Satellite radio company SiriusXM will acquire music streamer Pandora in a transaction valued at $3.5 billion, the companies said in a news release Monday, in a deal that would create an audio entertainment behemoth.
The proposed deal is expected to close in the first quarter of next year, Pandora said, and must first win the approval of Pandora stockholders.
The merger offers Sirius a major music streaming asset as tens of millions of listeners flock to streaming apps in an increasingly crowded market.
The transaction would combine SiriusXM’s 36 million subscribers in North America with Pandora’s more than 70 million monthly active users. The two companies are expected to have combined revenue of about $7 billion this year.
Pandora’s stock rose more than 3 percent in afternoon trading.
Sirius XM’s chief executive said in a statement that the acquisition would boost the company’s efforts to reach more listeners beyond car drivers. “Together, we will deliver even more of the best content on radio to our passionate and loyal listeners, and attract new listeners, across our two platforms,” Jim Meyer said.
Pandora said the deal would fortify its advertising business, and boost its subscription offerings. While 71 million users sign on to the app each month, most people listen for free. Six million users pay for Pandora’s premium services, according to the company’s most recent earnings report.
In a call with investors Monday morning, Meyer said the merger would allow the companies to promote their different services to their two large audiences and to expand them, seizing the chance to grab market share in the competitive space for music streaming.
Meyer did not mention industry leader Spotify by name, but he made it clear that the deal will help Sirius go after Spotify’s dominant position. He described the merger as an opportunity to “take share, you can guess where from, other audio platforms that are out there today.”
The music streaming giant Spotify has more than 180 million users. And the company touts a much higher paid subscription rate than Pandora, at about 44 percent, or 83 million subscribers.
Apple Music, another rival in the streaming business also claims a much larger number of paying customers. Chief executive Tim Cook said earlier this year that 50 million users pay for Apple Music or have signed on for a free trial, marking rapid and sustained growth for the service, which launched in 2015 and is vying to dethrone Spotify.
Meyer told investors that the newly combined company would not focus on user growth alone, a key metric among technology companies. He said his goal is to create value through subscriptions. “No matter who comes into one of our trial tunnels, no matter where they come in, our goal ought to be that as they exit that trial, somewhere somehow, they are in a funnel which we’re monetizing.”
The companies did not announce any new products, but said they would “take a more active step” in podcasting and other non-music content, and would also explore developing video services.
Pandora enjoys the largest audio streaming audience in the U.S, according to industry estimates. But Spotify, Apple Music and Amazon Music Unlimited, have posed stiff competition. (Amazon chief executive Jeffrey P. Bezos owns The Washington Post.)
Mark Mulligan, a digital music market analyst at MIDiA Research, said that Pandora’s core radio service, in which users can listen to music but can’t select specific songs on-demand, has been on a steady decline.
Spotify’s free version of its music service is pulling audience away, and Pandora’s most recent user numbers, Mulligan pointed out, are nearly the same as those reported in 2013.
Through the merger Sirius will also gain access to Pandora’s advertising technology, which Mulligan described as a major asset.
Pandora earlier this year acquired AdsWizz, an ad selling platform for streaming audio services used by music businesses, podcasts and broadcasters, including iHeartRadio, PodcastOne and Spotify. Growing its advertising business has been key to Pandora’s business strategy, said chief executive Roger Lynch. He said the merger would offer the financial resources and expanded audience to continue building its ad operations.