Mergers & acquisitions

SiriusXM Gets Serious About Streaming With Pandora Deal

SiriusXM and (by extension) John Malone are getting ever more serious about digital music and competing with the likes of Apple Music and Spotify.

Giving SiriusXM a stronger direct play into music streaming services, plus a smaller foothold with digital video, the company, known mostly for its in-car satellite radio service, announced a deal to acquire Pandora Media Inc. in an all-stock transaction valued at $3.5 billion.

SiriusXM's bread and butter is a satellite-delivered, in-car radio subscription service, but also offers an "All Access" package that enables users to stream radio channels via the Internet. Pandora, meanwhile, is purely OTT-focused, with its range of apps for mobile and TV-connected devices, along with a few integrations with set-top boxes with pay-TV providers such as Comcast Corp. (Nasdaq: CMCSA, CMCSK), Dish Network LLC (Nasdaq: DISH) and Layer3 TV (now part of T-Mobile US Inc. ).

They said the combined company will have more than $7 billion in expected pro-forma revenue in 2018.

SiriusXM has more than 36 million paying subscribers in the US and Canada, and another 23 million annual trial listeners that get the service temporarily for free with car purchases.

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Pandora claims to have more than 70 million monthly active users. It has a hybrid business model based on advertising and subscriptions. The company, which shored up its programmatic advertising capability via its recent acquisition of Adswizz, had about 6 million Pandora Plus and Pandora Premium customers at the end of Q2 2018. Pandora, led by former Sling TV CEO Roger Lynch, also has a small but growing video business.

The deal would also prevent Pandora from falling into the hands of other media companies with sizable digital content portfolios, such as Verizon Communications Inc. (NYSE: VZ) or AT&T Inc. (NYSE: T), but the merger agreement announced Monday has a "go-shop" provision that Pandora can use to seek out alternative proposals. Barring a bidding war, the current transaction is expected to close in Q1 2019.

Though SiriusXM has a streaming option, it's primarily been an in-car platform.

"They've never figured out 'the Internet,' " BTIG Analyst Richard Greenfield said of SiriusXM in his reaction to the deal on Cheddar. "In some ways this is Sirius recognizing long term that they need to figure out the Internet, and this was the best solution."

SiriusXM's play for Pandora wasn't a huge surprise, as it made a strategic investment in Pandora last year.

Liberty Media Corp. (NYSE: LMC) owns about 71% of SiriusXM. Swinging the Pandora deal plunges Malone's Liberty Media more deeply into the competitive digital music market about three months after it withdrew its $1.6 billion offer for 40% of iHeartMedia, the US radio broadcaster that filed for bankruptcy in March.

— Jeff Baumgartner, Senior Editor, Light Reading

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