XM Radio 2015 Annual Report Download - page 69

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associated with our use of certain pre-1972 sound recordings through December 31, 2015.
Revenue share and royalties also increased due to greater revenues subject to royalty and
revenue sharing arrangements and a 5.3% increase in the statutory royalty rate for the
performance of post-1972 sound recordings.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, revenue share and
royalties were $810,028 and $677,642, respectively, an increase of 20%, or $132,386, and
increased as a percentage of total revenue. The increase was primarily attributable to the
elimination of the benefit to earnings from the amortization of deferred credits on executory
contracts initially recognized in purchase price accounting associated with the Merger, greater
revenues subject to royalty and/or revenue sharing arrangements, and a 5.6% increase in the
statutory royalty rate for the performance of post-1972 sound recordings. For the year ended
December 31, 2013, revenue share and royalties was positively impacted by a benefit of
$122,534 to earnings from the amortization of deferred credits on executory contracts
associated with the Merger.
We expect our revenue share and royalty costs to increase as a result of the Capitol Records
settlement and as our revenues grow and our post-1972 royalty rates increase. We expect to
recognize $83,250 in expense related to the Capitol Records settlement for the use of pre-1972
sound recordings for 2016 through 2017. As determined by the Copyright Royalty Board, we have
paid or will pay royalties for the use of certain post-1972 sound recordings on our satellite radio
service of 9.0%, 9.5%, 10.0%, 10.5% and 11% in 2013, 2014, 2015, 2016 and 2017, respectively.
Programming and Content includes costs to acquire, create, promote and produce content. We
have entered into various agreements with third parties for music and non-music programming that
require us to pay license fees and other amounts.
•2015 vs. 2014: For the years ended December 31, 2015 and 2014, programming and content
expenses were $293,091 and $297,313, respectively, a decrease of 1%, or $4,222, and
decreased as a percentage of total revenue. The decrease was primarily due to the
termination of certain programming agreements, partially offset by the addition of new
programming arrangements and personnel-related costs.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, programming and content
expenses were $297,313 and $290,323, respectively, an increase of 2%, or $6,990, but
decreased as a percentage of total revenue. The increase was primarily due to higher
personnel costs, the reduction in the benefit to earnings from the purchase price accounting
adjustments associated with the Merger and the early termination of certain programming
agreements, partially offset by the renewal of certain licensing agreements at more cost
effective terms.
We expect our programming and content expenses to increase as we offer additional
programming, and renew or replace expiring agreements.
Customer Service and Billing includes costs associated with the operation and management of
internal and third party customer service centers, and our subscriber management systems as well
as billing and collection costs, transaction fees and bad debt expense.
•2015 vs. 2014: For the years ended December 31, 2015 and 2014, customer service and
billing expenses were $377,908 and $370,585, respectively, an increase of 2%, or $7,323,
but decreased as a percentage of total revenue. The increase was primarily due to a higher
subscriber base driving increased transaction fees, bad debt expense and personnel related
costs, partially offset by efficiencies achieved from management’s strategic initiatives
implemented at our call centers operated by our vendors.
•2014 vs. 2013: For the years ended December 31, 2014 and 2013, customer service and
billing expenses were $370,585 and $320,755, respectively, an increase of 16%, or $49,830,
but increased as a percentage of total revenue. The increase was primarily due to the
inclusion of a full year of costs associated with our connected vehicle services business,
higher subscriber volume driving increased subscriber contacts and bad debt expense.
We expect our customer service and billing expenses to increase as our subscriber base grows.
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