Amid Pandora Investment & Capitol Hill Debates, SiriusXM Becomes Musics New Best Frenemy

Steve Knopper | July 17, 2017

After facing off with Pandora, SoundCloud and YouTube of late, the music business has a new No. 1 frenemy: SiriusXM.

Though the nine-year-old satellite radio service has paid record labels and artists hundreds of millions of dollars annually while promoting unsigned and emerging acts on its niche music channels, SiriusXM's relationship with the industry has grown more contentious recently. The issues between them range from whether SiriusXM should pay to play songs copyrighted before 1972 -- the subject of an imminent bill in Congress -- to the rates it should pay for the music on its service during the next five years, a matter currently being argued before the Copyright Royalty Board.

And now, following SiriusXM's $480 million investment in Pandora in June, some label insiders fear SiriusXM will use its new clout to upend the direct licensing deals Pandora inked last summer, which led to its on-demand subscription service. One label executive says that SiriusXM seemed more interested in using Pandora as "a giant free tier to drive their in-car subscription products." A representative for SiriusXM declined to comment.

SiriusXM "increasingly seems to choose conflict over partnership," says Steven Marks, the RIAA's general counsel and chief of digital business, adding that the company is getting less sympathy because it "publicly touts its financial success." Thanks in part to federal regulations limiting royalty payouts to 11 percent of revenue in 2016, SiriusXM earned $746 million on $5 billion in revenue last year. Pandora, by contrast, spends about half of its revenue on music because its costs are based on usage, while Spotify, whose losses are also ballooning, spends closer to 70 percent.

Marks says SiriusXM is fighting to keep paying "below market" rates that are "unfair" to artists and the rest of the digital-radio market. The company contends it pays what is required under federal law.

The tension heated up in 2013 when Flo & Eddie, founders of 1960s rock band The Turtles, started filing class-action lawsuits against SiriusXM in various states for not paying royalties on pre-1972 recordings, and the major labels filed their own complaint soon after. (Results have been mixed: SiriusXM paid $210 million to settle with the RIAA, but got The Turtles' New York case dismissed earlier in 2017 while awaiting a decision in Florida.) Industry sources estimate SiriusXM would pay over $1 billion in additional royalties over the next five years if it had to pay for pre-1972 recordings, though its settlements include some future payments. SiriusXM CFO David Frear has said that his company should only pay if federal law changes to require everyone to pony up.

Now, the music world is bracing for a new bill that would force SiriusXM and other broadcasters to pay royalties for pre-1972 tunes. Likely supporters include Pandora, which in 2015 paid the recording industry $90 million for its use of pre-1972 works. It's unclear where SiriusXM will stand. But one executive hopes that it will learn from Pandora founder Tim Westergren, ousted as CEO in June, who "realized it was better partnering with [labels] than trying to nickel-and-dime them."

This article originally appeared in the July 22 issue of Billboard.

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About the author: Steve Knopper Contributor