SIRI Sirius XM Holdings Inc

By Hannah Karp, Shalini Ramachandran and David Benoit 

Liberty Media Corp. Chief Executive Greg Maffei, whose company controls satellite-radio operator Sirius XM Holdings Inc. hasn't been very complimentary about music-streaming services in recent months.

"We have looked at the business models on a bunch of the streaming companies and found it very hard to see them [as] attractive," Mr. Maffei told investors at a March conference.

Behind the scenes, however, the story is more complex. In recent months, Mr. Maffei floated an offer to acquire internet-radio company Pandora Media Inc. for roughly $15 a share, several dollars above where the shares traded at the time, said people familiar with the matter. The offer valued the company at over $3.4 billion.

Mr. Maffei's approach didn't have the characteristics of a formal bid, one of the people said, appearing to be more of "a fishing expedition." Pandora's board rebuffed the advance because it believed the company's true value was closer to what it was in the fall, when the stock traded around $20, this person said.

Pandora shopped itself to other potential buyers, including Apple Inc. and Amazon.com Inc., earlier this year, said other people familiar with the matter said.

Later, in June, at a private meeting with investors in Denver, Mr. Maffei talked up the benefits of a potential Sirius XM-Pandora tie-up, according to people who were there. Asked during the meeting why a deal had yet to be sealed, he told attendees, "You'd have to ask the Pandora board."

Now investors are wondering whether Mr. Maffei will raise his bid -- and what he might do if he won Pandora.

In an interview, Sirius XM Chief Executive Jim Meyer declined to comment on any takeover approach to Pandora, But he said that since his company represents a $5 billion part of the $25 billion radio business, he often kicks around whether he would like to have a bigger presence in the business.

Liberty Media could combine Pandora with Sirius XM, which it controls with a 64% stake. Sirius XM has built a profitable subscription business on strong partnerships with car makers. But the rise of streaming media and internet-connected cars raises questions about whether customers will continue paying $15 a month when they can easily stream music in their cars through cheaper or free services on their dashboards.

Pandora would instantly give Sirius XM scale in streaming, with 80 million listeners who mostly tune in on their mobile phones. But the company, whose revenue comes largely from advertising, has an entirely different business model and far higher content costs than Sirius XM.

The satellite-radio company pays less than 11% of revenue on recorded music royalties through next year, in accordance with federal licensing rules. Pandora, by contrast, spent 52% of its revenue last year on music costs since internet-radio firms pay royalties on a per-stream basis.

Sirius XM already has its own mobile app, though few subscribers use it, and it is working to offer a satellite-streaming hybrid next year with personalized recommendations and customization.

"I don't need any streaming partner to do that," said Mr. Meyer, the Sirius XM CEO. But, he said, "We will do whatever we need to for our customers to keep paying us."

Some analysts and investors say that if Liberty Media acquires Pandora, it could house the internet-radio service separately from Sirius XM. Indeed, it could pair the streaming service with the concert and ticketing business of Live Nation Entertainment Inc., in which Liberty Media holds a 34% stake.

Pandora, meanwhile, has been going through a tumultuous period. Its shares tumbled last October when it announced a $90 million settlement with record labels over its unpaid use of pre-1972 music. It also reported a decline in listening because of the launch of rival streaming service Apple Music.

The company's cost outlook brightened in December when the Copyright Royalty Board announced that Pandora would pay far lower rates for music than record labels and artists had sought.

In March, Pandora replaced CEO Brian McAndrews with its charismatic founder, Tim Westergren, who has since played down sale rumors.

On Thursday, Pandora reported a wider loss of $76.3 million, or 33 cents a share, and the loss of over a million subscribers for the most recent quarter. The company's shares, which traded as high as $40 in 2014, sank 6.3% after hours, to $11.24.

Sirius XM management recently has praised Pandora over on-demand services such as Spotify, which have to strike direct deals with record labels and, as a result, generally fork over at least 70% of their revenues to the music industry.

Asked about interest in buying Pandora at a June investor conference, Sirius XM Chief Financial Officer David Frear said: "Among the streaming companies, Pandora has a better opportunity for a solid business model."

--Ryan Knutson contributed to this article.

Write to Hannah Karp at hannah.karp@wsj.com, Shalini Ramachandran at shalini.ramachandran@wsj.com and David Benoit at david.benoit@wsj.com

(END) Dow Jones Newswires

July 22, 2016 02:48 ET (06:48 GMT)

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