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SiriusXM accused of shorting royalties to artists in $150M lawsuit

SiriusXM has been sued for allegedly miscalculating royalties it owes for the use of sound recordings in a scheme to underpay artists to the tune of more $150 million.

SoundExchange, a nonprofit that collects royalties and other fees to distribute them to member artists, accuses SiriusXM in a lawsuit filed on Wednesday in Virginia federal court of improperly allocating revenue to webcasting instead of its satellite radio service. The organization says the company is “gaming the system” by artificially inflating the value of its webcasting arm to circumvent higher fees if it attributed the revenue elsewhere.

The suit takes aim at SiriusXM bundling its satellite digital audio radio service (SDARS), which is the only such product in the country, with its webcasting service. “To grossly underpay the royalties it owes, Sirius XM has unreasonably characterized revenue from its bundled product as ‘webcasting revenue’ that in actuality is ‘SDARS revenue,’” states the complaint.

SiriusXM can transmit any work that has been commercially released to its 34 million subscribers in exchange for royalties and other fees to SoundExchange. Digital music services like SiriusXM have the ability to obtain a statutory license to transmit public performances of copyrighted sound recordings on top of legally being allowed to make copies of those recordings, which would otherwise be illegal under copyright law, to facilitate those transmissions. Copyright owners can’t withhold this license, which serves as a workaround for having to negotiate separate deals with every artist. Unlike royalties for this license, which is calculated as a portion of revenue, royalties for webcasting are typically much cheaper since they’re calculated on a per-performance basis, meaning it’s assessed for each transmission of a sound recording to a listener.

When SiriusXM calculates the royalties it owes for the use of sound recordings on its satellite radio service, it can exclude revenue it earns from webcasting. The purpose of this is to prevent double counting of revenue for the SDARS royalty if any is attributable to its webcasting service.

SoundExchange claims SiriusXM is misreporting the value of its webcasting arm, which it charges no additional fee for, to short artists royalties for revenue generated by its satellite radio service. “SiriusXM’s apportionment goes far beyond avoiding the double-payment of paying multiple royalties on the same revenue and flouts the undeniable truth that its webcasting service produces minimal marginal revenue (at best) when bundled with its SDARS,” writes Scott Zebrak, a lawyer for the nonprofit, in the complaint. SiriusXM’s webcasting subscriptions doesn’t account for a notable portion of its subscriber base, according to the suit, which notes that the company has been decreasing its prices for its webcasting-only service while increasing prices for its satellite/webcasting bundles.

The suit points to an audit that found SiriusXM has underpaid millions of dollars in royalties. SoundExchange says the company has refused to pay the amounts the auditor determined it owes.

SoundExchange chief executive Michael Huppe stated, “SiriusXM has and continues to wrongfully exploit the rules to significantly underpay the satellite royalties that it owes.” He stressed, “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.”

SiriusXM, in a statement, countered that it has “has simply adhered” to the framework set forth by the Copyright Royalty Board, “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.” It added that the company “has been transparent with SoundExchange from the start on its methodology.”

In the event that copyright owners and SiriusXM can’t reach a deal on the license, the Copyright Royalty Board determines the license’s royalty rates and terms. From 2018 to 2026, the royalty rate was set at 15.5 percent of gross revenues. The board also sets a separate royalty fee associated with commercial webcasters under the license. The rate for 2023 is “$0.0030 per Performance for subscription services and $0.0024 per Performance for nonsubscription services.”

The lawsuit was filed on the heels of SiriusXM prevailing in a long list of cases over the use of pre-1972 sound recordings by satellite and internet radio providers. A federal judge dismissed last month the last remaining suit against SiriusXM on this issue. U.S. District Judge Philip Gutierrez found that the company didn’t violate state copyright laws by failing to pay for the reproduction and public performances of these works. The series of suits asked whether laws from some states — like California, New York and Florida — provide owners of the recordings an exclusive right of public performance, for which artists are entitled additional royalties. The Hollywood Reporter

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