Satellite radio titan Sirius XM (SIRI) is coming face to face with another menacing foe: litigation.
SIRI stock is already underperforming the S&P 500 by 6 percentage points this year, and is fending off a growing host of digital music providers such as Pandora (P), Spotify and Apple’s (AAPL) iTunes Radio. Now, legal troubles could mean more tough times.
Yesterday, a California judge sided with The Turtles, a popular 1960s band that brought a lawsuit against Sirius XM, alleging that SIRI had played 15 of their recordings without proper remuneration.
The defense that SIRI thought would protect it from lawsuits like this one seems strong on its face: The Federal Copyright Act protects recordings from 1972 and onward, but works before 1972 were considered more or less fair game.
However, according to GigaOM, yesterday’s ruling is a game-changer — one that sets a dangerous precedent for Sirius XM and its peers:
“Monday’s ruling is the worst-case outcome for SiriusXM and other digital music services because it will likely expand the scope of music on which they must pay royalties, and could add a further layer of costs for the digital services that traditional AM/FM radio stations do not have to incur.”
GigaOM goes on to acknowledge how the ruling is a boon to pre-1972 artists seeking higher royalties, adding:
“For SiriusXM and for consumers of digital radio, however, the ruling could lead to higher prices — or less music if the radio stations decide to simply play fewer songs from the 1940s, 50s and 60s.”
It’s yet to be determined whether Sirius will pay any damages, or how much they will pay, though the plantiffs originally sought $100 million.
Still, some of Sirius XM’s more prominent stations are focused specifically on ’40s, ’50s and ’60s music, so the effect of the lawsuit could hurt SIRI, either by making it dig into its pockets, or forcing it to scale back on its oldies channels.
While SIRI stock doesn’t seem to be sweating the California ruling today, potential investors should probably keep this legal win by The Turtles in mind. SIRI’s revenue growth, while not worrisome at a pace of high single digits to low double digits for the past few years, still pales in comparison to the 50% annual clip Pandora has recorded for the past two years.
If consumers are forced to pay more for their beloved oldies stations or those stations drop off the face of the earth, SIRI stock might be in for a tumble of its own.
EDITOR’S NOTE: A previous version of this story included incorrect net income information from several sources and that accounted for one-time items. We have removed the error, and apologize.
As of this writing, John Divine was long AAPL.
