Sirius XM Radio Inc (NASDAQ:SIRI) shares have rebounded in early afternoon trades, after falling a few cents per share earlier today. This comes as analysts at Piper Jaffray release their updated report on the stock.
They expect Sirius XM Radio Inc (NASDAQ:SIRI) to make adjustments to adapt to changes in music royalties for satellite radio. Analysts have adjusted their model to reflect their best estimates for the new royalty rates that will be announced soon. They believe royalties that end up being better than expected will drop to the bottom line, while royalties that are higher will likely be offset by modest price increases in the form of a fee passed on to subscribers.
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Piper Jaffray analysts are rating shares of Sirius XM Radio Inc (NASDAQ:SIRI) as Overweight and can see investors buying it ahead of the decision on how much the royalties will be. The rates will be determined after Sirius XM and SoundExchange, a performance rights organization, argue their cases in front of the three judges on the Copyright Royalty Board. They will consider the testimonies and set a benchmark rate, making various adjustments to set a rate that will be effective for five years. That rate is expected to be set no later than this Friday and will begin next year.
This time around, SoundExchange is attempting to secure a 20 percent increase from the current 8 percent of revenue. Sirius XM is trying to get a 5 to 7 percent reduction in the rate. Piper Jaffray expects the rate will be a modest increase to 11 percent by 2017.
Analysts point out that there are a few key changes that have happened since the royalty rate was last set. They say Sirius XM is in a better financial position now than when the companies were separate back then and both of them were losing money. Also, Sirius XM Radio Inc (NASDAQ:SIRI) has signed more than 90 direct licensing deals with some music labels at rates that are far below the current rates set by the Copyright Royalty Board.
Piper Jaffray has set its target price at $3.20.