Troubled streaming music service Pandora has finally found a white knight of sorts to boost it with a cash injection as it looks to improve its business: SiriusXM has just announced it will be investing $480 million in cash into publicly traded Pandora, which will give the satellite radio company around 16 percent ownership of Pandora on an as-converted basis. Along with this, Pandora has offloaded a large asset: it’s selling Ticketfly, the ticketing service that it acquired in October 2015 for $450 million, to Eventbrite for $200 million.
It also will enter into a distribution partnership with Eventbrite as part of that deal.
The two moves bring Pandora into a new chapter in how it will develop its business: the company today still makes most of its money from advertising around free listeners, although it has been working on building paid tiers to supplement that for some time now. In the meantime, the stock’s main boost since last year has been the fact that it’s been the subject of takeover speculation.
SiriusXM was once rumored to be interested in buying Pandora outright, one of a number of potential suitors. (One of those outliers? Spotify, of all companies.)
While an outright sale of Pandora appears to have been taken off the table for now, this will give it a much-needed cash injection, as well as a strategic partner experienced in the radio business that might help steer it to more growth in a very competitive market.
Pandora faces a couple of issues in its business. For one, digital music streaming companies are still coming under a lot of margin pressure because of the costs for licensing music. Another issue for Pandora is that it has never managed to expand significantly outside of its home market of the U.S. The Sirius investment could give it a cash boost and also some economies of scale in negotiating those deals. And, on SiriusXM’s side, it gives the company some differentiation in its business.
“This strategic investment in Pandora represents a unique opportunity for SiriusXM to create value for its stockholders by investing in the leader in the ad-supported digital radio business, a space where SiriusXM does not play today,” Jim Meyer, chief executive officer of SiriusXM, said in a statement.
“Pandora’s large user base and its ability to provide listeners with a personalized music experience are tremendous assets. With its strong technology and new product offerings, we believe there are exciting opportunities for Pandora to accelerate its growth and increase value for Pandora and SiriusXM stockholders.”
The investment will come in the form of newly issued Series A convertible preferred Pandora stock; $172.5 million of the preferred stock was purchased upon execution of the deal, and the balance will be bought at a second closing.
Eventbrite’s acquisition of Ticketfly, meanwhile, brings to an end one of the many bets that Pandora had made over the years to try to diversify its business.
The Ticketfly acquisition was meant to help Pandora develop alternative revenue streams — specifically around events and, obviously, ticket sales — but anecdotally we’ve heard one former employee at Ticketfly describe it as a “technical shitshow.” The significant drop in enterprise value between the $450 million that Pandora paid for it, and the $200 million that Eventbrite is paying to pick it up, could also point to that.
For its part, Eventbrite sees the acquisition as part of its own interest in expanding into more events around music.
“The whole is greater than the sum of its parts, and we see immense alignment and opportunity with this union, especially as we continue to expand Eventbrite’s global footprint in music,” Julia Hartz, CEO and co-founder of Eventbrite, said in a statement. “Together with Ticketfly, we will focus our collective energy on further developing our unparalleled solution and superior services for indie music venues and promoters around the world.”
This is not the first acquisition from Eventbrite to focus on music events: The company earlier this year acquired Ticketscript in Europe to build out that part of its business.
This deal, in any case, will come at a cost for Pandora. Just yesterday, we reported that Pandora and KKR, a private equity firm that had previously agreed to buy $150 million in Pandora Series A preferred shares had extended that agreement to allow it more time to close. However, there also were rumors that SiriusXM would step in as a strategic investor to acquire a “substantial minority investment in the company.” Today’s deal means that KKR will no longer be taking a stake in Pandora, and Pandora will subsequently pay KKR a $22.5 million termination fee.
This preferred stock will bear a 6 percent cumulative cash dividend for SiriusXM — which makes the deal particularly sweet. The preferred stock also can be converted into common stock at a price of $10.50 per share, which is a 14.2 percent premium to Pandora’s average stock price over the past 20 days.
As part of the deal, SiriusXM will get three seats on Pandora’s (now nine-person) board of directors, with one of those acting as chairman. And, the financial stake for SiriusXM is large enough that they have an incentive to make sure Pandora rights the ship and figures out how to fight back against Spotify and Apple Music.
“With this investment, we have the backing of one of the media industry’s most successful investors and significant capital to accelerate growth. Pandora is now poised to advance to the next stage of the company’s lifecycle,” Tim Leiweke, a member of Pandora’s board of directors, explained in a statement.
And, of course, if SiriusXM ever decides to revisit acquiring Pandora in the future, they will already own a sizeable chunk of the company.
For now, the market appears to be happy with the investment and asset sale to Eventbrite: Pandora’s stock is currently up by more than five percent in early trading.