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The satellite radio provider SiriusXM announced Monday that it would buy the Pandora Media streaming service for $ 3.5 billion, to convince listeners who do not want to pay premium channels.
Pandora achieved success with user-adapted radio stations, which were dotted with commercials. In recent years, it has struggled to compete with competing services such as Spotify and Apple Music, which dominated music streaming by offering paid on-demand content, which Pandora was slow to replicate.
SiriusXM, one of the first commercial companies to sell satellite radio services, was partly hampered by the high capital costs of its operations. The acquisition of Pandora would give SiriusXM access to the online segment of fast-growing listeners, those who prefer to stream music via mobile phones. Few people listen to traditional programming, whether over terrestrial radio or satellite.
"This would allow Sirius to reach a much wider audience," said Justin Patterson, music industry analyst. He compared the situation to DirecTV, the satellite service owned by AT & T, which also sells a streaming version of its product known as DirecTV Now. The online package is less expensive than the satellite offering and can reach many homes through existing broadband connections.
Pandora has been a potential acquisition target for at least two years. In 2016, the continued decline in the stock price prompted search for potential buyers, and SiriusXM has been buying Pandora since it injected $ 480 million into the company last year.
The investment allowed Pandora to cover basic expenses, and also caused an upheaval in the executive ranks that led to Roger Lynch, Pandora's fourth CEO in four years.
In a call to analysts, Jim Meyer, SiriusXM's general manager, said the acquisition would allow Sirius to try to keep listeners who did not want to pay for music by directing them to Pandora's free model.
"The truth is that the majority of" trials "ultimately decide not to pay for our service," Meyer said. "As I've said many times, it would be beneficial to have a free funnel."
SiriusXM has 36 million subscribers in North America and over 23 million listeners in trials. The two companies said that combined with the 70 million monthly active users on Pandora, this would create the largest digital audio audience in the United States.
The $ 3.5 billion offer is a strong estimate given the losses suffered by Pandora. The company is expected to record a loss of $ 150 million this year and about $ 83 million next year.
Pandora should benefit from the potential adoption of a bill that would make it easier for publishers and artists to earn royalties while protecting streaming services from prosecution.
The SiriusXM agreement for Pandora allows other potential bidders to make their appearance in what is known as a shopping period during which the company could attract other buyers. Rivals like Spotify or big tech players like Amazon might offer a spoiler offer, but Patterson said he hoped Sirius would finally make the deal. "It's very likely to happen," he said.
SiriusXM, which is controlled by Liberty Media, has announced that it is buying Pandora in a stock-only transaction. Pandora shares jumped in early trading on Monday, but ended the day down about 1%.
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