SIRIUS XM Antitrust Suit... Prelude to Margin Squeeze, or a Price Hike (SIRI)

Investing

Published: March 28, 2012 9:31 am

Last Updated: April 28, 2020 4:56 am

SIRIUS XM Radio Inc. (NASDAQ: SIRI) is in the news after it filed a complaint against SoundExchange, Inc. and American Association of Independent Music (“A2IM”). The suit alleges that these two organizations are “unlawfully interfering in SiriusXM’s efforts to secure, through a competitive market, copyrights critical to its business.”

What is interesting here is that the implications are serious if you read through the charges. In the most extreme outcome, SIRIUS XM could face far higher royalty payments for content ahead. That either means reduced margins or implies higher prices that have to be passed down to the consumers who pay to subscribe to SIRIUS XM’s satellite radio service.

Ultimately, the charge is that SoundExchange is in collaboration with other record industry organizations and that it “has orchestrated an illegal boycott designed to choke off such competition.” SIRIUS pays less under the direct licensing model and the company is taking the stance that the organizations here are making it more costly.

SiriusXM noted that it has signed nearly 80 direct licenses to date, but it maintains that it would have attained far more direct licenses without this group involvement.

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. Full details of the charges are here.

Why does this sound somewhat like the jukebox and mob ties of years past?

At $2.25, SIRIUS XM shares have traded in a range of $1.27 to $2.44 over the last year and Thomson Reuters lists a consensus price target of $2.52.

JON C. OGG

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