As we learned from an SEC filing earlier this month, Sirius and XM have proposed a royalty rate of $1.20 per broadcast per month as part of their negotiations with SoundExchange for music performance royalties. Rough estimates put this to about 1% of revenue (they originally proposed 0.89% of revenue).
But what we didn't know from the filing is what SoundExchange's counter-proposal was - all we learn is that it was a per-broadcast fee structure. Until now.
First off, SoundExchange continues to propose a rate structure based on a percent of revenue ranging from 8%-23%, and a per-subscriber minimum of $.85-$3.00 per month.
But as the alternative (albeit, less-preferred) proposal, SoundExchange has proposed a per-broadcast rate structure of between $.0000028 and $.000010 per broadcast times the number of subscribers (for up to 150,000 broadcasts a month), and between $.0000008 and $.0000030 per broadcast times the number of subscribers (for broadcasts exceeding 150,000 per month).
If XM and Sirius made no changes to their programming, SoundExchange says that this proposal would result in rates roughly equal to 8% to 23% over the rate period.
Of course, SoundExchange is going to tweak their "alternative" proposal to bring the bottom-line to around the same point as their original proposal, but I think the important aspect is the per-broadcast fee (as opposed to all revenue). Agreeing on a reasonable rate is a whole different matter.
I don't understand why SoundExchange feels it should have a piece of all satellite radio revenue, when a massive amount of the programming on satellite radio has absolutely nothing to do with music. So a per-broadcast structure just makes sense.
What Sirius and XM are proposing - $1.20 per-song - is far above what Apple pays for iTunes (and Apple has distribution rights). And they're also providing a sliding scale based on the percentage of subscribers for the years to come, so it can't be said that Sirius/XM aren't being reasonable.
But that's how negotiations work: you go high, I go low. Let's see how this works out in the end.
Man that was an excellent analysis on a very complex issue.
can somone explain this to me. im to lazy to read this one. Just tell me good or bad for sirius/xm
I've posted it before, and I'll post it again: the rate structure that ends up being used will end up being 11-12% of revenue, whether it's based on a direct percentage of revenue or on a per-play system.
Call it a hunch...
@stupid: It's neither good or bad at this point. It's just an update on the negotiations between Sirius/XM and SoundExchange. They're in front of the CRB working it out, and the issued is expected to reach a decision by the end of the year.
Bottom line is that both are proposing a per-song fee, with a sliding scale based on the number of subscribers. SX is going high. SIRI/XMSR are going low.
The 'sliding scale' makes sense, because it's all about how much the artists should be compensated based on the value they're providing to satellite radio. When Sirius/XM are making more money because they have more subs, so are the artists. Simple as that.
What I really wanted to do was provide the actual data on what SX is proposing. And to further explain how the negotiations have changed from "we want X% of all revenue" to "we want a per-song fee based on the number of subs you have." And a per-song fee is definitely good news in my opinion.
Actually, moving to a per-performance royalty scheme will dramatically change the music lineups at both services.
At the moment, there's minimal financial cost to launching a channel. These figures are guesstimates from some things that have come out about Sirius' cost structure... I'd imagine that XM's differ only in a few minor particulars.
Under the current system, there's no extra royalty expense due to adding a channel.
If your new channel is going to have voice talent, you'll have to pay the jocks. I have it on reasonable authority that Sirius pays most of their jocks $100 per airshift with a typical VT'd channel having 21 airshifts a week or about $110k per year. This cost is why Lithium and Punk lack DJs...
There's also a continuing expense for a PD/MD (though if you go the automated route, these can be combined); both of these probably cost $100k-plus each per year, but you can cut corners and have a PD of another channel run the new channel on top of his regular duties (this especially works if the new channel is a classic- variant of another channel... again Lithium is basically Alt Nation-classic so it wouldn't surprise me if Alt Nation's PD runs Lithium).
There are launch costs associated with imaging, consulting, etc. as well, but it's the continuing costs that are more relevant long term. The bottom line is that a new channel costs $500k a year, tops to maintain (allowing for a lot of wiggle room in my figures). If that channel has only 5,000 subscribers who name that as the channel that will make them cancel, it's a no-brainer to have that channel around; if that channel helps to add only a few thousand subscribers then it's also earning its keep.
Given that low cost, it's not surprising that there's been an increase in music channels over the years.
The main cost, ultimately, is reduced SQ on most/all the channels to make room for the new channels. Given how few seem to be cancelling over SQ, that doesn't seem to be much of a negative business-wise.
However, toss in per-play royalties and things get a lot more muddied.
With 10 million subscribers, each spin costs $8 under the low SX figure. Assuming that our new automated channel plays 13 songs an hour, that means that the cost of the new channel has gone from, say $150k/year (assuming just a PD/MD) to about $1.1 million/year. All of a sudden, the cancellation threshold required to guarantee a channel's survival becomes 10,000. Now considering that Opie & Anthony (perhaps the best example of churn from a programming change, though it should be noted that that was only a suspension, despite rampant online rumors to the contrary), reputed to be one of the major draws for XM, had only 5,000 subs cancel, it probably stands to reason that it's reasonable for both satellite companies to cut a number of music channels.
So how many channels would XM and Sirius cut if a new royalty regime goes into place?
I'd probably put my money on 25% or so of the current royalty-covered channels (ie those that are not governed by other agreements; Grateful Dead & Elvis Radio for Sirius (pointedly, not Margaritaville or Shade 45) and XMX are the only ones that actually come to mind as being governed by other agreements with the owners of the recordings) being dropped. In order to reduce the number of churnouts, the companies will probably maintain broadly similar genre coverage; they'll simply cluster similar channels into groups of 4 and kill the one that can most easily have its playlist incorporated into the others (average length of songs and non-music content, thus the number of spins per hour, would probably also be considered)
So here's what I would envision for Sirius:
General pop (3 channels, since these are dominated by short songs)
Sirius Hits 1
BBC Radio 1
Super Shuffle - RIP
AC
StarLite
Sirius Love - RIP
Movin EZ
The Pulse
Oldies/Decades
Sirius Gold
'60s Vibrations - RIP, Sirius Gold covers from '55 through '70
Totally '70s
Big '80s
Classic rock
Classic Vinyl
Classic Rewind - RIP, bring back The Rock
The Vault
The Bridge
AAA
The Spectrum
Jam_ON
Sirius Disorder
Coffeehouse - RIP
Active/Hard Rock
Buzzsaw
Octane
Hair Nation - RIP, Buzzsaw picks up hair bands (and I say this as a fan of the 'saw)
Hard Attack
Faction - RIP as a music channel... could probably see the shows and channel name moved to a sports channel
Alternative
Alt Nation - RIP, a new-alternative moves to either Octane or LOC
1st Wave
Lithium
Garage
LOC
Electronica/Dance
Area 33
Boombox - RIP (tends to play the shortest tracks of the three)
Chill
The Beat
The Strobe
Rap
(probably won't be touched... Sirius' cupboard is sorta bare)
R&B
(probably won't be touched....)
Country
drop Bluegrass
Christian
(probably won't be touched)
Jazz/Blues/Classical
merge Pure Jazz and Planet Jazz
Latin
probably abandoned totally
With these cuts, a Canadian channel could probably be cut... I'd probably say that Iceberg will go the way of the dodo.