In a case of David versus a satellite-radio Goliath, Reuters is reporting on a Florida man who's suing Sirius XM Radio (NASDAQ:SIRI) this week over some of this year's rate increases.
Sirius XM has stayed true to its original agreement with regulators, by freezing basic subscription prices for three years as a way to win approval for the merger that was finally completed last year. Not that the satellite-radio provider isn't milking more out of the average user.
- Sirius and XM began charging $8.99 a month -- a $2 increase -- for secondary receivers under the same primary account back in March.
- At the same time, Sirius XM began charging $2.99 a month for access to an improved audio stream. That perk was included with monthly receiver plans.
- Over the summer, Sirius XM slapped on an extra $1.98 a month to cover the higher royalties it's paying record labels, musicians, and publishers.
In short, someone who paid $12.95 a month for Sirius or XM earlier this year and was streaming online when away from the activated receiver is now paying $17.92 a month between the Web access and music-royalty add-on. That's a 38% price increase.
The rub for the Floridian hoping to turn this into a massive class action lawsuit is that Sirius XM appears to be well within its rights to pass on the escalating music royalties and to change perks such as discounted secondary receivers and online streaming.
Few will accuse Sirius XM of gouging its subscribers. It barely broke even this past quarter. Running a satellite-radio operation isn't easy.
Critics love to point to the ad-supported Internet radio models of Pandora, CBS' (NYSE:CBS) Last.fm, and Yahoo! (NASDAQ:YHOO) Music -- but those music services have easier royalty schedules and don't have the on-air talent and costly satellites to maintain. All they need is the fleet of servers and the Apple (NASDAQ:AAPL) application developers to get off the ground.
That doesn't necessarily mean the lawsuit will be laughed out of court. It may have merit, and it could alter Sirius XM's cash-flow projections if the company has to roll back prices. But even if so, I trust Sirius XM to spin that kind of setback into aggressive subscriber growth. Pardon the pun, but Carl Blessing v. Sirius XM Radio could end up being a Blessing in disguise.
Do you think the lawsuit has merit? Share your thoughts in the comment box below.
