‘Gaming The System’: SoundExchange Sues SiriusXM Over Alleged $150M In Unpaid Royalties

SoundExchange is suing SiriusXM over allegations that the satellite radio giant has been “gaming the system” in order to withhold more than $150 million in royalties owed to artists.

In a lawsuit filed Wednesday in Virginia federal court, the royalties group claimed that SiriusXM has been using bookmaking trickery – namely, manipulating how it bundles satellite services with web streaming services – as part of a scheme to “grossly underpay the royalties it owes.”

“Through its contrived and improper apportionment, Sirius XM has engineered a windfall for itself and deprived artists of the important compensation to which they are legally entitled and desperately need,” wrote lawyers for SoundExchange in the complaint.

The allegations concern the royalties paid under so-called statutory licenses – government mandates that automatically give certain streaming services the ability to broadcast songs for a set price. Crucially, that system sets different rates for revenue from satellite broadcasts (like SiriusXM’s traditional satellite radio) versus that from so-called webcasting services, which are transmitted through the internet.

In Wednesday’s complaint, SoundExchange says SiriusXM has intentionally bundled the two products together as a single offering in recent years, allowing the company to mix the revenue in order to improperly lower its royalty bill.

“Sirius XM is gaming the system: to grossly underpay the royalties it owes, Sirius XM has unreasonably characterized revenue from its bundled product as ‘webcasting revenue’ that in actuality is “[satellite] revenue’,” SoundExchange wrote. “Sirius XM’s revenue apportionment is beyond the pale, and harms music creators.”

According to SoundExchange, that maneuver has allowed SiriusXM to shortchange artists to the tune of $150 million. The company has also allegedly refused to comply with an indepdent audit that found millions in such shortfalls.

“Sirius XM has not paid its bills,” SoundExchange wrote. “By purporting to comply with the statutory license without paying what it owes under the license, Sirius XM has unjustly enriched itself to the detriment of recording artists and copyright owners upon whose music Sirius XM has built its business.”

A representative for SiriusXM did not immediately return a request for comment.

In a statement, SoundExchange CEO Michael Huppe said the group had only resorted to litigation as a last resort. “In recent years we have viewed SiriusXM as a willingly lawful and compliant company that shares our desire for a robust streaming marketplace. But SiriusXM has and continues to wrongfully exploit the rules to significantly underpay the satellite royalties that it owes.”