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Sirius XM Is No Miley Cyrus

By Rick Munarriz – Aug 27, 2013 at 5:14PM

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Sirius XM comes under fire, but it's still got its clothes on.

A day after Miley Cyrus shocked and amused the music industry with her risque performance at Sunday night's MTV Video Music Awards, Sirius XM Radio (SIRI -0.93%) was being accused by the music industry for not going far enough.

SoundExchange became the latest party to sue the satellite radio provider on Monday, arguing that Sirius XM has been cheating the music royalty collector since 2007 by the way that it calculates its gross revenue. The statutory rate was 8% of gross revenue last year, but Sirius XM excludes several revenue items including non-music programming, hardware sales, and the airplay of pre-1972 recordings.

It was that final point that triggered a lawsuit initiated by The Turtles' Flo and Eddie earlier this month to collect money for older music artists and their estates.

Record labels and radio stations used to be a team, but these days we're finding Sirius XM and Pandora (P) battling the industry in a pursuit to drive rates lower. This wouldn't be such a big deal if terrestrial radio was getting off so easy with its kinder royalty schedules.

Sirius XM has never shied away from legal fisticuffs, and that means also battling in the courtroom with on-air talent and subscribers.

Howard Stern and his production company came after Sirius XM for subscriber count-based stock bonuses after the merger between Sirius and XM. The satellite radio provider prevailed. A suit started by disgruntled subscribers concerning rate increases was ultimately settled on terms that were friendly to Sirius XM.

Big media companies are lawyer magnets, but it's safe to say that the artist royalty issue isn't going to die anytime soon. SoundExchange is seeking compensatory damages that could top $100 million if it's successful.

However, all of these legal tussles also point to a royalty and licensing system that is out of whack if new models are to succeed for the benefit of the industry as a whole. A company shouldn't have to buy a small South Dakota radio station -- as Pandora did earlier this year -- in a brazen attempt to secure the lower rates that are available to others.

Sirius XM shareholders won't like the uncertainty of the media giant getting sued, but the end result could be bullish if it makes royalties more palatable for the growing media players out there.

Cyrus sang about blurred lines on Sunday night, and that's a problem in more ways than one.

Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Pandora Media. 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.

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