Sirius XM Radio Inc. (NASDAQ: SIRI) is about to face higher royalty payments that have to be paid to musicians and artists for their work. The company disclosed in an SEC filing on Monday that on December 14, 2012, the Copyright Royalty Board of the Library of Congress issued its determination regarding the royalty rate payable under the statutory license covering the performance of sound recordings over our satellite digital audio radio service. This also pertains to the making of server copies in support of such performances for the five-year period starting January 1, 2013 through December 31, 2017.

The royalty rate is 8.0% in 2012. The good news for Sirius is that the hikes may not be universal and it can appeal the decision. Here is a list of what the new rates are going up to as a percentage of gross revenues (subject to certain exclusions):

• 9.0% of gross revenues for 2013
• 9.5% for 2014
• 10.0% for 2015
• 10.5% for 2016
• and 11% for 2017

Sirius XM said,

The revenue subject to royalty includes subscription revenue from our U.S. satellite digital audio radio subscribers, and advertising revenue from channels other than those channels that make only incidental performances of sound recordings. Exclusions from revenue subject to the statutory license fee include, among other things, revenue from channels, programming and products or other services offered for a separate charge where such channels make only incidental performances of sound recordings; revenue from equipment sales; revenue from current and future data services (including video services) offered for a separate charge; intellectual property royalties received by us; credit card, invoice and fulfillment service fees; and bad debt expense. The regulations also allow us to further reduce our monthly royalty fee in proportion to the percentage of our performances that feature pre-1972 recordings (which are not subject to federal copyright protection) as well as those that are licensed directly from the copyright holder, rather than through the statutory license.

As far as any appeals are concerned, the filing said:

The parties have fifteen days from the December 14, 2012 determination to move for rehearing. Once the CRB has considered any rehearing motions and responses to such motions, the Librarian of Congress will publish the final determination in the Federal Register. The parties will have thirty days from that publication to appeal the decision to the U.S. Court of Appeals for the District of Columbia Circuit.

Shares of Sirius XM are down more than 1% so far in premarket trading at $2.87, and the 52-week trading range is $1.78 to $2.97.

JON C. OGG

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