The Turtles may be bringing new meaning to "Happy Together" now that a U.S. judge in California is allowing older musical artists to unite forces as they demand access to the digital royalties from Sirius XM Radio (SIRI +0.00%) being dished out to newer acts.
This all started two years ago, when a lawsuit was initiated by The Turtles' Flo and Eddie to collect money for music produced before Feb. 15, 1972. That's when federal copyright protection kicked in. Sirius XM and Pandora (P +0.00%) had stopped reporting or paying royalties for older songs, even though the artists argued that individual state laws are more protective of their rights to receive payments from Sirius XM and Pandora.
The new ruling doesn't mean that premium radio services -- and eventually consumers -- will begin to pay more for the right to hear oldies. The judge's decision simply allows the class action lawsuit to proceed against Sirius XM. However, it's easy to see how this would place more pressure on Sirius XM to settle.
The good news for Sirius XM is that its user base has proven to be surprisingly loyal as the satellite radio provider tests its pricing elasticity. Sirius XM has pushed through two rate hikes since 2012, and that's on top of the U.S. Music Royalty Fee that it increases with every passing year as its own obligations bump higher. There was an increase of 1.4 percentage points across most of its audio packages in January.
Listeners haven't flinched. Sirius XM's monthly churn rate remains pretty much where it was before the music royalties and monthly fees starting heading higher. It now has 27.7 million subscribers on its rolls, and Sirius XM tacked on more net self-pay subscribers during the first three months of this year than it has during any quarter since 2008.
Subscriber growth has slowed. Sirius XM has experienced a mere 7% gain in subs during the past year. However, it's still moving in the right direction.
Higher rates and the threat of the connected car haven't eaten into Sirius XM's business. It represents a great value to many car owners, and that's not likely to change if the premium radio service will have to pay a little more to keep older artists happy and somewhat financially secure.
Sirius XM is unlikely to have to tweak its guidance -- where it expects to add another 1.4 million net subscriber additions this year, generating $4.47 billion in revenue -- as a result of the class action lawsuits being legally validated. Whether Sirius XM emerges legally victorious, or it winds up doing right by the oldies artists, this development won't have a material impact on its success and its resurgent stock price.
