Sirius XM Comes Under Fire

Some legal cases never die.

A class-action complaint that was originally filed against Sirius XM Radio (Nasdaq: SIRI  ) two years ago is moving ahead. A U.S. District judge is allowing the antitrust claims to proceed, while stripping away claims of consumer-protection violations.

The certified case that lives on involves three price hikes that the satellite radio provider introduced shortly after the merger between Sirius and XM.

  • Sirius XM began charging $8.99 a month -- a $2 increase -- to activate additional receivers under the same primary account in March 2009.
  • Sirius XM also improved the quality of its Web-based streaming at the time, charging an additional $2.99 a month for access. The original lo-fi streams used to be included with monthly receiver plans.  
  • A few months later, most accounts began paying an extra $1.98 a month to cover higher music royalties going out to record labels, musicians, and publishers.

The hikes weren't insignificant. A subscriber paying $12.95 a month would now be paying for a pair of activated receivers would now be paying 38% more with the music royalty fee and streaming access. Then again, no one was forcing them to pay up.

Subscriptions dipped during the first two quarters of 2009, but it's hard to pinpoint how much of that was a backlash to the rate increases. The country was clawing its way out of the recession, and new car sales were slumping.

Sirius XM bounced back after the lull, posting sequential subscriber growth in the six subsequent quarters.

The satellite radio giant isn't violating the terms of its merger that called for at least a three-year freeze in primary rates, though this lingering case may lead to regulators thinking twice about giving Sirius XM open pricing access as we approach the deal's third anniversary this summer.

In Sirius XM's defense, the case that was allowed to proceed essentially alleges monopolistic abuse. It's won this argument before. Sirius XM wouldn't even be here as a combined entity if it had fallen short on that front. It should have an easier time to clear antitrust hurdles now given the wider proliferation of smartphones and dashboard connectivity.

Thanks to Bluetooth, USB ports, and audio jacks in many new cars, it's no longer a choice between terrestrial and satellite for fresh programming. It's not just about Pandora and Slacker for music or Stitcher for talk. Terrestrial radio is stronger than it used to be now that stations are no longer limited to local transmitter towers. Clear Channel (OTC BB: CCMO.PK), CBS (NYSE: CBS  ) , Entercom (NYSE: ETM  ) , Cumulus (Nasdaq: CMLS  ) , and Radio One (Nasdaq: ROIAK  ) all have smartphone apps for their more popular stations.

Sirius XM may have cornered the market when it comes to satellite radio, but the class-action suit is going to have an uphill battle on the antitrust allegations.

Do you think Sirius XM will prevail in this case? Share your thoughts in the comment box below.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

Longtime Fool contributor Rick Munarriz is a subscriber to both Sirius and XM. He does not own shares in any of the companies in this story. He is also a member of the Rule Breakers analytical team, seeking out the next great growth stock early in its defiance. The Fool has a disclosure policy.


Read/Post Comments (9) | Recommend This Article (1)

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  • Report this Comment On March 30, 2011, at 12:47 PM, Rut67 wrote:

    This is not material. The result, should sirius lose will be the issuance of coupons for two/three months service which will ultimately boost subscribers as participants fall in love with Sirius again. It's no different than ny other class action suit.

  • Report this Comment On March 30, 2011, at 2:37 PM, southernbeachguy wrote:

    Rut67 is correct, people get coupons, but like all class action suits Lawyers will get a few Million dollars. These law suits may be brought in the name of the people, but most of the time initiated by attorneys just to get money. The actual cost to Sirus won't hurt them.

    I'd like to see if the people who are named in the suit are paid by the attorneys to bring the suit. Of course, this is just speculation by me, make your own judgement.

  • Report this Comment On March 30, 2011, at 5:04 PM, draland wrote:

    STOP TRIAL ATTORNEY's from raking I'm million$ on

  • Report this Comment On March 30, 2011, at 5:09 PM, draland wrote:

    ....oooops!

    " from raking IN million$ on frivolous lawsuit$ ; its called TORT REFORM !!!"

  • Report this Comment On March 30, 2011, at 7:17 PM, doubting wrote:

    Interesting headline of the post. There are four material events affecting siri as we speak, namely, two law suits, Japan disaster affecting, among other issues, auto production and rising gas prices allegedly due to Middle East unrest. One would say that this is huge pressure on the stock. Look at the stock resistance... phenomenal!!! Times are gone when such adverse impacts could crush siri. No more. I am sure there will be plenty of great news in 2011 that will raise the stock well past $2 mark. I would not pay attention to cheap rhetoric of basfer and fear mongers. Look at the fundamentals. Q1 CC is around the corner. we will see who is right.

  • Report this Comment On March 30, 2011, at 7:28 PM, Cool700 wrote:

    The lawsuit is a joke. If he does not want SIRIUS XM then go use another service!

    This stinks of a NAB trick! Every company out there does price hikes! Have you bought GAS lately for your car?! Yeah same thing....If I sued the oil companies my suit would be thrown out.

    Have you bought milk lately? Yeah...I guess I should sue the farmers! How ridiculous!

  • Report this Comment On March 30, 2011, at 7:55 PM, Siriusbrit wrote:

    The satellite radio giant isn't violating the terms of its merger that called for at least a three-year freeze in primary rates! exactly!

    Primary rates have remained the same for nearly 3 Years! that alone was a huge restriction on this Company! passing along new fees is not a breach of the original contract, Sirius did not profit from this.

    They also want to propose that the consolidation of some duplicate channels was 'degrading' the users experience! what a load of hogwash! some of these freed up channels were also 'given' to minority groups as part of the merger agreement.

    OK Mel, I expect you to counter sue against this speculative, frivolous lawsuit!

  • Report this Comment On March 30, 2011, at 8:48 PM, kmacattack wrote:

    I also think Rut 67 is right. Over a 30 year period, several companies have been hit with class action lawsuits and the best two deals I ever got as a customer were 1. Met life was sued for misrepresenting projected returns on "universal life" policies. I had just purchased one from our minister, who was selling insurance to supplement his small salary from the church. I paid about $1000 up front, and then discovered that things were not going to happen as far as paying in for a short period of time and the policy being paid up for life. My mother in law bought one of these same types of policies from State Farm, and another from Prudential, paying about $5,000 up front for policies for our two small children, in the expectation that there would be more than enough cash value in the policies for our kids' college education to be paid for completely, because that was what their "projections" indicated. I dropped the Met life policy after realizing that Met Life had lied not only to me, but to my minister who was selling policies based on their "good reputation." I lost my $1,000, was not offered a refund for the down payment as a result of the class action settlement, but could have received a few months' worth of "free premiums" or "free insurance" to compensate me for being misled. In the only other instance, Sprint was sued for overcharging customers, and I received about "$150 worth" of pre-paid phone cards that could be used at pay phones, or from a home phone, but the "value" was about $0.25 per minute, when you could buy phone cards from vending machines for about $0.02 per minute. When I attempted to use the phone cards when on out of state trips, they ususally wouldn't work. Most of them expired unused. The lawyers are the ones who get the money typically in these suits, the company often gets a small slap on the wrist which is nothing compared to the money they were able to steal from their crooked business practices. As for "tort reform", my opinion is that it's generally a bad idea. Liability suits don't add much to the cost of a product, for the simple reason that most big corporations have hundreds of attorneys on staff and they are able to make it so difficult and expensive to sue the company that it takes years to get them into court, and even if you prevail you will very often lose money. Medical malpractice liability is a good example. The liability insurance rates paid by most doctors is a percentage far below workmans comp rates for any constructrion related industry. There is no reason a doctor should have to charge $130 for an office visit which, if you are lucky, includes 5 minutes alone with the doctor. He may be paying $5 for insurance, but I doubt it, unless he is a surgeon or anesthesiologis, etc. and you can't get within a hundred yards of their offices for $130. My wife was permenently injured at work and is now disabled as a result. I will have to fight tooth and toenail in all likelihood to get even a dime from workmans comp insurance, plus I've pretty much had to retire as well to take care of her due to the fact that her injury was Dementia.

    So, my rambling point is that there are two sides to a class action argument and the related argument of "tort reform".

    A real, honest to goodness class action suit with a lot of merit would be something like the chemical cloud in Bopal, India, which I believe bankrupted Union Carbide, and deservedly so. Would your "tort reform," in order to protect a Union Carbide, or a BP, Or Exxon, or a Nuclear Plant operator make sure that the company's interests and solvency would be protected in the interests of PROFIT? Or should there be more weight given to to the human cost, including dead plant workers or people who live nearby and end up killed or disabled through careless neglect and the overwhelming objective of maximizing profits? My vote sides with the human beings, which would exclude corporations which the Supreme Colurt now views as humans.

  • Report this Comment On March 31, 2011, at 4:08 PM, multi007 wrote:

    Rut67 - you were first and right. This is nothing but a blip on the radar.

    Again - another reason for TORT REFORM!

    On a personal note, I hope SIRI does NOT settle. Take this case all the way to its end.

    Bought 1000 mroe shares today on this dip. God - I love these dips. Bought some 2 weeks ago due to the Stern suit dip (thanks Howie!)

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