Satellite radio service provider SIRIUS XM Radio Inc. (SIRI) is facing legal challenges one after another. Yesterday, a U.S. District judge has ruled that the company must face class-action lawsuit related to antitrust violation. The case was filed in 2009 by a group of SIRIUS XM subscribers, who claimed that the company is abusing its monopoly power by raising prices to nearly 30%. SIRIUS XM was formed in 2008 after a merger between the two arch rivals, Sirius Satellite Radio Inc. and XM Satellite Holdings Inc. The lawsuit is primarily related to music royalty fees that SIRIUS XM is charging from July 2008, in addition to subscription fees.
Last week, SIRIUS XM faced a lawsuit from none other than its star performer Howard Stern. Mr. Stern has complained that SIRIUS XM failed to pay him stock awards that it granted based on a specific subscriber growth target. Immensely popular radio-jockey Howard Stern hosts talk-show in SIRIUS XM. Several industry researchers estimated that discontinuation of Howard Stern shows in SIRIUS XM may result in loss of approximately 1 million subscribers to the company.
Nevertheless, SIRIUS XM looks confident that their view will ultimately prevail in the federal justice department. The merger between SIRIUS and XM cleared both U.S. Department of Justice and the Federal Communications Commission rulings long back. Therefore, abuse of monopoly power does not arise. As of now,after Comcast Corp. (CMCSA), the company is the second largest entertainment subscription service provider in the U.S.
Further, satellite radio broadcasting market is becoming intensely competitive. SIRIUS XM is facing severe competitive threat from Pandora Internet radio.Pioneer System, a leading car information system manufacturer, unveiled a new car stereo, which can detect Pandora Internet radio settings from Apple Inc’s (AAPL) iPhones or iPods. Besides, the iPhones or iPods can be used to conveniently set customized music stations for individual users while driving. In addition to iPhone, Pandora has also developed streaming services for BlackBerry devices of Research In Motion Ltd. (RIMM) and Google Inc’s (GOOG) Android-based smartphones.