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SiriusXM is taking over Pandora in a $3.5 billion deal that’s more necessity than convenience

Apple and Spotify investors are not concerned.

Talk radio host Howard Stern
Howard Stern
Theo Wargo/Getty Images For The Rock and Roll Hall of Fame

SiriusXM, the satellite radio company, is taking over the rest of Pandora, the internet radio company, in an all-stock deal valued at $3.5 billion. Sirius bought a large stake in Pandora last summer and had reportedly tried to acquire it previously, so this isn’t a stunning surprise.

Why is it happening? As Recode Executive Editor Peter Kafka wrote last June when the first deal was announced, Pandora needs help and SiriusXM needs the internet.

Pandora is still losing money — albeit less than it used to — as it tries to build a business beyond free, ad-supported radio. Last quarter, the company lost $92 million on $385 million of revenue, reflecting a decline in advertising sales but an increase in subscription revenue.

But Pandora is still widely distributed and is still very much a thing: It had 71.4 million active listeners at the end of June — a big audience of mostly mobile streaming listeners that could be useful to SiriusXM.

As Kafka wrote last summer:

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.

Indeed. But while still large, Pandora’s audience is still shrinking — the company reported 76 million listeners the same time a year ago. And its six million paying subscribers is a small fraction of Apple’s or Spotify’s total. Spotify, for example, had 180 million active users and 83 million premium subscribers at the end of June.

Still, SiriusXM and Pandora say that if the deal closes — it is pending antitrust review — it will create the “world’s largest audio entertainment company” with more than $7 billion in revenue and a $41 billion enterprise value.

Among its growth opportunities touted in its deal-announcement slide show: “Unique audio packages”; driving in-car listening for Pandora; and cross-promotional opportunities — including more than 23 million SiriusXM trial listeners every year, primarily through car purchases — that deserve their own schematic slide:

SiriusXM Pandora Ecosystem slide SiriusXM/Pandora

In addition, the companies describe the combination as a “strong promotional platform for emerging and established artists.” Also worth noting: Liberty Media, which owns SiriusXM, and now Pandora, has a big stake in LiveNation, which dominates both the concert-venue business and the ticketing business (through its ownership of Ticketmaster). This provides obvious opportunities — especially if it ever pushes to combine them — and potential antitrust problems, too.

Pandora shares are up about 2 percent, trading around $9.30 — not far from where shares traded last June when SiriusXM made its first investment. That’s up from all-time lows around $4 earlier this year, but it’s down around 75 percent from all-time highs in early 2014. Apple and Spotify shares are flattish on the day.

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