The End of Web Radio?

Leave it to the feds to foil my theory. On Friday, the U.S. Copyright Royalty Board endorsed a payment scheme for Web broadcasts that, if implemented, could make it impossible for Sirius Satellite Radio (Nasdaq: SIRI  ) and XM Satellite Radio (Nasdaq: XMSR  ) to get a favorable ruling for their proposed merger.

Not that Sirius and XM will be affected directly; the ruling deals only with streamed radio. Nevertheless, Sirius and XM could feel the sting if Web broadcasters decide that the new payment system, which had the backing of the Recording Industry Association of America (RIAA), will put them out of business.

It could happen. The feds are calling for retroactive payments to labels at a rate of $0.0008 per listener per song for 2006. By 2010, the rate would rise to $0.0019, or by 18% annually over the next four years, Wired News reports. I'll understand if that doesn't sound like much. It doesn't to me, either. But the Radio and Internet Newsletter (RAIN) has math that says otherwise.

At 16 songs per hour, Web stations would be forced to pay roughly $0.0128 per listener per hour. That's more than the $0.012 per listener per hour in revenue the best stations might expect, RAIN says.

And that would be a disaster for Sirius and XM. A successful argument in favor of a merger depends on counting Web radio as a viable competitor. If the RIAA-backed royalty scheme ends whatever advantage streaming once had, then the FCC may as well rule against the twin towers of satellite radio now so that they can go back to killing each other.

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Fool contributor Tim Beyers, who is ranked 969 out of more than 23,800 in our Motley Fool CAPS investor-intelligence database, didn't own shares in any of the companies mentioned in this article at the time of publication. All of his portfolio holdings can be found at Tim's Fool profile. His thoughts on tech stocks, Foolishness, and investing in general may be found in his blog. The Motley Fool's disclosure policy tunes in accountability.

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10/21/2016 4:00 PM
SIRI $4.15 Up +0.02 +0.48%
Sirius XM Radio CAPS Rating: **
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XM Satellite Radio CAPS Rating: No stars