NEW YORK (TheStreet) -- While it would be best for Pandora (P - Get Report), the tech/media sector and maybe even the music industry if Yahoo! (YHOO - Get Report) or Google (GOOG - Get Report) bought Pandora, I'm warm to the idea of a merger with Sirius XM (SIRI - Get Report). In fact, some signs point to a deal between the two companies making more sense than a tech company swallowing Pandora whole.
A Pandora/Sirius XM merger wouldn't provide the (wonk, wonk!) synergies Yahoo! or Google could, but it would address several issues at or near the top of both P and SIRI's agendas. And you might not need to step over Tim Westergren's dead body to get this type of deal done, particularly because Sirius XM doesn't pose quite the same threat as Yahoo! or Google to Pandora's way of life. A combined Pandora-Sirius XM accentuates strengths, compensates weaknesses and forms a unified front against real and perceived enemies -- the cornerstones of worthwhile M&A.
Pandora has indicated it might use spoken word programming to maximize in-car listening.
The theory goes: a considerable portion of listening happens in the car. And, outside of random comedy skits, Pandora doesn't have talk programming. Only music. To keep its core listening longer and grow its audience, the addition of, say, news/talk/sports makes sense. While Pandora could build these franchises on its own, it's not easy nor is it cheap. Because Sirius XM has all of the above -- and more -- in place, a merger solves Pandora's in-car/spoken word dilemma.
A quick devil's advocate to that idea -- why would Pandora need to go to such strides? If it wants spoken word programming, but doesn't want to produce it on its own, it could very easily partner elsewhere. For example, terrestrial radio companies are so desperate there's no way they would (in their right mind) turn down an overture from Pandora to broadcast programming over its platform.
On the flip side as it pertains to SIRI, it certainly would not hurt Sirius XM to be one with the best personalization and music discovery engine on the planet. Plus, if Sirius XM has a weakness it's that its audience skews older and/or isn't as adept or likely to listen online or via mobile devices as Pandora's.
Because it's unclear how a merger of this sort would actually go down, nobody really knows to what extent integration and cross-promotion would happen. Would Pandora and Sirius XM operate as separate entities (that doesn't make much sense to me) or would they combine programming, offering their listeners new a la carte style subscription options alongside Pandora's current ad-supported free choice (makes more sense to me).
Someday somebody with some leverage needs to stand up and say, every single structure in place to license music -- on the performance and publishing side -- is broken. We need entirely new systems. To create these systems we ought to cut out all middlemen -- from Congress to SoundExchange -- and get the big deals done directly. It seems to me Pandora and Sirius XM could make waves on this front with a heck of a lot more authority and success together than they could on their own.
Even if things didn't progress to the above extreme, it's logical for two entities who play considerable amounts of music (each dominates their respective platform) to attempt to outmuscle the music industry. Nobody appears willing to work together so why not come together and run some people over? Bottom line -- the larger share of the market you command, the more room you have to break existing structures and negotiate rates.
It might not take M&A to get this done. Pandora could likely seek out some sort of revenue-sharing partnership with Sirius XM to get at least half of this done.
As appealing as that idea is though, the best outcome for Pandora shareholders is probably not a deal with Sirius XM. They would be better off with Yahoo! or Google overpaying for the platform and maximizing it in ways Pandora could not possibly pull off (see the links in the first two paragraphs of this article).
-- Written by Rocco Pendola in Santa Monica, Calif.
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