Satellite Radio Versus the Music Industry

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This article was published by ComputorEdge, issue #2542, 2007-10-19, as a feature article, in both their print edition (on pages 17-18) and their website.

Philosophers have debated over what would happen if an unstoppable force were to encounter an unmovable object. In the far more material world of the modern music industry, the closest analogy to that scenario, is the hard charging satellite radio services running headlong into the bean counters of the music companies, in the form of the RIAA, the Recording Industry Association of America.

The typical music aficionado would undoubtedly argue that the top satellite radio services — SIRIUS Satellite Radio and XM Satellite Radio — represent an unstoppable force in audio entertainment. At least, if fans had their druthers, satellite radio would be unstoppable, as suggested by the tremendous popularity and growth of these services. Together they offer hundreds of channels featuring commercial-free music, sports, news, and talk radio, to subscribers who pay a monthly fee.

On the other side of the global arena, we find the RIAA making every effort to be an unmovable object and to serve as a roadblock to unfettered music distribution. Industry executives, as a whole, as well as their legal pit bulls, have opposed the sharing of music ever since the glory days of Audiogalaxy and Napster (prior to their neutering). The RIAA in the United States, and their counterparts in other countries, have had little difficulty in getting judges to agree that the unauthorized distribution of music files is a form of copyright infringement.

When the entrepreneurs of satellite radio first conceived their business model, and began implementing it at full speed, they probably figured that any legal rulings against file sharing networks would not apply to their own field, since the music and other audio content is streamed to the subscribers' satellite radios, which immediately emit the content, without storing any of it, and certainly do not permit sharing it with non-subscribers. They probably believed the same would be true for their handheld devices that allow later playback, since there is again no sharing among users.

Serious Money

Not long after their inception, the satellite radio services were expanding their subscriber bases, in addition to their offerings, as fast as they could. Aside from the usual technical and marketing challenges of creating successful new businesses, they were moving forward at a rapid pace, and their loyal customers were enjoying the unprecedented variety of audio content, without the obnoxious commercials of AM and FM radio. The companies weren't making boatloads of cash, but they were certainly viable, and making employees and subscribers happy.

These broadcasters received their first warning of future conflict in June 2005, when the RIAA sent a letter to the Federal Communications Commission (FCC) that characterized subscribers' ability to record music from satellite digital broadcasts as a "perfect storm" bearing down upon the music industry. It was eerily reminiscent of the equivalent complaints issued by the music industry ages earlier, when cassette tape manufacturers were hit by similar lawsuits.

Eventually, the major music labels learned back then that by not enforcing any sort of ban of music sharing via cassettes — which would have failed anyway — they benefited from greater sales of records and cassettes, as people discovered albums, bands, and even entire music genres that they otherwise would not have become interested in, had they not first heard the music from a shared cassette tape. They say that every generation has to learn on their own the lessons learned by the previous generation, and the music industry is probably no exception.

For the satellite radio entrepreneurs, the storm warning was fearful enough that in March 2006, Sirius cut a deal with the RIAA, agreeing to pay the RIAA an undisclosed license fee for every one of its S50 recording devices sold.

eXtra Money

Sirius's rival, XM, was engaged in similar talks with the RIAA, as a result of their own hand-held digital audio device, the Pioneer Inno, which allows subscribers to store the XM streamed content, for later playback, but without the ability to transmit that content to other people — such as on a file sharing network — or even other XM subscribers.

For XM and its customers, the brewing storm clouds broke on 17 May 2006, when the RIAA filed suit in New York against XM for what it termed "massive wholesale infringement" of music copyrights. The lawsuit was aimed against the Inno, which allows subscribers to download up to 50 hours of content, including music. The RIAA argued that XM should have paid royalties for the distribution of music controlled by the RIAA, and had failed to do so.

In the lawsuit, the RIAA sought the phenomenally huge sum of $150,000 per "violation", i.e., every song received by an XM's customer's device and recorded on it! The music association litigants held that the Pioneer Inno effectively turns the XM radio broadcast into a type of download service, much like Apple's iTunes in the realm of music, and the TiVo in the realm of movies and other audio/video media.

At the time, XM stated that it would defend itself vigorously against the lawsuit, pointing out that the music and other audio content cannot be moved off of any individual Inno, and expires if and when the customer cancels their subscription. Furthermore, the device does not allow people to even download music on demand, as does iTunes. In fact, for decades, conventional radio show listeners have been allowed to record broadcasts for later use. The Audio Home Recording Act (AHRA), passed by Congress in 1992, sanctions such recording as long as it is for personal use only.

Music for the Masses

More recently, the RIAA dug its heels in even deeper, prompted by the news that Sirius Satellite Radio and XM Satellite Radio were considering merging. On 9 July 2007, the RIAA filed comments with the FCC asking for the federal agency to "make clear that its approval of a merger is conditioned upon the continued protection of sound recordings from unlawful infringement." The organization demanded that the company resulting from any merger support protection against the copying of music.

But naturally that's not all. The RIAA wants the government to "require the merged companies to pay higher royalty rates to the record industry," simply because the two broadcasting companies were no longer struggling startups, and the result of any such merger would be a multibillion-dollar firm. Presumably this means that, as a more substantial corporate entity, Sirius/XM would have the deep(er) pockets to pay royalty amounts even greater than what the RIAA had agreed to before.

Perhaps the RIAA lawyers have been brushing up on their philosophy studies, for Karl Marx argued, "From each according to his ability". Apparently the RIAA believes this maxim applies to satellite radio companies, but not to the media titans represented by the association.

In the battle between music owners and distributors, even the most erudite philosophers could not know which force will prevail.

Copyright © 2007 Michael J. Ross. All rights reserved.