A royalty reset for sat pack

Rate is an increase but a discount

Related story: Consumer groups attack sat radio merger

WASHINGTON -- A three-member board of copyright royalty judges set a new payment rate that the nation's satellite radio providers must pay to artists and labels, the companies and collection agent said Tuesday.

According to the satellite radio companies and SoundExchange -- the nonprofit entity set up to collect and distribute digital royalties -- the rate is 6% of revenue for 2007 and '08, escalating to 8% in 2012.

The Copyright Royalty Board said the proper benchmark for music value is 13% but discounted the rate because of the troublesome financial condition in which companies find themselves.

XM Satellite Radio chairman Gary Parsons said the CRB ruling provides certainty for the company.

"Moreover, the music performance fees set by the CRB are in the range projected by many financial analysts who cover this industry," he said. "XM remains strongly committed to providing consumers the very best in both music and nonmusic programming, to compensating artists for their creative work and to providing our shareholders a fair return on the multibillion-dollar investment in this new audio entertainment platform."

SoundExchange executive director John Simson said the group was glad to get an increase but was disappointed that the board decided to cut the rate artists and record labels deserved.

"This result once again highlights the inequity of a rate standard that forces creators of music to subsidize certain music services with below-market rates," Simson said. "We are glad that the decision affirmed the importance of music to XM and Sirius but disappointed that the rate standard led to a lack of full and fair compensation because of the business circumstances created by XM and Sirius."

Blair Levin, a media analyst at Stifel/Arbogast-Levin, said the decision appears to have increased the payment to SoundExchange from 3.5% to 6% initially and 8% by 2012, which reflects a higher rate of payment than expected.

In addition to the payments to the artists and labels, XM and Sirius pay music publishers separately. While those rates are confidential, most believe they are 7% of revenue.

It is unclear exactly what rate the publishers and songwriters through their licensing societies -- ASCAP, BMI and SESAC -- adhere to, but Levin said they also are likely to seek an increase once their contracts expire.

Although XM and Sirius reportedly have accumulated losses of $6 billion, neither company claims that it is failing, even as they attempt to merge.

The $5 billion deal is being reviewed by the FCC and the Justice Department, which respectively must decide whether the deal is in the public interest and whether there are anti-competitive effects.