US performance rights organization SoundExchange has launched a lawsuit against SiriusXM to recover what it claims are “substantial unpaid royalties and late fees owed under the Copyright Act” for the use of sound recordings on the satellite streaming service.
SoundExchange says that it estimates that SiriusXM has “wrongfully withheld more than $150 million in unpaid royalties over the past several years”.
In a complaint filed with the US District Court for the Eastern District of Virginia on Wednesday (August 16), SoundExchange alleged that SiriusXM “has exploited the creative efforts of recording artists without paying legally mandated compensation.”
“It is extremely unfortunate that we must bring this action on behalf of creators against SiriusXM,” SoundExchange President and CEO Michael Huppe said in a statement released Wednesday.
“In recent years we have viewed SiriusXM as a willingly lawful and compliant company that shares our desire for a robust streaming marketplace.
“But SiriusXM has and continues to wrongfully exploit the rules to significantly underpay the satellite royalties that it owes. 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.”
At issue is SiriusXM’s online streaming service, which the company launched in 2017. SoundExchange alleges that SiriusXM has been allocating an excessive amount of its revenue to its streaming service, rather than its satellite radio service, and in doing so, it has undercounted the amount of money it owes to rights holders, on whose behalf SoundExchange collects royalties.
A key element in the complaint, which you can read in full here, revolves around the way the US Copyright Royalty Board calculates royalties for satellite radio and for webcasting operations like SiriusXM’s streaming service.
At present, royalties owed by satellite radio services are calculated as 15.5% of gross revenue. However, the CRB’s definition of “gross revenue” explicitly excludes money earned from certain activities, including webcasting. This is so that services like SiriusXM that offer both satellite radio and streaming don’t have to double-count their revenue when calculating royalties.
For webcasting, royalties are calculated not according to gross revenue, but on a per-performance basis. Webcasting services are required to pay $0.0030 per performance of a copyrighted work of music for a subscription service, or $0.0024 per performance for a non-subscription service.
The difference in how royalties are calculated is largely due to the fact that satellite radio services don’t know how many listeners there are for a broadcast of a particular song, while webcasting services know exactly how many times a particular webcast has been streamed.
The result is two different royalty rates for satellite radio and for webcasting.
SoundExchange alleges that SiriusXM has been overcounting the share of its revenue that comes from webcasting, and undercounting revenue from satellite radio, in order to reduce the amount it owes in royalties.
“SiriusXM’s webcasting subscriptions do not constitute a material part of its subscriber base, as SiriusXM itself has acknowledged,” the complaint states.
“Sirius XM has repeatedly given its webcasting service to existing [satellite radio] subscribers for free. Because SiriusXM was deriving zero additional marginal revenue from these [satellite radio] subscribers due to webcasting, it should have allocated only minimal additional revenue to webcasting, if any.”
Instead, beginning in 2021, SiriusXM attributed at least 17.8% of its gross revenue to its streaming service, the complaint alleges. It adds that SiriusXM’s calculations were based on customer surveys rather than on hard data about usage of its streaming platform.
The complaint also states: “SiriusXM is gaming the system: to grossly underpay the royalties it owes, SiriusXM has unreasonably characterized revenue from its bundled product as ‘webcasting revenue’ that in actuality is ‘[satellite radio] revenue’. SiriusXM’s revenue apportionment is beyond the pale, and harms music creators.”
“In recent years we have viewed SiriusXM as a willingly lawful and compliant company that shares our desire for a robust streaming marketplace. But SiriusXM has and continues to wrongfully exploit the rules to significantly underpay the satellite royalties that it owes.”
Michael Huppe, Sound Exchange
SoundExchange’s complaint alleges that SiriusXM “unjustifiably withheld” more than $150 million in royalties owed to artists and copyright holders, and it seeks payment of the amount owed, plus late fees and interest, and legal and court fees that SoundExchange incurred.
Under US copyright law, SiriusXM and other online or digital broadcasters don’t need an explicit licensing agreement with music rights holders to use copyrighted music. The law gives them a blanket “statutory” license, provided they pay a royalty for the music they use.
The royalties for a statutory license are set by the Copyright Royalty Board, and SoundExchange is responsible for collecting the royalties owed. In 2022, the organization collected$1.017 billion in digital royalties on behalf of some 600,000 artists.
This isn’t the first time that SoundExchange has been embroiled in a legal dispute with SiriusXM over royalties. In 2013, it took legal action against the satellite radio company over “a number of impermissible deductions and exemptions in calculating its royalty payments,” which included deductions for pre-1972 sound recordings and certain channel packages containing music.
The dispute was resolved in 2018, in a settlement that involved SiriusXM paying $150 million to SoundExchange.Music Business Worldwide
