Pondering the future of troubled Pandora (cont’d.)
SiriusXM signals interest in the internet radio company
December 27, 2016
By the editors of Media Life
This is one in a number of stories on radio in Media Life’s ongoing series “The new face of radio in America,” examining all the changes taking place in the medium. Click here for earlier stories.
Nine years ago, when rival satellite radio services Sirius and XM were both gaining subscribers while bleeding money, the two merged into one in an attempt to stem the bleeding.
The strategy worked. The combined company has become profitable and recently hit a new high in subscribers.
Could Sirius XM help another struggling digital audio company? We may soon find out.
The satellite radio company has reached out to Pandora, the troubled internet radio pioneer, about an acquisition, months after Pandora reportedly put itself on the market.
This isn’t Sirius XM’s first overture. Bloomberg says it made an offer in July that Pandora rejected.
Could the second time be the charm? Who knows, really. Some have reported Pandora is interested in the deal. Others say it’s not.
Pandora’s many problems
It really depends on whether Pandora sees this as a way out of its continuing struggles. The company can’t turn a consistent profit because of a business model that effectively punishes it for becoming more popular.
The more songs it streams, the more it has to pay out in royalties. And those fees outpace the revenues it gains from advertising and, to a much smaller degree, subscriptions that it takes in.
That’s why Pandora has been trying for years to get the royalty price it pays per song reduced, to no avail.
Failing that, the company has been trying to find new ways to survive and better compete with rising streaming services Spotify and Apple Music. So far, nothing has gained traction despite the recent launch of a service that’s more Spotify-like.
That leaves acquisition by a healthier partner its most likely option.
Of course, the question is how, or even if, SiriusXM could help Pandora. That’s not entirely clear, either.
The benefits for SiriusXM
Some analysts question the long-term upside of the deal for SiriusXM.
The satellite service is interested in Pandora as a means of gaining traction in the streaming market.
Though SiriusXM has steadily increased subscribers over the years, with more than 31 million currently, there’s skepticism over whether people will continue to pay the relatively high $15 per month subscription fee when they can choose their own music on a streaming service such as Spotify for free or ad-free at far less cost.
The advent of connected cars has further endangered satellite radio, which requires installation and wiring if your car doesn’t already have a satellite hookup. Streaming services require only a phone and a Bluetooth connection.
But Pandora also brings a huge downside along with its 80 million subscribers, most of them unpaid. The internet radio service allotted 52 percent of its revenue last year to royalty payments. By comparison, SiriusXM paid 10 percent. Pandora could put a huge drag on SiriusXM’s profits.
SiriusXM has had trouble establishing a foothold in mobile music, which is where the future of the industry is. To do so through Pandora would necessitate changes in technology, marketing and distribution, which could be expensive and time-consuming.
In the end, both SiriusXM and Pandora might well decide to go ahead with a deal, but whether it would solve either of their problems is quite another story. If both are struggling in their own way, would life be any better if they struggled together?
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