Shares of Sirius XM Radio tanked on Friday after a massive royalty rate increase.
Sirius XM Radio executives may be slipping into panic mode, thanks to an unexpectedly harsh royalty rate increase. The steep hike caused Sirius shares to slip during Friday trading, based on serious concerns over future overhead burdens.
The rate was issued by the Copyright Royalty Board (CRB), a tribunal that determines royalty rates for a range of platforms. That includes ‘Satellite Audio Radio Services,’ a category solely occupied by Sirius XM Radio.
So what’s the change?
Effective January 1st, 2018, Sirius will be required to pay 15.5 percent of gross annual revenues, instead of the current 11 percent. That’s an increase of 40.9%, which translates into hundreds of millions in increased financial obligations.
Consumers may also face increased rates, as well.
The extreme spike caused a surge in Wall Street trading. Overall, Friday volume surged to 60 million shares traded, a fourfold increase on average volumes. At its trough, shares were down 8% before late-stage buying spurred a recovery. Ultimately, SIRI stock dropped 5.12% by the bell, a modest decrease considering the broader concerns.
Importantly, these rates are not being phased in. Rather, the CRB is dropping the rates on day one, forcing a serious financial retreading by Sirius XM.
Here’s an excerpt of the CRB’s decision.
“The Copyright Royalty Judges today issued their written determination of royalty rates and terms to apply from January 1, 2018, through December 31, 2022, to transmissions of sound recordings by Satellite Audio Radio Services (SDARS) and Preexisting Subscription Services (PSS) … The written determination is currently being reviewed by the parties to the proceeding to determine which portions, if any, contain confidential information that must be redacted from the version that will be released to the public.
“The rate for Satellite Audio Radio Services for 2018-2022 is 15.5% of Gross Revenues, as that term is described in the accompanying SDARS regulations. The rate for Preexisting Subscription Services for 2018-2022 is 7.5% of Gross Revenues, as that term is described for PSS.”
The complete, detailed ruling is here.
Brewing crisis over Steve Bannon
Separately, Sirius XM is also battling a self-created political hurricane. That’s because the satellite radio giant opted to renew its contract with alt-right leader Steve Bannon, raising howls of protest. That includes Seth Rogan, who flat-out canceled his appearances on the network.
Others are staying put, either because they need the money or because they feel ditching the network would hand Bannon a victory. Listeners, on the other hand, could decide to drop the platform — depending on how strong this stench becomes.