By now you’ll likely know that US satellite-radio firm SiriusXM has announced plans to buy streaming service Pandora, in a transaction valuing the latter company at $3.5bn. The deal follows SiriusXM’s $480m strategic investment in Pandora in 2017, which had seen its chairman, CEO and CFO appointed to Pandora’s board of directors. SiriusXM says that it will keep running Pandora as a standalone service once its full acquisition closes. So why is it buying Pandora, and what will it mean for that service’s future?
SiriusXM’s announcement talked about “capitalising on cross-promotion opportunities” between its 36 million subscribers and 23 million trial listeners and Pandora’s 70 million-plus monthly active users, describing the combination as “the largest digital audio audience in the US”. There are also plans to use SiriusXM’s exclusive content and shows with Pandora’s free and subscription tiers “to create unique audio packages” while also boosting Pandora’s in-car partnerships – the car being an area where Spotify, Apple Music and others have long wanted to compete for listening time with SiriusXM and broadcast radio.
“We would benefit from having a free funnel,” is how SiriusXM boss Jim Meyer put it in a call with analysts yesterday. “The addition of Pandora will provide diversified revenue streams that will create the world’s largest digital audio ad offering… My ultimate thinking in all of this is no matter who comes into our trial funnels, as they exit that trial that somehow, they are in a funnel in which we are monetising.” AdAge also notes Meyer describing the deal in terms of its potential impact on Spotify. “I’m going to be candid, but I won’t mention names: We will take share from a major streaming platform.”
There’s more to say, but one important aspect of the deal is that it could yet be waylaid by another suitor. The acquisition is subject to a ‘go-shop’ provision that allows Pandora to seek alternative parties with better offers, and enter negotiations with them. Pandora does have some relevant history on this score: in May 2017 it announced an agreement for a $150m strategic investment from investment firm KKR, but that deal was cancelled the following month when SiriusXM came in with its $480m investment – with KKR being paid a $22.5m ‘termination fee’ by Pandora. Could history repeat itself and a bigger tech player swoop in to gazump SiriusXM now?
If not, a combined SiriusXM and Pandora would be a significant player in the US, if not elsewhere. Yet talk of taking share from Spotify shouldn’t distract anyone from the challenges facing these two companies: certainly in terms of Pandora, the trend has been for share to go the other way. According to its financial results, Pandora’s monthly active listeners have fallen from its peak of 81.1 million at the end of 2015 to 71.4 million at the end of June 2018 – a period that has coincided with the steady growth of Spotify, Apple and Amazon’s streaming services in the US.
Research firm eMarketer recently predicted that Spotify would overtake Pandora for US listeners within the next five years. Meanwhile, Spotify CFO Barry McCarthy recently described streaming as an “existential threat” to SiriusXM – albeit one that hasn’t yet impeded the company’s growth in subscribers: it added 483,000 new ‘self-pay subscribers’ (i.e. not trials) in the second quarter of 2018. Acquiring Pandora may not be as entirely-defensive a move as Spotify’s CFO might see it, but it’s also not as entirely-offensive strategy as Meyer painted it to analysts. If the deal goes through – regulatory approval included – this contest promises to be fascinating.