Music Biz Grumbles Again

Multiple scientific theories suggest that when dinosaurs went missing some 65 million years ago, it was due to a massive meteor strike. While it's impossible to know the truth without help from Mr. Peabody and the Wayback Machine, we can be reasonably certain that it was death from above for all but the hardiest of the giant lizards.

The music industry as we've known it may soon be visited by its own set of dire threats from the heavens. Thursday's edition of The Wall Street Journal reported that industry bigwigs have become increasingly concerned with new devices from Sirius Satellite Radio (Nasdaq: SIRI  ) and rival XM (Nasdaq: XMSR  ) that can pause, record, and replay live satellite radio broadcasts. Apparently at issue is whether such functions constitute pirating music. Obviously, the "satrad" duopoly -- as Sirius and XM have come to be known -- believes it doesn't. Trade groups such as The National Music Publishers' Association and the Recording Industry Association of America, though, beg to differ.

The Journal writes that the tussle between music labels and satrad is due to come to a head next year, when existing royalty agreements expire. Neither side shows signs of backing down. And that's good for, well, nobody.

Think about it. CD sales have fallen in four of the past five years, yet Apple (Nasdaq: AAPL  ) had sold more than a half-billion digital music downloads through July. And while a giant like Warner Music Group (NYSE: WMG  ) does more than $3 billion a year in business, its primary growth driver is digital music. That means both downloads and satellite radio. It's no different for the other labels.

Not that the satrad duopoly has it any easier. For one, XM and Sirius are spending like mad to acquire new subscribers. Even market leader and Motley Fool Rule Breakers pick XM brought in only $10.69 per customer per month while shelling out $53 per new listener during the quarter ended in September, according to the recently filed 10-Q. Rising variable costs such as royalty fees could make that gulf even wider, thus delaying long-awaited profitability.

The truth is that the music biz and satellite radio need each other. Badly. But if the relationship goes sour, my money is on satrad. Why, you ask? Already, channels such as XM Cafe -- which made a recent appearance on Donald Trump's weekly ego boost, The Apprentice -- are proving that unknown artists can pull listeners. If that continues (and is there really any reason to believe it won't?), then the next big artist could be produced without a label.

In fact, the early signs of just such a revolution were revealed when upstart social networking site MySpace.com recently became a recording studio. That means the infrastructure that only the labels could once offer may become a whole lot less valuable than it once was. Whining about innovations that are hardly different from TiVo (Nasdaq: TIVO  ) or the cassette tapes I used to plug into my boom box in the early '80s won't change that.

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Fool contributorTim Beyerswonders when the iPod will broadcast satellite radio. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. You can find out what is in his portfolio by checking Tim's Foolprofile. The Motley Fool has an ironcladdisclosure policy.


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