Sirius XM Purchasing Pandora For $3.5 Billion: What Went Wrong For Pandora?

What are the next steps going forward for both Pandora and Sirius XM?
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Pandora

The big music industry news this morning is that Sirius XM has agreed to buy Pandora for $3.5 billion in stock. This has been part of a lengthy courtship by Sirius XM in Pandora, where Sirius XM invested $480 million last year for a 19% stake in the company. The new deal still needs to be approved by Pandora shareholders and various regulatory bodies.

The deal isn’t that shocking given their financial relationship, Pandora has actually shrunk its user base and its stock price has hovered between $4 and $9 for the last year. Though it offers a slightly different product, on-demand streaming services like Spotify, Apple Music and Amazon Music have taken over as the leading services in digital streaming in the United States. Pandora still has 70 million monthly active users, but for a company that had such a large advantage, to see it fall behind Spotify shows how it failed to adapt to the changing market. It only has 6 million paying subscribers and its total monthly users had declined again in Q2 of this year, down 6% from the previous year. Sirius has 30 million subscribers in North America.

It wasn’t clear how much longer shareholders and key investors would allow Pandora’s fade from prominence. It once dominated the conversation about digital streaming and has since become just another brick in the wall. It had to roll back operations in other countries and sell off Ticketfly to Eventbrite in 2017. Toyota no longer offered Pandora as part of its in-car entertainment package, but Pandora did manage to announce partnerships with AT&T and Snap in 2018.

Sirius XM and Pandora are hailing this deal as creating the “largest audio entertainment company in the world.” It will allow Sirius to leverage its relationships to put Pandora in the same places where it operates in cars and businesses. There won’t be many changes to either company at this time, but shareholders will want to see how Sirius XM can optimize and grow Pandora if the deal goes through. Pandora needs a jolt to its system to remain competitive.

It could offer premium free trials to businesses or offer package deals for both Sirius and Pandora. There could be a limited time discounted fee for the Pandora premium package for Sirius XM subscribers to help get numbers up and more money coming in the door. Pandora needs to settle on leadership so the revolving door of executives stops. It will also need to figure out how to compete in the future with direct licensing and direct deals Spotify is signing with artists. It will have to get better at curation through its Music Genome Project.

We will see how the deal helps Pandora or if it a poison pill for Sirius XM. Stay tuned to see how this all shakes out. The markets reacted by boosting Pandora’s stock and dipping Sirius a few percentage points, if that is any indication. 

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