SiriusXM

According to new analysis from Live365 general counsel Angus MacDonald (pictured), 90% of SoundExchange's 2011 revenues "came from only two sources": SiriusXM and Pandora.

MacDonald estimates SiriusXM's royalty payments to SoundExchange to be around $200 million in 2011 (based on the company's judicially-filed complaint against SoundExchange from March 23, though "a small portion" of the figure may be non-U.S. statutory payments). And Pandora's royalty payments to SoundExchange totaled $136.3 million in the 12 months that ended January 31, 2012.

SoundExchange's total 2011 revenues were $371.9 million. Combined, Pandora and SiriusXM's royalty payments make up around 90% of SoundExchange's revenues.

"That is a staggering figure," comments MacDonald, "especially if you consider all of the major and not-so-major terrestrial broadcasters who must pay royalties to SX for their simulcasts, as well as all the other types of services that pay royalties to SX... This suggests that Sirius and Pandora have a good deal of leverage to extract a fair royalty deal from SX for their respective royalty proceedings in the CRB."

The finding is also noteworthy considering SiriusXM is trying to avoid paying SoundExchange by reaching its own direct licensing deals with rightsholders (RAIN coverage here). SiriusXM recently filed a lawsuit against SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to reach those direct deals (RAIN coverage here and here).

MacDonald also recently calculated (as published yesterday in Audio4Cast here) that SoundExchange's total royalty collections were up 40% from 2010 to 2011. That growth was mainly fueled by Pandora, which paid out nearly 50% of its revenues to SoundExchange in the fiscal year that ended January 31, 2012, according to MacDonald.

"Another interesting fact: Pandora paid about as much in royalties for its FY 2012 (i.e., $136.3M) as it made in TOTAL REVENUES for its previous fiscal year, FY 2011 ($137.7M).

"With Pandora’s ever-growing listening hours and royalty payments," MacDonald continues, "SoundExchange and the labels need a healthy Pandora as much as Pandora needs a reasonable Pureplay-like rate for the next royalty term (2016-2020). This is especially true if Sirius XM continues to sign up more direct license deals, thereby bypassing SoundExchange (though Sirius XM’s recent antitrust complaint suggests that may be a tough row to hoe)."

Internet radio is a "low-barrier-to-entry" industry. No FCC license is necessary, no huge tower in a cornfield. Get your content together, make a few phone calls, and you can be up and streaming.

The abundance of choice on this "infinite dial" is, more cynically, the result of that low barrier. How does your compelling and enjoyable Internet radio service find welcoming ears that have already been repeatedly disappointed by about a thousand of your well-intentioned by under-achieving competitors?

Billboard.biz offers some ideas for services "to separate themselves from the crowd." We love reading (and writing) about Internet radio, and we especially appreciate what it says about our industry that it's not at all unusual to see content like this in a music industry publication.

The article is concerned mostly with Pandora and its progeny: algorithm-driven recommendation/personalized playlist services. Billboard writes, "Already there is very little noticeable difference between the music most services play. Of course, these companies would certainly argue that differences exist between the ways services create personalized listening experiences. But from a listener's perspective they're all pretty similar. Over time, recommendation algorithm that generate playlists will advance to the point where one service's radio feature will be, more or less, indistinguishable from another."

The first recommendation is "create the best product." Duh. Actually, Billboard here is referring simply to the ease-of-use of services like Pandora and iHeartRadio, and it makes sense. People enjoy using a product the can easily manipulate, and that responds to them as they think it should. 

"Additional or exclusive content" can also set you apart (e.g. SiriusXM and Howard Stern; iHeartRadio and its AM/FM streams). Again, "gee, thanks!" Certainly the cost to enter the field starts to sharply rise with big-ticket contracts with personalities, artists, and pro sports leagues.

Likely more valuable is Billboard's advice to "find a hook... try being something great to a smaller number of people... some Internet radio services will need to cede the mainstream users to the larger players and find other ways to get a firm toehold in the market." This is the magic right here, where the genius shows through. The most interesting developments in Internet radio will probably happen right here: brilliant thinking leading to unique ways for listeners to enjoy the content they love.

Finally, if you "add features," you can increase the depth of your offering to listeners who might get bored with "default" settings, and be willing to put in the time and effort to take advantage of more powerful customization (Billboard mentions Slacker and Raditaz).

The "infinite dial" truly offers a space for everyone. Only a few will have the means to offer hundreds of genres of music, or the most cutting-edge technology, or top-name exclusive content -- but any webcaster can have a great idea, a unique angle, and superb execution and focus. And that draws a crowd.

Read "Business Matters: Internet Radio Services Need To Separate Themselves from the Crowd" in Billboard.biz here.

Just in time for Opening Day, SiriusXM has announced that its subscribers can stream live radio coverage of every Major League Baseball game on smartphones and online. "With this agreement, SiriusXM becomes the Official Internet Radio Partner of MLB.com," the company's press release states.

SiriusXM also broadcasts coverage of MLB games via satellite, and MLB.com offers live radio coverage through its own subscription packages.

Find SiriusXM's press release here.

In the upcoming legal battle between SiriusXM and SoundExchange, the satellite radio broadcaster (along with broadcasters and others) has everything to gain, while SoundExchange and the CRB face potentially serious set-backs. So argues Kevin Goldberg, Special Counsel at Fletcher, Heald & Hildreth, in the CommLawBlog.

Last week news broke that SiriusXM had sued SoundExchange and the American Association of Independent Music (A2IM), accusing the record industry organziations of interfering with its efforts to directly license the sound recordings (find RAIN's coverage here).

The eventual outcome of the lawsuit aside, Goldberg (pictured) says SiriusXM "made the right play... litigation is expensive, but not as expensive as the $200 million in royalties that SiriusXM claims to have paid last year," he writes. "Add in the fact that a victory would not only reduce that expense, but also afford SiriusXM more flexibility in future negotiations and the ability to innovate."

Moreover, broadcasters (and, RAIN would add, webcasters) stand to "reap the benefits" of SiriusXM's lawsuit "without any effort." Goldberg echoes Davis Wright Tremaine partner David Oxenford (RAIN coverage here) in reasoning that SiriusXM's direct licensing deals "would provide important concrete data – possibly the only such data – regarding the value of a digitally transmitted sound recording" in future CRB royalty hearings for both SiriusXM and broadcasters.

"This would be especially important if the broadcasters’ own worst case scenario – enactment of the Performance Rights Act – were to occur," writes Goldberg.

The outlook is less rosy for SoundExchange. The royalty collection agency faces, at the very least, a long and expensive legal battle, Goldberg argues. At worst, it could face "possible dismantling... or the imposition of some limiting consent decree... or the forced introduction of a competitor receiving agent."

The lawsuit may also "be enough to rethink the entire regime" of the Copyright Royalty Board (CRB), writes Goldberg. "From allowing SoundExchange to exist without competition to siding with SoundExchange on virtually every contested fact in the 2007 Webcasting II decision (and many other ratemaking proceedings), the CRB may have created the environment that allowed questionable, if not illegal, activity to flourish."

The constitutionality of the CRB and its appointment process have been repeatedly questioned and challenged in the past (RAIN coverage here, here, here and here).

But who wins or loses this particular lawsuit may be "beside the point," says Goldberg. "The mere initiation of the case may represent an early tremor signaling the onset of a seismic event, an event that would likely, one way or another, fundamentally affect all the players."

You can find Goldberg's extensive analysis and explanation of the SiriusXM lawsuit against SoundExchange and A2IM here.

The outcome of SiriusXM's lawsuit against SoundExchange and A2IM may be "very important to the future of digital music" -- webcasters included -- according to industry attorney and Davis Wright Tremaine partner David Oxenford (pictured).

The direct licenses SiriusXM has been trying to obtain could impact future CRB rulings, Oxenford writes, as such deals "between music users and rights holders are traditionally the best evidence of the value of music." That's a good reason why SoundExchange and A2IM would oppose such direct deals, says Oxenford.

He writes:

"Were SiriusXM to be successful in its suit, and if it is in fact able to negotiate direct music licenses for substantial catalogs of music at rates lower than what it has paid under previous rate decisions, it would presumably introduce such evidence in proceedings before the Copyright Royalty Board (which is now in the process of setting the rates for the public performance of sound recordings by SiriusXM over its satellite service for the next 5 years), and argue that these direct deals are the best evidence of what a willing buyer and willing seller would agree to in a competitive marketplace."

But direct licensing deals between SiriusXM and rights holders could also impact future Internet radio royalty rate decisions.

"One of the biggest issues in all rate proceedings heard before the CRB has been establishing what a willing buyer and willing seller would agree to pay in a competitive marketplace like the one for which the rates are being set," writes Oxenford. "In most cases, as there are no direct licenses, the CRB has to extrapolate what willing buyers and willing sellers would pay for sound recording performance royalties in a noninteractive market from evidence of what companies pay in other markets...

"Lower direct licensing rate could impact not only the rates paid by SiriusXM, but also other proceedings dealing with the sound recording royalty rate, including potentially proceedings for webcasting royalties (proceedings that will also affect the rates that broadcasters pay for streaming their signals)."

The next CRB proceeding for Internet radio begins in 2014 to set royalty rates for 2016-2020.

You can find Oxenford's full analysis of the SiriusXM lawsuit at the Broadcast Law Blog here.

Oxenford will interview U.S. Copyright Office General Counsel David Carson on-stage at RAIN Summit West 2012 in Las Vegas, on Sunday, April 15. You can find out more here.

"Personalized radio" is coming later this year from SiriusXM, said CEO Mel Karmazin during a quarterly call. So is "on-demand" content. But he still views Internet radio as "not a game-changer" and says AM/FM radio "is still our biggest competitor, by far."

We've heard Karmazin hint about a personalized radio service before, ranging from August 2011 (RAIN coverage here) to just last January (here). Such an offering would be part of the satellite broadcaster's new 2.0 service, which launched in October 2011 (more here).

Karmazin also spoke to the difficulty of monetizing mobile audience -- an oft-raised concern as mobile takes a larger share of web radio listening. "There's just too much supply out there," he said. "It puts the power in the buyer of advertising."

You can find more coverage in today's Taylor on Radio-Info newsletter here.