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SoundExchange sues SiriusXM over unpaid royalties

The organization, which handles royalty payments on behalf of record labels, says SiriusXM improperly withheld royalties after bundling its satellite and streaming radio services.

The organization, which handles royalty payments on behalf of record labels, says SiriusXM improperly withheld royalties after bundling its satellite and streaming radio services.

A car entertainment system displays a channel broadcast on SiriusXM satellite radio. (Still frame courtesy SiriusXM, Graphic by The Desk)
A car entertainment system displays a channel broadcast on SiriusXM satellite radio. (Still frame courtesy SiriusXM, Graphic by The Desk)

A new lawsuit filed on Wednesday accuses satellite and streaming radio service SiriusXM of stiffing music labels out of royalty payments.

The lawsuit, filed by SoundExchange, claims SiriusXM is liable for around $150 million in royalties owed after it started bundling its satellite and streaming music services together.

Unlike traditional AM and FM radio, satellite and streaming radio providers are required to pay for any public performance of copyrighted music. SoundExchange is the organization designed by the Copyright Royalty Board (CRB) to collect royalty payments from services like SiriusXM on behalf of record labels.

Over the last few years, SiriusXM has passed along the cost of royalty payments to consumers through a little-known surcharge called the U.S. Music Royalty Fee. The charge is applied to any satellite and streaming package that offers access to commercial-free music channels, which generally covers most plans offered by SiriusXM.

The U.S. Music Royalty Fee has traditionally been higher on SiriusXM’s satellite radio plans when compared to its streaming-only plans. And, for years, SiriusXM offered customers the option to add streaming radio access to their traditional satellite radio plans, or simply subscribe to streaming radio service without a satellite receiver.

Things changed a few years ago when SiriusXM decided to bundle its streaming radio service with its satellite radio plans. Now, customers who subscribe to most SiriusXM plans have access to SiriusXM’s streaming radio apps as well. And that, according to SoundExchange, is where the problems began.

Historically, the CRB calculated royalty payments for SiriusXM’s satellite radio service based on a percentage of SiriusXM’s overall revenue. Through 2027, that royalty fee is set at 15.5% of SiriusXM’s gross revenues — and SoundExchange says the company has kept up with that payment.

But the royalty rate is different for companies that offer streaming music services. That rate is calculated at $0.0030 per performance if a service is subscription-based; the fee is reduced to $0.0024 per performance for streaming services that are subscription-free.

When SiriusXM began offering satellite radio customers free access to its streaming radio platform, SoundExchange asserts the company should have paid royalties based on subscription revenue from satellite customers, as well as royalties for each performance streamed through SiriusXM’s online platform.

But that isn’t what SiriusXM did, according to the lawsuit. Early on, executives relied on an “entirely arbitrary” formula that subtracted the price of a satellite-only plan from the cost of a satellite plan that included streaming, to arrive at a figure that SiriusXM felt was appropriate in terms of how much it owed in royalties.

That seemed off to SoundExchange, but not quite as bad as what SiriusXM did next: In 2021, the company decided to bundle access to its streaming radio platform with most of its satellite radio plans. Afterward, the company used some more creative accounting to determine how much revenue from a particular tier of service should go toward royalty payments.

The amount SiriusXM withheld in royalty payments only went up from there, to the point where SiriusXM was paying around 25 percent less in royalties than it had been prior to the change, according to SoundExchange.

“The purpose of the webcasting exclusion is to prevent double-counting revenue for which Siriu XM is already paying a different royalty, not to provide SiriusXM a windfall,” SoundExchange said in its lawsuit. It continued: “The royalties Sirius XM has withheld by excluding revenue under the webcasting exclusion far exceed the royalties SiriusXM has paid for webcasting, resulting in a windfall to SiriusXM.”

SoundExchange ultimately hired an independent auditor to look into the matter. The auditor ultimately concluded that SiriusXM had improperly withheld some payments that would otherwise be covered under the rates set by the CRB, SoundExchange says.

Despite this, SiriusXM held firm, and would not acquiesce to demands for back payment of royalties, SoundExchange says. Unable to find an amicable solution, the organization filed its lawsuit on Wednesday, a move it took with some hesitation.

“It is extremely unfortunate that we must bring this action on behalf of creators against SiriusXM,” Michael Huppe, the president and CEO of SoundExchange, said in a statement. “In recent years, we have viewed SiriusXM as a willingly lawful and compliant company that shares our desire for a robust streaming marketplace. But SiriusXM has and continues to wrongfully exploit the rules to significantly underpay the satellite royalties that it owes. It is only because our repeated efforts to resolve this dispute have failed that we are forced to litigate on behalf of artists and rights owners upon whose hard work SiriusXM has built its business.”

Officials at SiriusXM apparently learned about the lawsuit through a press release issued Wednesday morning, and said they were taken aback by the move, which they claim involve matters rooted in “ordinary course disputes.”

In SiriusXM’s view, everything the company did was above board. The CRB only requires them to pay performance royalties in connection with their satellite service, SiriusXM says, while streaming products are covered under a different license.

“SiriusXM has simply adhered to that clear regulatory framework, using a rigorous, tested and fair methodology to identify and allocate revenue for the streaming component of its bundled packages—a methodology completely consistent with precedent from the CRB,” a SiriusXM executive said in a statement. “Furthermore, SiriusXM has been transparent with SoundExchange from the start on its methodology. While we are disappointed with the actions taken by SoundExchange today, we remain committed to paying artists fairly for their work, and will continue to work collaboratively with SoundExchange, as we have for decades, to ensure they are paid properly under the governing regulations.”

The lawsuit hits SiriusXM at a time when the company is struggling to reverse several consecutive financial quarters of slow subscriber growth as it looks toward streaming and other digital products for additional sources of revenue.

The bulk of SiriusXM’s gross revenue comes from subscriptions to its satellite radio service, of which it has around 34 million paying customers. Earlier this month, SiriusXM said it took in around $1.73 billion in subscriber revenue, slightly more than the $1.72 billion in subscriber revenue it earned around this time last year.

The company has several other products, including music streamer Pandora and a podcast business rooted in its acquisition of Stitcher, but neither business account for a substantial amount of SiriusXM’s overall revenue.