Sirius XM Radio Inc (NASDAQ:SIRI) has been sued by Sound Exchange Inc for at least $50 million on account of underpaying on recordings, including ones before from 1972. Sound Exchange Inc, a nonprofit firm with responsibility of collecting digital royalties for music artists in the United States, filed the suit in the United States District Court of Colombia, says a report from Reuters.
Sound Exchange Inc is a body appointed by the Copyright Royalty Board to collect and distribute performance royalties established under federal law.
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Sirius XM dodged royalty payment
In the lawsuit, it is mentioned that between 2007 to 2012 Sirius XM “systematically” did not pay royalties to Sound Exchange for the statutory license, which allows the service to broadcast recordings to millions of paying subscribers.
Further, it was mentioned that Sirius XM reported less revenue by about 10 to 15 percent than it usually does to calculate the royalties. The move was intended to match the performance with pre-1972 recordings.
Sound Exchange mentioned in its filing that the royalty rate to be charged on the gross revenue will be from 6 percent in 2007 to 8 percent in 2012.
“We cannot sit by and watch this multi-billion dollar company reap record profits from the creative contributions of artists and labels without paying them everything they deserve,” Sound Exchange Chief Executive Michael Huppe said in a statement.
Other charges against Sirius XM
Apart from underpayment of royalties, Sirius XM was accused of many other issues like exclusion from its revenue calculation of the money it drew from its customers who subscribe to XM premier package.
Sound Exchange noted in the complaint that Sirius XM is working under the notion that the statutory license established under federal law does not cover pre-1972 recordings. There was no federal copyright protection for sound recording until 1972, and it was protected only through state law.
If Sirius XM loses the case, it may have to pay $50 million to $100 million or more as per the lawsuit along with appropriate late fees and interest.
Sirius XM performance during the same period
During the time frame when Sirius avoided paying musicians for their critical service, the company’s user base surged from 17 million to 24 million, and revenue increased from $2.06 billion to $3.4 billion, which is an increase knock of 65 percent.
Sirius can, however, reap the benefit under the new rules from 2014 to 2017 that allow the company to reduce the Royalty fee by deducting the share of revenue from pre 1972 recordings from the gross revenue pot.
There was no comment from the Sirius XM representative.