SiriusXM prepares for a $1bn impairment charge related to Pandora's performances

 By Emmanuel Legrand

SiriusXM, the parent company of music streaming service Pandora, is expecting to incur a $1 billion impairment charge in 2020 related to Pandora's lower than expected advertising revenues due to the pandemic and attributed to its "royalty cost structure." SiriusXM acquired Pandora two years ago for $3.5bn.

  In a Jan. 7 statement, SiriusXM announced that it expected "to conclude that an impairment is necessary related to the Pandora reporting unit." It added: "The company estimates, based on information available to it today and assumptions that it believes are reasonable, that the impairment of goodwill and other indefinite-lived intangible assets could be approximately $1.0 billion. The expected impairment is a result of the anticipated operating performance of Pandora, primarily its royalty cost structure. Income from Operations for the quarter and year ended December 31, 2020 will be negatively impacted by any such impairment."

  Speaking at the 2021 Citi TMT West Conference, Jennifer Witz (pictured, below), who took over from Jim Meyer as CEO of SiriusXM on January 1, said: "The uncertainty we have this year and the potential for higher royalty costs will likely drive lower margins and have a meaningful impact on Pandora's profitability over the coming years and this drives the bulk of the expected impairment."

Decline in MAUs

  Witz also admitted that "the decline in the Pandora MAUs (monthly active users) has been a bigger challenge than we expected and it's one of my primary areas of focus."



  Pandora has a free tier, supported by advertising, and a subscription service. From a royalties' payment perspective, Pandora operated mostly as a non-interactive streaming service, paying royalties directly to neighbouring rights society SoundExchange for the use of sound recordings. However, in recent years, major companies have cut deals with Pandora to collect directly from the service, although the performers' share for the free ad-supported tier is still collected by SoundExchange.

  Pandora's non-interactive royalty rates are set by the Copyright Royalty Board, and a new round of negotiations for the period 2021-2025. Rates applied to the premium tier are negotiated directly between the platform and rights holders.

Subscribers' gains at SiriusXM

  On the positive side, Witz announced that SiriusXM added 909,000 net self-pay subscribers to finish 2020 with approximately 30.9 million self-pay subscribers. The company said the figures are "exceeding the company's most recent 2020 subscriber guidance." The company also announced that it expects "to meet or exceed its most recent 2020 guidance for revenue, adjusted EBITDA and free cash flow." 

  For the year 2021,SiriusXM expects self-pay net subscriber additions of approximately 800,000, with total revenue of approximately $8.35bn. Adjusted EBITDA should be of approximately $2.575bn, and free cash flow of approximately $1.6bn.

  SiriusXM will release full-year and fourth quarter 2020 financial and operating results on February 2, 2021.