A federal district judge has ruled that a class action suit may proceed against SIRIUS XM Radio Inc. (NASDAQ: SIRI) for alleged antitrust violations. Sirius must defend itself, of course, but whether it wins or loses ultimately depends on the success of the streaming music services that are rapidly gaining traction in the music marketplace.

Earlier this week, Amazon.com (NASDAQ: AMZN) announced the launch of a cloud-based locker service through which a customer can store music files on Amazon’s cloud servers and then stream the music to multiple devices. Apple Inc. (NASDAQ: AAPL) and Google Inc. (NASDAQ: GOOG) are both believed to be preparing to launch similar services.

In the Sirius lawsuit, a group of subscribers have claimed that the company’s music royalty fees amounted to an abuse of Sirius’s monopoly power following its merger with XM Radio in 2008. The fees raised subscription prices by nearly 30%, according to a report in Bloomberg.

A Sirius spokesman remarked that with the increasing competition in the music-serving business, the company believes the suit is “without merit.” He’s probably right, of course, but that is not altogether a win for Sirius.

Sirius is really just a ubiquitous radio station, with DJs and talk shows (think Howard Stern), and scheduled programming. Subscribers need a Sirius player in every location where they want to listen to music. The streaming services allow subscribers to have access to more music on more devices that the subscriber already owns.

The most attractive device by far is the smartphone. Using a smartphone as a music player eliminates the need for a dedicated device like an iPod or other MP3 player. Music can also be streamed to the various Internet TV boxes coming on the market. Streaming services like Pandora, Rhapsody, Mog, Spotify, and Rdio, to name the best known, give subscribers access to as many as 10 million or more tunes that can be played on any connected device for a monthly subscription fee of around $10.

As soon as the streaming services are able to convince the music industry that CDs are history and that the new model is one in which listeners just want to listen to music without owning it, the old radio model that Sirius follows will disappear. It may take a few years, but Sirius radio will inevitably have to change or it will implode.

Another issue the streaming services face is convincing music fans that renting music is as good as owning it. Will subscribers pay $120 a year for access to millions of songs instead of, say, 8 or 10 physical CDs? It appears to be an offer that is too good to refuse, but people are always more comfortable with the devil they know than the devil they don’t.

And Sirius is one of the devils we know. It’s just a radio station with a very strong transmitter. It will survive the current lawsuit, win or lose. The real question is whether it will survive the coming shift in the way people listen to music.

When cases get life again this far after the fact, it might make some wonder if a suit review for hanging chads in Florida can get revived.  If investors had real fears there would probably be at least some reaction in the stock.  SIRIUS XM shares are flat right after the open at $1.73.

Paul Ausick

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.