In Q3 2020, Pandora’s advertising revenue per thousand hours (RPM) decreased by $ 0.87 – $ 85.33 to $ 84.46 – while license costs increased by $ 1.11 – $ 39.05 to $ 40.16 (compared to the third quarter of 2019). The net result was a 4.3% drop in net revenue for every hour of streaming, a significant change in the low-margin music streaming industry.
The pairing looked good on paper at first. When SiriusXM acquired Pandora in February 2019, it boasted that the streaming service was a perfect, non-overlapping fit for its satellite radio business. At the time, satellite and streaming audiences exceeded 100 million, according to the company. But market changes have pushed SiriusXM and Pandora in opposite directions.
Also Thursday, SiriusXM revealed that it added 909,000 paying subscribers, net of unsubscribes, 109,000 more than expected, and ended 2020 with 30.9 million paying subscribers. Pandora ended in September – the last period for which financial data was available – with 58.6 million monthly active listeners, up from 66 million when the deal closed in February 2019. Streaming competitors such as Spotify, Apple Music, and Amazon – all global services – have grown powerfully over the same period. Spotify in particular improved its subscriber count from 100 million to 144 million and the number of ad-supported listeners from 123 million to 185 million.
Depreciation will be a major spot on SiriusXM’s unreported fourth quarter and full year earnings. If 2020 is comparable to 2019, the $ 1 billion impairment charge would turn a net profit of about $ 250 million into a net loss of $ 750 million. In truth, the expected depreciation will be a non-cash expense that will not affect two arguably more informative metrics, earnings before interest, taxes, depreciation and amortization (EBITDA) and free cash flow.
However, the depreciation of an asset does not reflect well on the buyer: the price was too high, the performance was below expectations, or a combination of the two.