With Pandora Merger Imminent, SiriusXM Plans Next Move.

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SiriusXM reported its highest-ever fourth-quarter and full-year 2018 revenue growth Wednesday morning, but without a doubt, the company’s purchase of Pandora Media—approved by Pandora stockholders Tuesday—was the focus of the satellite radio company’s investor call. Said CEO Jim Meyer: “Put simply, we want more engagement everywhere. Our combination with Pandora completely changes the game and gives us vastly more scale outside of the car in a way we think is completely complementary to our existing efforts at SiriusXM.”

But first, the company reviewed fourth quarter and the year gone by—and made several significant announcements. Meyer noted, “We exceeded all 2018 guidance metrics. This year we have set a goal of continuing to grow revenue, subscribers, adjusted EBITA and free cash flow, all while managing our planned integration of Pandora.” He added that the overall automotive market in 2018 was “significantly stronger than many expected going into the year,” and that while meeting with OEMs at CES 2019, “they remain as committed as ever about offering SiriusXM in their vehicles.”

In fact, during the investor call Wednesday, Meyer announced that beginning with the 2020 model year, SiriusXM will be standard in all Toyota models, with an agreement through 2028. “This is a big deal,” he stressed. “Our penetration will start to climb this fall, with a remarkable long-term endorsement from one of largest and most influential automakers.” In addition, he said that GM is adding the satellite company’s 360L two-way receivers to several models by year-end, as the company continues to expand its connected vehicle business.

SiriusXM also continues to expand beyond the vehicle—including streaming, its app and smart speakers. “OEM presence remains key, we have also made real progress in the quarter outside the car,” Meyer said. “We’re very committed to better apps with more features and content including video. And we continue to see smart speakers as a great way to [reach listeners]. Stay tuned for more content and more functionality on Amazon’s platform.”

Another significant announcement: SiriusXM will be adding 100 new channels to its streaming-only platform, within the next four to six weeks, the CEO said—adding that those that “perform very well will find their way in our satellite lineup.”

And finally, Meyer promised that its expansion into video will continue this year, including “showcasing what we do best at SiriusXM, with the amazing guests that come in our building every day, to performances and town halls and shows our subscribers love.” During its third-quarter call, president and chief content officer Scott Greenstein said the satellite broadcaster was outfitting a number of studios, along with other spaces, for what he called “live complementary video,” after being encouraged by the reaction to streaming video content from Howard Stern. On Wednesday, Meyer stressed that even as video content expands, “our focus on content and distribution and out of car engagement isn’t changing.”

For Pandora, A ‘Powerful Promotional Platform’

And then there was the discussion Wednesday about SiriusXM’s purchase of Pandora, certainly the focal topic of the fourth-quarter call. The satellite company’s stockholders voted in favor of the transaction at a special meeting held Tuesday, Jan. 29. Meyer told investors during the call that the merger will close Friday Feb. 1. By the numbers, he shared that the combined company will reach 100 million listeners in North America, with nearly 40 million SiriusXM self-paying subscribers and 75 million Pandora listeners.

“The North American audio market is the most influential in the world,” Meyer added. “What we bring to content creators and advertisers is a powerful promotional platform. The Pandora team's continuing efforts to improve ad tech, add new content and features and to improve usability for both listeners and advertisers provides a solid foundation for Pandora's future.” And for SiriusXM’s core business: “Needless to say, our combination with Pandora completely changes the game and gives us vastly more scale outside of the car in a way that we think is completely complementary to our existing efforts at SiriusXM.”

As of Friday, the CEO said he intends to hit the ground running, by consolidating general and administrative functions, with business units report directly to Meyer. “My goal is to streamline decision-making, increase the speed of integration and manage the businesses holistically from day 1.”

In stating his vision for the combined companies, he pointed to creating new consumer audio packages that “combine SiriusXM's in-vehicle position with Pandora's strong position out of the vehicle. There are strong prospects for cross-promotion across our combined North American audience. Quite simply, I'd like to monetize at some level every single one of the close to 23 million SiriusXM trials we are running annually.” He added that over the next decade, most Americans “will have experienced one of these trials, and I am thrilled to now have a complete stack of compelling offerings to offer consumers, from paid to free.”

Pandora also offers listener data that SiriusXM has not previously been privy to. For example, Meyer explained, “Based upon our preliminary research, half the owners of the SiriusXM-enabled vehicle fleet have used Pandora in the past 2 years. This is incredibly powerful.” He believes that data from Pandora can “significantly improve our understanding of these users' preferences and behaviors,” helping “refine our marketing efforts for retention, conversions, win back as well as our streaming experience for SiriusXM subscribers over time.”

Next month, the ball gets rolling with a targeted promotion in which select Pandora listeners will receive an offer to obtain a unique $5 a month SiriusXM music or news/talk package in their satellite-equipped vehicle. SiriusXM subscribers will receive an extended 14-day trial to Pandora Premium. And by midyear, a new Pandora-powered channel will launch for SiriusXM app users based upon their favorite artists; as well as a new radio channel, driven by Pandora listener preferences. “This is just the beginning,” Meyer stressed. “We expect over time to create new, unique audio packages that will bring together the best of both services, creating a powerful platform for artists to reach their fans and to create new audiences.”

That doesn’t mean that Pandora doesn’t come with challenges. As has been well tread, its active users have dramatically diminished in the past two years, as have listener hours. Meyer is well aware: “This is going to be a focus for my management team in 2019 and beyond. The biggest opportunity for change here is through improved content and marketing.” In addition, his company will work to amp Pandora's position in-vehicle. “Trust me on one thing: We understand the many new challenges that arise at Pandora,” he said. “One flashing light that you’ve got to worry about is the decline in listening hours. And we are very focused on that. We believe that metric is fixable.”
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In fact, Meyer believes that SiriusXM’s own track record will lead Pandora toward greater success. “We focus on having the right strategy and business plan and then executing that. Growing Pandora and, more importantly, generating sustained and growing cash flow there will not be easy. But with the combination of SiriusXM and Pandora, we have tremendous opportunities.”