Pandora loses $120m in value as Sirius XM says buyout ‘not likely’

Pandora‘s share price dropped by more than 4% today (Friday, January 6) – after SiriusXM‘s financial boss poured cold water on the prospect of a buyout.

[UPDATE: At the time of writing (16.00 EDT on Monday, Jan 9), Pandora’s stock price has fallen another 2.81% at the bell, and was down over 4% at one stage. Its Market cap currently stands at $2.83bn. Across the past 48 hours of trading, the company’s total value has slipped by over $200m.)

Market chatter has swirled around a Sirius takeover of Pandora since it emerged in July last year that Sirius majority-owner Liberty Media had offered to buy the streaming music company.

Liberty’s spurned offer was reportedly for $15 per share – valuing Pandora at $3.4bn.

Pandora’s market cap currently stands at around half a billion dollars less than that figure. More than $120m has been wiped off its NYSE stock price so far today – following comments from Sirius CFO David Frear at Citibank’s 2017 Internet, Media & Telecommunications Conference in Las Vegas yesterday.

Frear acknowledged whispers in the market over Sirius’s supposed intentions to buy Pandora – before shrugging them off.

The exec said that Sirius looks for signs of organic growth potential and strategic incentives in any prospective acquisition target. Pandora, he suggested, simply did not meet this criteria.

“With respect to all the chatter about [these] acquisitions, you have to look at them as them not being likely,” he said. “That’s the way to characterize it.”

“With respect to all the chatter about these acquisitions, you have to look at them as them not being likely.”

David Frear, Sirius XM

In the first nine months of 2016, Pandora posted $992.2m in revenues, up 20% year-on-year.

However, its net losses in the same period topped $250m, as active monthly listeners fell to 77.9m.

The company is expected to launch its $9.99-per-month interactive Spotify rival in the US this quarter.

Frear continued: “On the Pandora front they’ve got a big change in strategy with this move into the interactive music business, which we’ve been public in our doubts about. We’ll see how that plays out for them.

“But those guys have done a fantastic job building a really large business – generating over $1bn in revenue – but they’ve got their own strategy, their own plans and they’ll pursue it on their own.”

MBW has reported before on the very public doubts of Sirius majority-owner Liberty Media regarding the business model of on-demand streaming music services before.

Liberty CEO Greg Maffei made it clear to investors in August that he wasn’t impressed by the numbers he saw coming out of the likes of Spotify – while warning of the potential dominance of Apple, Googl and Amazon in the streaming audio market.

“In what we consider the stream [music] subscription space, you have several big players who are entering and are likely to further commoditize the market,” he said.

“Spotify had 82% or 84% content costs last year… That sounds like a very hard business to me.”

Greg Maffei, SiriusXM

“Spotify did something, like, for the last year, $3.54 of ARPU per month and had 82% or 84% content costs… That sounds like a very hard business to me.”

According to Spotify’s 2015 financials, it finished the year with an 89m active user base, and revenues of $2.18bn.

Maffei noted that Spotify and Pandora now faced “Apple, Amazon, Google entering more deeply and more strongly” into their market.

“Apple appears to be doubling down their efforts in music and being more aggressive and obviously have other ways to get paid for their music business through the sale of devices and iTunes and the like,” he added, before once again commenting: “I think that subscription space is very hard.”

At the Citibank conference yesterday, David Frear was further pushed on Pandora – and whether a buyout could offer Sirius advantages when it came to leverage in direct negotiations over on-demand music rights licenses.

“With respect to the music labels, they have a formula for how they see interactive music pricing and I haven’t seen them stray very far from a standard set of terms – no matter who you are,” he replied.

“While you can convince yourself of that theory [that buying Pandora would increase SIrius’s leverage] when you get into the room with a music label, you get the deal you get – otherwise you don’t get the deal.”

Sirius is currently fighting the labels – represented by SoundExchange – in a Copyright Royalty Board hearing regarding new statutory label royalty payouts. A decision is expected towards the end of 2017.

Frear said: “We know the music industry as represented by SoundExchange has filed for a 23% rate and then they [want] per-subscriber minimums and some other stuff. It’s the third time they’ve filed [for] that rate. I don’t think there’s anything new in the case they’ve filed.”

However, he added that the opinion of the three CRB judges was “the only opinion that matters”.

In a year-end update to investors filed this week, Sirius announced it had finished 2016 with more than 31 million subscribers, with more than 1.7 million net subscriber additions in the year.

Self-pay net subscriber additions in 2016 were 1.66 million, exceeding the company’s guidance and resulting in self-pay subscriptions of approximately 26 million at year end.Music Business Worldwide

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