Sirius XM Radio (NASDAQ:SIRI) didn't just survive last year's 12% rate increase. The satellite radio provider thrived, closing out 2012 with 2 million more subscribers than it had when the year began, despite bumping its basic monthly rate to $14.49 in January.
Now we'll see how things play out on a much smaller scale.
Sirius XM is advising its 23.9 million subscribers that it will be bumping its music royalty fee higher on Feb. 1. Starting with next month's billing cycle, accounts will see their monthly royalty charges go from $1.42 to $1.81 on the most popular Select and Premier pricing plans. The rate for additional receivers under the same account will also go up by a little more than 27% to $1.25 a month.
The music royalty fee in addition to the $14.49 monthly fee isn't new. Sirius XM began to pass on the royalties that it pays out to composers, publishers, artists, and record labels in 2009.
Subscribers didn't flinch then, and it's easy to argue that they won't flinch now. Media consumers are so used to seeing their cable bills creep higher every so often that they don't often realize how much more they are paying for entertainment than they were a few years ago.
The rub for Sirius XM is that unlike cable and satellite television providers that face escalating rates from networks and broadcasters, Sirius XM's costs are actually heading lower. Programming and content costs have declined 1% over the past year, even though its subscriber base has expanded by 9%.
This doesn't mean that Sirius XM is ripping off its customers. Just as Pandora has been lobbying to ease the burden of rising copyright royalties -- that terrestrial radio stations don't pay -- Sirius XM is also forced to pay a larger chunk of its revenue to the music makers with every passing year.
The timing isn't ideal. Most Sirius XM subscribers probably cracked open their first paychecks of 2013 earlier this month to find that their take-home pay is noticeably lower after the end of the payroll tax break that concluded in 2012. Budget-minded families will need to assess what they're willing to do without, and satellite radio may be a casualty.
However, it's hard to bet against Sirius XM here. It faced a much steeper challenge with last January's 12% rate hike, and it went from forecasting just 1.3 million net additions last year to tacking on 2 million net subscribers.
These are certainly interesting times for satellite radio. Liberty Media (NASDAQ:LMCA) finally took majority control of Sirius XM last week, and shuffled up the board over the weekend, with three resigning board members replaced by Liberty Media insiders. Liberty now owns 50.5% of Sirius.
Still, the show must go on. The challenge here is if subscribers will be open to paying more for said show.
Longtime Fool contributor Rick Aristotle Munarriz has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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. The Motley Fool has a disclosure policy.