it re-launched its iHeartRadio app with a popular Pandora-like feature.
After a few sleepy weeks following the satellite radio star, things are starting to get interesting.
Running of the bulls
I remain bullish on Sirius XM's future. It should come as no surprise that I'm promoting the CAPScall initiative for accountability by reiterating my bullish call on Sirius XM for Motley Fool CAPS.
XM Satellite Radio was a RuleBreakers recommendation before the Sirius XM merger. It's now gone from the scorecard, but if you want to discover the newsletter service's next rule-breaking multibagger, a free report reveals all.
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