SiriusXM Files Antitrust Claims Against SoundExchange and a Record Industry Trade Association
Sirius XM Radio today announced that it has filed a complaint againstSoundExchange, Inc. and American Association of Independent Music (“A2IM”) charging those organizations with unlawfully interfering in SiriusXM’s efforts to secure, through a competitive market, copyrights critical to its business. The complaint contends that the conduct violates federal antitrust, as well as New York state law.
SiriusXM is primarily seeking injunctive relief to stop SoundExchange and A2IM from impeding its efforts to obtain the licenses it needs to operate its business in direct dealings with record companies instead of relying exclusively on licenses either negotiated with SoundExchange acting as the record industry’s collective or on the outcome of regulatory rate-making proceedings. The complaint charges that, although SiriusXM has the legal right to reach out to individual record companies for such licenses, SoundExchange, in collaboration with other record industry organizations, has orchestrated an illegal boycott designed to choke off such competition.
SiriusXM’s direct licensing initiative is beneficial to the Company, listeners, artists and record labels. This filing reflects SiriusXM’s commitment to taking the steps necessary to maintain its rights to conduct business in a free and open market for the benefit of its business, listeners, artists and record companies.
The complaint contends that SoundExchange and other industry trade associations, in concert with numerous individual record labels, have eliminated price competition in, among others, the market for digital transmissions of sound recordings licensable under the statutory licensing provisions of Section 114 of the Copyright Act of 1976. The complaint further contends that SoundExchange and A2IM, along with major music industry organizations, have organized a boycott to prevent independent record companies from negotiating direct licenses with SiriusXM for sound recordings that are included in the Company’s commercial-free music content. As outlined in the complaint, there has been an orchestrated effort against labels looking to negotiate directly with SiriusXM, including mailings to members, public statements released to the media and posted on their websites, board level discussions, direct pressure tactics placed on individual labels known to be considering SiriusXM’s offer and even overt efforts to cause one or more entities that actually signed a direct license to rescind it.
As a result of the complained of conduct, SiriusXM has been forced to deal exclusively with SoundExchange to acquire statutory licenses at higher prices than it otherwise would have obtained through direct licensing with individual record labels. The complaint contends that this conduct and the ensuing boycott violate federal antitrust laws and tortiously interferes in SiriusXM’s business relationships.
SiriusXM has signed nearly 80 direct licenses to date; the Company believes that without the complained of conduct, it would have attained far more. The Company believes that if SoundExchange, the trade associations and major record labels are allowed to continue this conduct, it is likely that similar anticompetitive harm will result to other rights users who are unable to secure direct licenses to rights.
SiriusXM’s Direct Licensing Initiative
As part of a larger effort to manage through the challenging market environment, SiriusXM has sought to manage the cost of its music programming by negotiating royalty rates directly with individual record labels. This interest was further spurred by the extraordinary increases in statutory fees that the record industry, through SoundExchange, advised they were seeking beginning in 2013, and SiriusXM’s desire to enter into a single license covering all of its platforms, including satellite, internet, mobile devices and more. Having one license agreement that encompasses these platforms provides an opportunity for record companies to derive more value than they would by relying on distributions from SoundExchange. Notably, SiriusXM can enter into a unitary license agreement of such scope only through a direct license; it cannot do so under a SoundExchange statutory license. Working with a leading provider of high-volume license administration services with deep expertise in the music industry and with similar direct license programs, SiriusXM began developing a comprehensive direct license proposal for record companies in 2010.
The direct licenses, offered at rates between 5% and 7% of defined revenues, would be powerful evidence of prevailing market rates in the pending 2013-2017 CRB proceeding and stand in stark contrast to the much higher rates proposed by SoundExchange in that proceeding.
The complaint was filed in the United States District Court for the Southern District of New York.
SiriusXM Reports 2011 Results
- Subscribers Grow to Record 21.9 Million
- Record Revenue of $3.01 Billion, Up 7% Over 2010
- Adjusted EBITDA Reaches Record $731 Million, Up 17% Over 2010
- Record Free Cash Flow of $416 Million, Up 98% Over 2010
- 2012 Adjusted EBITDA Guidance Raised to $875 Million
- Company Projects 1.3 Million Net Subscriber Additions in 2012
Sirius XM Radio today announced full year 2011 financial and operating results, including revenue of $3.01 billion, up 7% over 2010 revenue of $2.82 billion, and adjusted EBITDA of $731 million, up 17% from $626 million in 2010.
“We are proud to announce that SiriusXM delivered another record-setting year in 2011, meeting or exceeding all of our guidance. Our strong content and subscriber focus helped set a post-merger record of 1.7 million net subscriber additions, and we achieved record levels of revenue, adjusted EBITDA and free cash flow. We expanded our adjusted EBITDA margins to 24% by tightly controlling costs and growing our revenue. Our improved profitability, coupled with lower capital expenditures, contributed to a substantial increase in our free cash flow,” noted Mel Karmazin, Chief Executive Officer, SiriusXM.
“In 2012, we expect to accelerate our revenue and adjusted EBITDA growth, and we project our free cash flow will jump by approximately 70% to$700 million. Our subscriber base will once again end this year at another all-time record high,” said Karmazin. ”We continue to invest in improving the subscriber experience, all with the goal of keeping our subscribers engaged and entertained. All of us here at SiriusXM look forward to another fantastic year of subscriber growth and improved financial performance.”
Additional highlights from 2011 include:
- Subscriber growth continues. Gross additions climbed 12% to an all-time high of 8.7 million, net subscriber additions improved by 20% to 1.7 million from 1.4 million in 2010, and the subscriber base rose to an all-time high of 21.9 million subscribers at year-end. Self-pay net additions were 1.2 million in 2011, up 24% from 1.0 million in 2010.
- Stable churn. Self-pay churn was 1.9% in 2011, in-line with 2010′s results. New vehicle consumer conversion rate was 45% in 2011 compared to 46% in 2010.
- Strong cost controls. Total cash operating expenses rose 3.7%, while fixed expenses declined by 1.9%.
- SAC per gross addition declined. Subscriber acquisition costs (SAC) per gross addition improved by 7% to $55 in 2011 from $59 in 2010.
- Free cash flow grew. Free cash flow climbed to $416 million, up 98% from the $210 million generated in 2010 due to higher operating cash flow and lower capital expenditures.
GAAP net income for 2011 and 2010 was $427 million and $43 million, respectively, or $0.07 and $0.01 per diluted share, respectively.
“We ended the year with $774 million of cash, even after reducing our long-term debt by over $200 million in 2011. Our leverage at year-end improved to 4.1x our adjusted EBITDA on a gross basis and 3.1x on a net basis,” said David Frear, SiriusXM’s Executive Vice President and Chief Financial Officer. ”With no debt maturities due this year and our growing free cash flow, we expect to end 2012 with nearly $1.5 billion of cash.”
FOURTH QUARTER 2011 HIGHLIGHTS
Fourth quarter 2011 revenue of $784 million was up 7% from the $736 million in the fourth quarter of 2010, while adjusted EBITDA was $167 millionin the fourth quarter of 2011, up 16% from the $144 million in the fourth quarter of 2010.
Highlights from the fourth quarter include:
- Net subscriber additions climb. Net subscriber additions were 542,966, up 65% compared to the fourth quarter of 2010. Net self-pay subscriber additions were 374,432, an increase of 7% versus the fourth quarter of 2010.
- SAC per gross addition improves. Subscriber acquisition cost (SAC) per gross subscriber addition was $55 in the fourth quarter of 2011, a 5% improvement from the $58 reported in the fourth quarter of 2010.
- Churn remained stable. Average self-pay monthly customer churn was 1.9% in the fourth quarter of 2011, in-line with the 1.9% reported in the fourth quarter of 2010. New vehicle consumer conversion rate was 44% in the fourth quarter of 2011 compared to 45% in the fourth quarter of 2010.
- Free cash flow rises. Free cash flow in the fourth quarter of 2011 was $192 million, an increase of 15% compared to $167 million in the fourth quarter of 2010.
GAAP net income (loss) for the fourth quarter of 2011 and 2010 was $71 million and ($81) million, respectively, or $0.01 and ($0.02) per diluted share, respectively.
The discussion of adjusted EBITDA excludes the effects of stock-based compensation and certain purchase price accounting adjustments. A reconciliation of non-GAAP items to their nearest GAAP equivalent is contained in the financial supplements included with this release.
2012 GUIDANCE
The Company expects its subscriber base to grow by approximately 1.3 million net subscribers and end the year at approximately 23.2 million. The company now expects adjusted EBITDA in 2012 of approximately $875 million, an increase from prior guidance of $860 million. The Company reiterates its existing 2012 revenue and free cash flow guidance:
- Revenue of approximately $3.3 billion, and
- Free cash flow of approximately $700 million.
“With auto sales expected to rise in 2012, and what appears to be only a modest increase in churn associated with our January price increase, we expect to grow our net new subscribers by roughly 1.3 million in 2012, continuing our strong multi-year track record of subscriber growth,” said Karmazin.
The Full 2011 reports can be viewed here.
Sirius XM Radio to Announce Full Year and Fourth Quarter 2011 Results
Sirius XM Radio today announced that it plans to release full year and fourth quarter 2011 financial and operating results on Thursday, February 9, 2012.
SiriusXM will hold a conference call at 8:00 am ET on Thursday, February 9, 2012 to discuss these results. Investors and the press can listen to the conference call via the company’s website, www.siriusxm.com, and on its satellite radio service by tuning to Sirius channel 94 or XM channel 145. The call will also be available on the Sports Zone channel on SiriusXM Internet Radio as well as through the SiriusXM Internet Radio App for the Apple iPad, iPhone, and iPod touch, and on BlackBerry and Android-powered smartphones.
SiriusXM Adds Approximately 1,700,000 Net Subscribers in 2011
Sirius XM Radio at a conference today announced that it ended the year with nearly 21.9 million subscribers, reporting approximately 540,000 net new subscribers in the fourth quarter and approximately 1,700,000 for the full year 2011.
“Based on preliminary subscriber data, we are very pleased to announce that SiriusXM exceeded its subscriber guidance for the year. Our subscriber growth accelerated in 2011 as net additions grew approximately 20%, delivering our best year for net additions since the merger and demonstrating the strong continuing demand for our unmatched audio content,” said Mel Karmazin, Chief Executive Officer, SiriusXM.
The company reiterated its existing financial guidance for 2011 and 2012 and expects to announce 2012 subscriber guidance and complete 2011 results in February.
BBC Radio 1′s The Official Chart with Reggie Yates to Air on SiriusXM
Sirius XM Radio announced today that it will air BBC Radio 1′s weekly show The Official Chart with Reggie Yates on 20 on 20, channel 3, beginning Sunday, January 15 at 4:00 pm ET.
The weekly countdown show will feature Reggie Yates counting down the UK’s top 40 songs of the week. The Official Chart with Reggie Yates will air on Sundays at 4:00 pm ET.
“We are always looking for ways to help our subscribers discover new music and track rising stars across many of our channels,” said Scott Greenstein, President and Chief Content Officer, SiriusXM. “The Official Chart with Reggie Yates is yet another way we offer our listeners the opportunity to discover the best new talent from an impeccable source, and it’s another way we keep our listeners connected to the BBC Radio 1 programming.”
BBC Radio 1 is available 24/7 on SiriusXM Internet Radio and on smartphones and mobile devices. In addition to being available online, SiriusXM airs “Live from the BBC Vault,” the series featuring concert broadcasts from the extensive and wide-ranging BBC Radio archive, on many of its music channels.
SiriusXM Reports Record Third Quarter 2011 Results
- Subscribers Exceed 21.3 Million, Net Adds of 334,000
– Record Revenue of $763 Million, Up 6%
– Record Adjusted EBITDA of $197 Million, Up 16%
– Free Cash Flow of $75 Million, Up 22%
– Net Income of $104 Million, Up 54%
Sirius XM Radio today announced third quarter 2011 results, including 21.3 million subscribers, net subscriber additions of 334,000, revenue of $763 million, up 6% over third quarter 2010 revenue of $718 million, and adjusted EBITDA of $197 million, up 16% from $170 million in the third quarter of 2010.
“In the third quarter, we once again delivered record levels of subscribers, revenue and adjusted EBITDA, and we are confident our positive momentum will continue in the fourth quarter. This has been an exciting year for SiriusXM, but I’m even more excited by the many opportunities awaiting us in 2012. We plan to accelerate our revenue and adjusted EBITDA growth, deliver more free cash flow than ever before, and we are thrilled to offer exciting new content and innovations to our existing and future subscribers,” said Mel Karmazin, Chief Executive Officer, SiriusXM.
Highlights from the quarter include:
- Free cash flow improves. Free cash flow in the third quarter of 2011 was $75 million, a 22% improvement from the $62 million reported in the third quarter of 2010.
- Subscribers reach new record high. Subscribers increased by 7% year-over-year to 21,349,858 at September 30, 2011. Self-pay net additions in the third quarter of 2011 were 364,004, up 41% from 258,105 in the third quarter of 2010, and the self-pay subscriber base reached an all-time high of 17,534,310, up 7% year-over-year.
- Churn stable. Average self-pay monthly churn was 1.9% in the third quarter of 2011, in-line with 1.9% in the second quarter of 2011 and the third quarter of 2010.
- Cost Efficient Growth. Total cash operating expenses increased only 2.7% over the prior year quarter, while revenues increased 6% over the prior year quarter, resulting in an expansion of our adjusted EBITDA margin to a record 25.8%.
Net income in the third quarters of 2011 and 2010 was $104 million and $68 million, respectively, or $0.02 and $0.01 per diluted share, respectively.
“We ended the third quarter with more than $600 million of cash and cash equivalents,” said David Frear, SiriusXM’s Executive Vice President and Chief Financial Officer. ”Our ratio of net debt to adjusted EBITDA declined to 3.4x at the end of the third quarter of 2011 from 4.5x at the end of the third quarter of 2010. Our free cash flow for the first nine months of 2011 of $224 million exceeded the $210 million of free cash flow generated for the entire year of 2010. With the seasonally strong cash flow of the fourth quarter ahead of us, declining capital expenditures, the anticipated substantial 2012 growth in EBITDA and free cash flow, and declining debt maturities in 2012 our liquidity will continue to rapidly improve,” added Frear.
The discussion of adjusted EBITDA excludes the effects of stock-based compensation and certain purchase price accounting adjustments. A reconciliation of non-GAAP items to their nearest GAAP equivalent is contained in the financial supplements included with this release.
2011 AND 2012 GUIDANCE
SiriusXM reiterated the following subscriber and financial guidance for 2011:
- Net subscriber additions of 1.6 million,
- Full year self-pay churn and conversion rates for 2011 should be broadly similar to those seen in 2010,
- Revenue of approximately $3 billion,
- Adjusted EBITDA of approximately $715 million, and
- Free cash flow approaching $400 million.
For 2012, the company reiterates its existing financial guidance:
- Revenue growth of 10% to approximately $3.3 billion,
- Adjusted EBITDA growth of 20% to approximately $860 million, and
- Free cash flow growth of 75% to approximately $700 million.
Sirius XM to raise the price on basic service
Sirius XM Radio will be raising the price of it’s basic service on January 1st 2012 to $14.49 (+ Royalty Fees). This will be the first price increase since 2002. Sirius XM was in a price freeze for the past 3 years since the merger was approved in 2008 but the price freeze was lifted by the FCC earlier this year.
Sirius XM also plans on adjusting prices to their other services on Jan 1st (Second Radio, Best Of…etc..etc..) but no statement was made on which services would be changed.
“This is the first price increase on our basic service packages since the addition of the NFL, NASCAR, Howard Stern, Martha Stewart and many college sports to our programming line-up,” CEO Mel Karmazin said in a statement earlier today. According to Karmazin the price increase amounts to a nickel more per day, which is still a great value for all the programming listeners can access.
Sirius XM plans on launching Satellite Radio 2.0 next month which will include 30 additional channels. There is still no released pricing structure for the new service.
Report: SiriusXM Satellite Radio 2.0 to launch next month
According to Joseph Palenchar at Twice.com, VP of retail sales Mike Roberts announced that Satellite Radio 2.0 will launch next month.
Robert’s said the first universal tuner, intended for in-vehicle installation and connection to multiple brands of satellite-ready head units, will not support 2.0 service, but a new version will be available with 2.0 compatibility next year.
Satellite Radio 2.0 will offer 30 additional channels of service which will be transmitted through XM Radios satellites. Sirius Satellites will not broadcast the new service and Roberts expects auto makers currently offering Sirius receivers to move to the XM platform. It has been a rumor that Sirius XM would slowly transition to the XM platform and Satellite Radio 2.0 looks to be the first step towards the transition.
As previously mentioned the two new Satellite Radio 2.0 receivers will offer replay and time-shift functions (some current models already offer this function). The additional channels will also be available through Sirius Xm online, these On-Demand Music and Talk channels should be available by early next year.
According to Roberts Sirius XM will use “Bandwidth Cloning” technology to offer these 30 additional channels with no loss in audio quality.
More information as it becomes available.
Mel Karmazin to Present at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference
Sirius XM Radio today announced that Mel Karmazin, its Chief Executive Officer, is expected to speak at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference in Beverly Hills, CA, on Wednesday, September 14, 2011 at approximately10:30 am PT.
An audio webcast of the presentation will be available via the Investor Relations section of the company’s website, www.siriusxm.com.
SXM 2.0: SiriusXM Is Attempting to License Music Directly From Labels
According to a report by Billboard.biz SiriusXM Radio, via Music Reports Inc., is attempting to directly license music from record labels, bypassing their current licensing deal with SoundExchange.
SiriusXM is looking to expand it’s licensing which would give more functionality to current subscribers. The new licensing agreement would allow subscribers to record programming blocks and also rewind and fast-forward the recorded segments. Additionally SiriusXM would offer the ability to have music cached locally on Radios (Sirius XM 2.0 Compatible Radios) and Applications (SiriusXM App) that support the feature. SiriusXM would also need to obtain a waiver from the sound recording performance complement of the Digital Millenium Copyright Act, which currently limits how many times songs from a single artist can be played within an hour.
According to the report SiriusXM will not allow subscribers to transfer music to other devices and once a subscription expires all cached and recorded content will not be accessible.
Sirius is offering to pay a royalty rate of 7% gross revenues. SiriusXM currently pays 7.5% to SoundExchange (SoundExchange deducts its overhead costs before paying out collected royalties). According to the report royalty rates are scheduled to increase to 8% in 2012.
According to a statement from SiriusXM ”We’ve had a mutually beneficial partnership with the music industry for years and we welcome the opportunity to strengthen that relationship by entering into direct licenses with all record labels regardless of size. SiriusXM provides a unique opportunity for artists to be heard by a national audience of more than 21 million subscribers and nearly 40 million listeners. SiriusXM listeners have diverse listening interests that are not satisfied by other audio entertainment platforms and regard SiriusXM as an influential platform for new and established repertoire.”
If SiriusXM moves to direct licensing the full royalty rate will be paid directly to the labels. Currently SoundExchange makes payments and splits royalties evenly between the artist and the label. Labels that directly license music to SiriusXM would then be responsible for paying the artist.
The most important part of this deal for SiriusXM is the ability to add the new functionality to subscribers, royalty payments aside moving to Direct Licensing is the most important aspect for Sirius XM 2.0.
It was also mentioned earlier this week that SiriusXM would be raising prices due to the FCC lifting the merger price freeze, expect the 1% Raise in Royalty Fees to be passed on to listeners once this deal is complete.
