Pandora Has Only Itself to Blame for Sirius Sale

(Bloomberg Opinion) -- It’s worth a moment of wistful reflection whenever a company is sold. Pandora Media Inc.’s investors and believers are justified for feeling more wistful than usual. 

The internet radio company announced an agreement on Monday to sell itself to patron and part-owner Sirius XM Holdings Inc. The sale was inevitable the moment Sirius XM  swooped in last year and handed Pandora some much-needed cash in return for a slug of preferred stock. Sirius XM has been the inevitable buyer of Pandora for several years, but it was happy to wait out Pandora’s stubborn management as the price for its prey crept lower and lower.

The sale is a reminder of everything that has gone wrong for Pandora, mostly at its own hands. The sale in exchange for Sirius XM stock values Pandora at $10.14 a share, or 37 percent below the price at which Pandora first sold stock to the public seven years ago. It’s about one-quarter of Pandora’s peak share price in 2014.

Those investors who bought into Pandora’s original mission or jumped aboard during a peak of Pandora enthusiasm have nothing to show for it except the bad memories. Greg Maffei, the chairman of Sirius, teased Pandora at a 2017 investor conference by saying he might want to buy the company at $10 a share, but Pandora didn’t want to sell at that price. It turned out that Maffei got his price almost to the penny. 

Two interrelated strategic mistakes drove Pandora to this unhappy end. First, Pandora spent more cash than it generated for nearly its entire life. Second, the company missed multiple opportunities to shift its business model in a way that might have improved its finances and helped it keep up with changes in music listening tastes.

Other companies — notably Spotify Technology SA, Google’s YouTube and Amazon.com Inc. with its voice-activated speakers — helped slowly shift how people pay for and listen to music. Pandora was nearly entirely absent in those behavior-changes forces, and once it tried to jump on the bandwagon the company was too financially weak to make a real difference. 

Pandora fought with the major record labels for years, and that stunted the company’s progress. The fight wasn’t only Pandora’s fault; the record executives sought for years to block digital music companies that might threaten their fat profits, and Pandora wasn’t the only antagonist. Still, the feud pushed Pandora to rely on an oddball U.S. government rate for licensing music that was out of the company’s control and locked Pandora into handing over half or more of its revenue to the music industry powers. The company’s revenue from selling ads was almost never enough to pay its bills.

Worse, as Pandora and the music industry labels fought, Pandora missed out on negotiating record contracts that could have paved the way for global expansion and permitted the company to begin the subscription music model that has proved to be a big hit for Spotify and Apple Music. Pandora had a head start on both Spotify and Apple, but the company’s mismanagement, poor financial condition and bad feelings within the music industry cost Pandora any advantages from its head start. 

Pioneers in many industries aren’t always the ones that win from their industry-reshaping innovations. Nokia and Palm paved the way for the modern smartphone and have little to show for it. Same for Xerox’s contributions to the personal computer. Pandora, too, is destined to be a pioneer that winds up as a footnote in the history of the music industry it helped reshape. 

Fortunately for Pandora, its music service will live on — under the auspices of the well-managed and wily Sirius XM. There are no guarantees of success for the combined company. Sirius XM has also been on the wrong end of changing music listening habits. But for sure the companies are better off together. It’s just a shame it had to end this way for an independent Pandora, and the company has mostly itself to blame. 

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shira Ovide is a Bloomberg Opinion columnist covering technology. She previously was a reporter for the Wall Street Journal.

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