Welcome!
2017-06-09 20:09:02
Pandora, Faded Star of Online Music, Gets Cash Infusion From Sirius XM

Pandora was early to the online music business, introducing a free internet radio service just a few years after Apple started iTunes and enjoying a successful debut as a public company.

It was nice while it lasted.

Any first-mover advantage Pandora once had has long since dwindled, as rivals including Spotify and Apple Music have become the dominant forces in an industry where consumer habits change faster than the Billboard charts.

Now, in a bid to buy time, Pandora has found a partner that can give it some much-needed cash — and, perhaps down the line, become its new owner.

In taking a $480 million investment from Sirius XM, the satellite radio provider, Pandora has secured a crucial infusion of money it needs to cover basic expenses. And the deal has allowed Sirius XM — controlled by the shrewd media mogul John Malone — to become the leading candidate to one day buy Pandora outright.

“With this investment, we have the backing of one of the media industry’s most successful investors and significant capital to accelerate growth,” Tim Leiweke, a Pandora director, said in a statement.

Or, as Mark Mulligan, a music technology analyst with Midia Research, put it: “This gives Pandora a fighting chance of making a proper go at competing.”

The investment is the latest deal to shake up online music streaming, an industry that is increasingly popular with entrepreneurs and investors but has proved to be a financial sinkhole.

Pandora lost $343 million last year, nearly triple what it lost in 2015. And its active monthly listener base shrank to a two-year low in this year’s first quarter, to 76.7 million.

Spotify, which lets users listen to specific tracks on demand — in addition to themed stations, like Pandora’s — has raised billions of dollars and is preparing for an unconventional listing on the New York Stock Exchange this year.

Tidal, a similar streaming service purchased by Jay Z, sold a stake to Sprint this year as it continued to hemorrhage cash.

Amazon, Apple and Google also have streaming music offerings, and all face the same fundamental challenge: Paying for music rights and marketing has proved an expensive proposition.

Pandora was particularly slow to adapt.

In recent years, the success of Spotify and Apple Music made it clear that on-demand services that let customers pick virtually any song to listen to at any time would lure customers away from Pandora’s internet radio offering.

Its radio business is supported by advertising that generated a respectable $1 billion in revenue last year.

“Pandora’s done something sensible,” Mr. Mulligan said, “but sensible doesn’t always get enough credit.”

Internet radio ads, however, are not enough to compete with the likes of Apple and Spotify.

This year, Pandora rolled out Pandora Premium, a $10-a-month product that largely matches what its competitors offer.

Too little, too late, analysts said, suggesting that the expense of the new product would weigh down a company that has never reported an annual profit.

Enter Sirius XM.

The investment came as little surprise to Wall Street. Sirius XM has flirted with doing a deal for Pandora for some time, with its chairman, Gregory B. Maffei, saying publicly that he could be interested in a transaction, but only at what he considered the right price.

The deal announced on Friday includes an agreement for the two companies to work together on internet streaming on mobile devices and in cars. It also gives Sirius XM an edge in any possible takeover of Pandora, with the satellite radio provider taking not only a 19 percent stake but also three board seats, including chairman.

All that gives it a formidable advantage over any other potential rival who would seek to buy Pandora, although Sirius XM agreed not to make any such move for 18 months.

“Longer term, this makes it more likely that they will end up together,” said Amy Yong, an analyst at Macquarie.

For Sirius XM — part of the constellation of companies controlled by Liberty Media — the new stake in Pandora will give it an important toehold in a number of businesses, including ad-supported radio and particularly internet radio. Despite Sirius XM’s traditional strength in cars, its new partner has an attractive presence in the wider world of internet and mobile music outside cars.

“This strategic investment in Pandora represents a unique opportunity for Sirius XM to create value for its stockholders by investing in the leader in the ad-supported digital radio business, a space where Sirius XM does not play today,” James E. Meyer, Sirius XM’s chief executive, said in a statement.

Although Pandora was one of the first to let customers legally stream music online, it has grappled with a host of challenges. Among them has been battling with music labels over the royalties it pays each time it plays a song.

Pandora has also made a number of strategic missteps, including buying the ticket seller Ticketfly for $335 million. On Friday, the company said that it was selling the division to Eventbrite for $200 million.

The agreement on Friday means Sirius XM will replace KKR, the giant investment firm, as Pandora’s major financial backer. Just last month, KKR agreed to invest $150 million in the internet radio service.

Pandora, already reeling, will be penalized for swapping partners so quickly: As part of Friday’s complex series of deals, it agreed to pay KKR a $22.5 million termination fee for what amounts to a month of work.