[BC] More news: Satellite vs Record Co's

Thu Dec 8 11:57:07 CST 2005

Wow- here's an interesting article with many thought-provoking issues.

Willie...

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The Wall Street Journal <http://online.wsj.com/home>

December 8, 2005

PAGE ONE

Music Labels See New Threat
 From Satellite Radio

Receivers That Can Record,
Manage Songs Stir Concerns
Over Copyrights, Royalties
By *SARAH MCBRIDE*
*Staff Reporter of THE WALL STREET JOURNAL*
December 8, 2005; Page A1

The beleaguered music industry faces a new, unexpected threat in its 
battle to protect copyrights and royalties: the arrival in stores of new 
satellite-radio receivers that mimic iPods in their ability to store and 
organize hundreds of songs.

Fast-growing subscription radio services, offered by XM Satellite Radio 
Holdings Inc. and *Sirius Satellite Radio* Inc., provide hundreds of 
channels of music and talk radio to people who buy special radios and 
pay a $13 monthly subscription fee. Some satellite-radio receivers 
already allow listeners to record a few hours of programming.

But with new receivers from XM and Sirius, subscribers can record far 
more music from satellite-radio broadcasts and manage songs as if they 
had bought them individually, for instance by setting up playlists and 
deleting songs they don't like. Because both services offer niche 
channels, it becomes easy for users to quickly find artists or songs 
they want and store them. Sirius, for instance, offers channels such as 
Rolling Stones Radio and Elvis Radio.

That's alarming to the music industry, which gets much lower fees for 
songs that are played on satellite radio than it does for songs that are 
purchased through download services or on CDs, or in the case of labels, 
for songs that play on subscription services like Napster. The music 
industry argues that the new devices are essentially recorders that 
allow consumers to keep songs permanently without paying the appropriate 
fees -- though users must keep subscribing to the satellite services to 
be able to access their recorded songs.

The challenge from satellite radio is the latest example of how 
technology and changing consumer behavior are undermining the 
longstanding business models for record companies, Hollywood studios and 
other creators of entertainment content. The new radio receivers tap 
into deeply held anxieties at record labels, which are trying to embrace 
new technology at the same time they fight off widespread online piracy 
of their product. The music industry already has seen sales of recorded 
music fall steeply in the past six years, in part because of the 
industry's inability to harness new technologies.

[sirius player]
S50 portable music player by Sirius

The new devices "are an iPod that pulls down the satellite signal," says 
David Israelite, president and chief executive of the National Music 
Publishers' Association, referring to the popular digital-music player 
produced by *Apple Computer* Inc. Mr. Israelite's group represents music 
publishers, which are paid different royalty rates depending on how a 
song is used. In general, publishers receive far more for songs 
considered to be purchases than they do for broadcasts.

Adding to the issue's potency: The current agreements under which the 
two satellite-radio companies pay labels for the right to play their 
music are expiring next year and must be renegotiated. Along with the 
separate fees the services pay songwriters, royalty fees equal about 7% 
of the satellite companies' revenue, according to Jonathan Jacoby, an 
analyst at Banc of America Securities.

The labels now want to boost their rates, saying they gave satellite 
favorable rates years ago when it was a struggling new technology. By 
the end of the year, the two services should have nearly 10 million 
paying subscribers between them -- up from slightly more than four 
million a year ago.

Their growth has been helped by the increasing availability of satellite 
radios in new cars and programming additions, most notably the $500 
million, five-year contract that Sirius signed with Howard Stern last 
year to bring his show to satellite starting next month.

The new receivers, which are just coming to market, greatly expand what 
a satellite radio can do. Sirius's S50, which retails for about $330, 
can store one gigabyte of music, enough space for about 750 songs. 
That's more than a comparable iPod, because the song files hold less 
information than an Apple song file. The Sirius device allows users to 
record long stretches of programming, and then edit and organize songs 
much like an iPod. It also has functions helping users navigate recorded 
material to locate music by a particular artist. The device has been a 
hit since being introduced a few weeks ago and is sold out at many stores.

XM's new device, the Nexus, won't be out until early next year, but 
analysts expect strong sales. The Nexus has many similar functions to 
the Sirius receiver, and also allows users to purchase better-quality 
recordings of the songs they like through a partnership with Napster 
Inc. If the listener purchases a song individually, it can be 
transferred to other devices such as computers.

Though portable, the new receivers must be placed in a docking station 
to receive satellite-radio signals -- one more reason that record labels 
tag them as recording devices. They also can store music from sources 
other than satellite-radio broadcasts; for example, users can move 
playlists from their computers to the new players, though they can't 
transfer music captured from the radio to other devices.

Analysts expect that future versions will combine the new features with 
the ability to receive satellite signals anywhere. That will only 
accelerate the merging of radio and recording functionality, likely 
giving more momentum to the satellite medium.

To the music industry, the devices blur the lines between radios and 
recorders. "It's a morphing of radio into something they're not," says 
Mitch Bainwol, chief executive of the Recording Industry Association of 
America, the industry trade group. "The presumption you can turn radio 
into a Napster-To-Go subscription service under the old terms is not 
accurate," he adds, referring to a service that allows consumers access 
to all the music they want for a flat monthly fee.

The satellite companies say there's nothing wrong with the additional 
functions they are offering customers. They point to a 1992 federal law 
that permits consumers to make personal recordings from the radio and 
argue that the storage capability is a legal time-shifting device, 
similar to a digital-video recorder such as TiVo.

Further, they say, treating the songs as purchases rather than personal 
recordings wouldn't fly in courts. "That's a pretty fundamental rewrite 
of copyright law," says Bob Struble, chief executive of Ibiquity Digital 
Corp., which developed some of the digital broadcasting technology both 
satellite providers use.

Satellite providers also say the labels should be thanking them, not 
complaining about their new products. "We provide a powerful promotional 
platform that drives the sales of music for artists, in particular, for 
many artists ignored by traditional radio," says Hugh Panero, XM's chief 
executive, who says research shows his subscribers are more likely to 
buy large numbers of CDs than the general population. Unlike regular 
radios, satellite receivers display titles and artists while songs play, 
so listeners know what to ask for at a record store. Similarly, a Sirius 
spokesman says the satellite company "supports the music industry in a 
way the [conventional] radio industry does not."

With negotiations coming next year, satellite providers and record 
labels have been exchanging letters and phone calls. But neither shows 
signs of backing down.

And soon, the recording industry may be fighting far more radio players 
than XM and Sirius. New digital radio technology is expected to allow 
consumers of free radio to capture any song they like with the press of 
a button, right onto an AM/FM receiver.

*Write to *Sarah McBride at sarah.mcbride at wsj.com 
<mailto:sarah.mcbride at wsj.com>^1

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