Sirius XM’s $480 Million Pandora Investment Just Prolongs The Inevitable [Bobby Owsinski]
A company which has been facing series of woes, Pandora recently rejected a full buyout from Sirius XM, instead opting for a large cash injection, as well as giving up almost a fifth of its stock and three seats on the its board, although Sirius XM's ownership of the floundering company seems inevitable.
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Guest post by Bobby Owsinski of Music 3.0
The streaming music service Pandora’s in trouble and it has been for some time. Its user base is shrinking, its losses are increasing, and it’s not able to generate enough revenue, a bad combination if there ever was one. Reports are that the company actually rejected a total acquisition by the satellite radio company Sirius XM last week and instead settled for a $480 million cash injection instead. The problem is that this just prolongs the inevitable, as Sirius will end up owning the company later now rather than sooner.
For its investment, Sirius received 19% of Pandora’s stock and three seats on the board, including the chairmanship. This basically ceded control of the company to Sirius (not so much in board seats but in influence), so while the reported deal terms limit Sirius from buying more Pandora shares for 18 months as well as preventing it from acquiring more than 31.5 percent of the company without the Pandora board approval, the entity with all the leverage here is Sirius. It essentially controls the board, has the deep pockets that Pandora desperately needs, and has the ability to put Pandora’s assets to greater use than Pandora ever could by itself.
Pandora was once a prime mover in the streaming music field but has lost ground in recent years as the audience dimmed for radio-like streaming and transitioned to subscription on-demand streaming (like what Spotify and Apple Music offer) instead. The company recently introduced the same kind of product with its own $10 per month on-demand offering, but at this point its way too little too late. You’re just not going to get people to move from one streaming service to another unless there’s something radically new to offer, a principle that even the market leaders have discovered. The company’s major hope is to convert a portion of its 75 million or so users of its free tier to paying customers, but that hasn’t exactly been going gangbusters either.
On the other hand, Sirius needs to expand its customer base and and the best way to do that is with an increased online presence, and that’s exactly what Pandora provides. Reportedly Sirius will begin offering some of its programming on Pandora’s platform soon, which will be a boost for both companies, at least initially (its stock has already jumped about 6% since the announcement). Any synergy favors Sirius more than Pandora however, and it could have been even better had Sirius been able to complete a total acquisition, rather than what amounts to sticking a toe in the water, at least from the programming side.
This acquisition is going to happen eventually however, it just would’ve been better for all concerned if it happened now instead of dragging it out. My prediction is that Sirius will end up with the company and covert it totally to Sirius XM online, with the existing Pandora being only one of the channels that it offers. Pandora may have trouble getting people to subscribe now, but that’s something that people will pay for.
There’s no joy in watching a company thrash about trying to stay above the water line. This could have been so much easier.
