Sirius XM Holdings Inc. and Pandora Media Inc. hinted on Monday that their proposed merger will allow the combined company to reach millions of users who have decided that Sirius XM is not worth the money.
A Sirius-Pandora combination has been viewed as largely inevitable for more than a year, but the two companies made it official Monday, as Sirius SIRI, -10.32% offered to buy Pandora P, -1.21% for $3.5 billion in stock, provided no better offer emerges during a go-shop period.
Speaking on a conference call with analysts after the deal announcement, Sirius Chief Executive Jim Meyer discussed how Pandora will provide the company a way to serve listeners who aren’t willing to pay for satellite radio in their cars. Sirius expects to offer a total of 23 million satellite trials in 2018, but Meyer said that the majority of people who explore free trials don’t end up subscribing to the Sirius XM product.
“When this transaction closes, we will have a scaled, engaged user base of 65 million people, who listen monthly to free, ad-supported digital radio, providing us an opportunity to refer millions of users who decide not to subscribe to Sirius XM to a free, ad-supported radio product that is superior to other platforms out there today,” he said.
While Pandora has found some success in the car, executives seemed to believe that the online-radio service’s use there could be expanded, and could prove more useful to a company with other services than as a stand-alone entity.
“The addition of Pandora to the Sirius XM ecosystem offers promising optionality on how we ultimately decide to monetize future inactive vehicles in our fleet,” Meyer said.
Wedbush analyst Michael Pachter told MarketWatch that satellite radio is limited in that users can’t interact with what they’re hearing to pause or play back content. Pandora could help the overall car-radio options become more interactive at a time when users are more used to on-demand listening.
The executives declined to talk very specifically when asked on the call about Pandora’s Premium subscription offering and whether that would still be an option for consumers upon completion of the deal, only to say that they’d explore a variety of options.
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Though Sirius made a strategic investment in Pandora in mid-2017, the two companies have thus far resisted combining their services in any way. Pandora Chief Executive Roger Lynch told investors on the call that the companies have discussed various bundling opportunities.
Car radio is crucial to Sirius’ business, but Pandora has been more focused on at-home and on-device listening through its history. As audio experiences a revival of sorts, the company gives Sirius a greater presence on smart speakers and mobile devices, through Sirius’ Meyer dismissed the “misconception” that Sirius listeners were technologically “illiterate” or people who just didn’t “get it.”
Pandora has been talking for several quarters about bringing more non-music content onto its platform, and B. Riley analyst Barton Crockett expects that the Sirius merger will help catalyze these efforts.
“Podcasts seem likely,” he wrote. “We could also see signature Sirius talent like Howard Stern and others having a presence on Pandora, or Sirius and Pandora partnering on new talent.”
The deal announcement weighed on shares of Sirius XM, which tumbled 10.3% Monday as shares of Liberty Media Corp.’s Sirius XM LSXMA, -9.27% tracking stock fell 9.3%. Pandora shares gave back their earlier gains and closed down 1.2% in Monday trading after the drop in Sirius’ stock price lowered the value of the buyout deal. The stock rose as much as 10% earlier in Monday’s session.
Pandora’s stock is up 86% so far this year, compared with a 9.2% gain for the S&P 500 SPX, -0.35%