John Paczkowski

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Fee Increase Coming for Sirius XM Subscribers [Internal Doc]

sirius-150x150Sirius XM (SIRI) fans will see their subscription rates rise by nearly $2 this summer. According to an employee training document, the company plans to pass on to subscribers the cost of increased performance royalty rates for satellite radio instituted by the Copyright Royalty Board in 2007. Sources say the increase will amount to about $1.98 per month when it is implemented on July 29. Users with multiple radios will pay about half that. Sirius is billing the additional cost as a sort of tax, and insists it is not increasing its base subscription price. Sirius XM failed to respond to multiple requests for comment. The document in full, after the jump.

US Music Royalty Fee Overview
As an ongoing part of our business, SIRIUS XM must pay copyright music royalties to music companies and music publishers. These royalties have risen dramatically over the past few years, as a result of decisions of the Copyright Royalty Board (CRB). SIRIUS XM has tried to keep these fees as low as possible but in the end, the company has very limited influence over these payments. The FCC decision approving the merger between SIRIUS and XM allows the company to pass through to Subscribers any federally mandated increases in music royalties that we must pay, since March 20, 2007. The FCC decision allows us to pass through this fee increase to our Subscribers and the company has chosen to do this with the U.S. Music Royalty Fee.

The US Music Royalty Fee will be applied to all music subscriptions that SIRIUS XM offers. The fee will be implemented on July 29th, 2009. The existing Subscriber base will receive this fee on their first billing after this date. The fee will be applied to all satellite plans with music content on a Monthly, Quarterly, Semi-Annual and all Annual Savings Plans. Lifetime Subscribers, who have purchased prior to July 29th, will never receive the US Music Royalty Fee. Since the online products are not satellite based they will not incur the U.S. Music Royalty Fee. Once the fee is introduced on July 29th, any new activation or conversion will include the fee. As we go through this training, you will gain a better understanding of how this fee is applied and how to explain it to the Subscribers. We will be going through different scenarios so you can understand why we are passing this fee onto our Subscribers, how to diffuse irate Subscribers, and how the Subscriber can truly benefit by adding longer term plans.

FAQ

Below are examples questions you may receive from Subscribers regarding the US Music Royalty Fee. Use Answers below (as verbatim) when answering questions about why there is a US Music Royalty Fee or costs associated with the US Music Royalty Fee.

What is this US Music Royalty Fee?
Unlike land based radio, both SIRIUS and XM are required to pay copyright music royalties to recording artists, musicians and recording companies who hold copyrights to lyrics and music.

Why are you increasing your price?
We are not increasing our base price which will remain at $12.95/month for most Subscribers.

Why are you charging me this fee?
US Music Royalty rights were established by Congress and are a product of the copyright ACT, the copyright royalty board which sets the rates SIRIUS XM must pay the music industry has increased the rates dramatically. Unfortunately we can no longer absorb these increased costs.

Who makes up the Copyright Royalty Board (CRB)?
The Copyright Royalty Board consists of three Copyright Royalty Judges who determine rates and terms for copyright statutory licenses and make determinations on distribution of statutory license royalties collected by the United States Copyright Office of the Library of Congress. The Board, made up of three permanent copyright royalty judges, was created under the Copyright Royalty and Distribution Reform Act of 2004, These administrative judges are appointed by the Librarian of Congress

Why does it cost so much?
The Copyright Royalty Board which sets the rates SIRIUS XM must pay the music industry have increased the rates dramatically. Unfortunately the Company can no longer absorb these increased costs and must pass them on to subscribers as a US Music Royalty Fee. Is there any way to avoid this charge? Absolutely, for our Subscribers who previously purchased a long term plan, we will continue to absorb these costs until the next renewal date. If you renew and extend your current subscription before July 29, 2009 we will continue to absorb these increased royalty costs until your next renewal date. I can tell you about some our great savings plans.

FCC Ruling stated you can’t raise your price, why are you doing it?
This fee is consistent with our commitment not to raise the base price of specific service plans for three years after the merger. The FCC did however permit us to add this fee to our price beginning July 29, 2009.

How does this relate to the March Increase?
It is unrelated; the US Music Royalty Fee is to recover royalty cost increases that are outside of the control of SIRIUS XM.

I just locked in for MRD, why are you increasing it again?
If you purchased a multi-month plan to lock in a lower price or to retain free streaming, the US Music Royalty Fee will not affect you until the next renewal date for the Plan you purchased.

Who gets the money?
The US Music Royalty Fee will be used to offset payments from SIRIUS XM to the music industry.

Do you foresee any changes in the fee?
The Copyright Royalty Board sets the fees that SIRIUS XM is required to pay. The fee is expected to increase by one half percent per year through 2012.

Why did you decide to charge a US Music Royalty Fee rather than adding the increase to the subscription fee?
The FCC order requires that we detail the royalty increase for our Subscribers.

Why is the US MRF taxed?
Under applicable tax regulations, it has been determined that the US MRF is a taxable charge.

I only listen to news and talk radio, so why should I be charged the US MRF?
I understand, however, it would be impossible to calculate the US Music Royalty Fee based on individual listening patterns of our Subscribers.

You recently increased the price of my second radio by $2.00. Now you are adding a US MRF of $.97. Isn’t this too much?
The discounted second radio price of $8.99 is still a 30% savings over our standard fee. The addition of a US Music Royalty Fee is necessary due to the dramatic increase in royalties that we have been forced to pay the music industry.

Was I paying this fee previously as part of my subscription price and now am I paying for it separately?
Until July 29, 2009 the FCC required SIRIUS XM to pay the royalty increases, however the order provided the ability for us to pass along these royalty cost increases beginning July 29, 2009.

If I have an A La Carte subscription am I only paying the fee on the music channels?
That’s a great question, SIRIUS -XM is obligated to pay the US Music Royalty Fee based on the content available in packages, unfortunately we are not able to customize the fee for individual Subscribers.

Is there a way to reduce this cost–can I switch my subscription package to mostly music
You may switch to a mostly music package, which will save you $.45 a month in US Music Royalty Fees, but if you do that, you will be giving up over xx channels (different for SIRIUS and XM) of great programming. However, let me tell you about some of our great savings plan which will allow you to delay the US Music Royalty Fee for the term of that plan.

I have an online radio subscription; do I pay a royalty fee on that?
No, the music royalties associated with satellite delivery and internet delivery of music content are different. The royalties associated with internet listening is absorbed in the subscription price.

I have 2 subscriptions a Best of and a SIRIUS Everything why is the fee the same on both subscriptions?

The US Music Royalty Fee is based on music; the channels included in the Best of portion of your package do not include large amounts of music, so no US Music Royalty fee is due on that portion of your subscription.

UPDATE: Looks like someone leaked this doc to XMFan as well. Lot’s of interesting discussion there, if you’re interested in reading further.


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