Sirius XM to pay higher music royalty fees

Mon Dec 17, 2012 12:13pm EST

Dec 17 (Reuters) - Sirius XM Radio Inc will pay a bigger percentage of revenue toward music royalties for sound recordings, following a decision made by the U.S. Copyright Royalty Board, the satellite radio provider said on Monday.

Judges at the U.S. Copyright Royalty Board determined last Friday that Sirius should pay higher royalty rates over the next five years to SoundExchange, the non-profit group that collects royalties from Sirius as well as Internet radio and cable TV companies on behalf of recording artists and record labels.

Sirius currently pays 8 percent of a portion of its gross revenue to SoundExchange, but after Friday's ruling, the rate will rise each year until 2017, when the agreement expires.

ISI analyst Vijay Jayant estimated the company paid about $250 million to SoundExchange in 2012, and will pay $324 million next year.

Analysts, on average, expect Sirius to generate $3.41 billion in revenue in 2012, according to Thomson Reuters I/B/E/S.

The royalty will increase to 9 percent in 2013, 9.5 percent in 2014, 10 percent in 2015, 10.5 percent for 2016, and 11 percent for 2017, Sirius said in a filing with the U.S. Securities and Exchange Commission.

Sirius XM and SoundExchange were involved in lawsuits over the fees.

The new rates were better than expected and will be "modestly positive" for Sirius' earnings before interest, taxes, depreciation and amortization," according to ISI, an investment research firm.

Last Friday, when the Copyright Royalty Board issued its decision, Sirius XM shares rose 6 percent.

"With increased clarity on the royalty fee front, we now expect there could be upside" to the company's earnings forecast next year, said Macquarie analyst Amy Yong said.

The board oversees copyright licenses and royalty payments in the United States.

Sirius, the largest U.S. satellite radio provider with more than 23 million subscribers, approved a $2 billion stock repurchase program on Dec. 6 and issued a special dividend.

Its shares dipped 2 cents to $2.89 on Monday.