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Took long enough. And it still isn’t done. But it’s close enough for now: Music services Pandora and Sirius XM, which have been circling each other for more than a year, are finally linking up.
This isn’t a full-on purchase of Pandora by Sirius, which the two sides had reportedly been discussing as recently as this week. Instead, Sirius will invest $480 million in Pandora, in return for a 19 percent stake in the streaming music service.
The investment also means that Sirius won’t end up with a majority stake in Pandora anytime soon. Deal terms prevent Sirius from buying any more Pandora shares for another 18 months, and will also prevent Sirius from acquiring more than 31.5 percent of the company without the approval of Pandora’s board.
I don’t know why Sirius and Pandora ended up with this structure instead of an outright acquisition. But the strategic rationale for the hook-up has been obvious for a very long time:
- Pandora needs help: For years, it has been trying to figure out how to make enough money from audio ads to cover the costs of its popular free service. That struggle ultimately prompted the company to launch an ad-free subscription service this year — long after competitors like Spotify and Apple Music had gained traction for what are essentially identical services. Oh, yeah: In addition to those guys, Pandora is also competing with Google and Amazon, who can burn money all day long in pursuit of customers. Pandora can’t.
- Pandora does have one thing Sirius could really use: A widely distributed user base — 76.7 million people, though that number has been shrinking — who use Pandora almost exclusively on their phones. That kind of mobile internet reach could be enormously useful to almost any consumer company, but especially Sirius, which delivers almost all of its music to listeners in their cars, using actual satellites that it launches into space. I’d say that makes as much sense as using ponies and pigeons to deliver the mail, but apparently it continues to works for Sirius. Still, you can see where this is going. Because you are reading this on the internet, right now.
Sirius and Pandora don’t spell out how they’re going to work together, beyond the fact that Sirius will end up with three of nine Pandora board seats, including the chairman slot. But the obvious play is to use Pandora’s digital reach to both market Sirius’s existing service and to eventually migrate some Sirius customers there — while fending off competition from the Apples and Spotifys of the world.
In the meantime, Pandora is dispensing with the notion that it can diversify its way out of its problem. It is selling off Ticketfly, the ticketing service it bought for $450 million less than two years ago, to rival ticketer Eventbrite for $200 million.
This article originally appeared on Recode.net.
