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Sirius enters Silicon Valley lion's den with Pandora deal

Los Angeles

SIRIUS XM Holdings Inc is so eager to reach listeners outside the car that it's stepping into the ring with some of the world's largest technology companies. Sirius, controlled by cable TV billionaire John Malone, announced an all-stock deal to buy Pandora Media Inc on Monday, uniting the largest satellite radio service in the US with the largest online radio company. Sirius was already a minority shareholder in Pandora, which it tried to acquire at least twice before.

The marriage immediately gives Sirius a large customer base outside the car, a priority for a firm that uses satellites to deliver its programming. Pandora, for all its struggles, has more than 70 million customers. The combined sales of the two should exceed US$7 billion this year, eclipsing even Spotify Technology, the world's largest paid online music service.

But the deal also pits Sirius against technology's fiercest competitors: Apple, Spotify, Amazon.com Inc and Alphabet Inc's YouTube. They are all racing to grab a bigger piece of the resurgent music market, which is growing again after years of declines as more consumers pay for music services they can access on their phones and via Internet-connected speakers.

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Spotify has signed up more than 180 million users, including 83 million paying subscribers, with a service that blends a library of more than 35,000 songs with playlists and videos. Investors like what they see, boosting its market value past US$30 billion. But even Spotify hasn't managed to stave off competition. Apple Music has already eclipsed Spotify in some markets, and Amazon and YouTube are investing heavily in their own services.

Pandora was struggling to keep up, and now Sirius is betting it can do better. Investors are less certain. Sirius stock fell 10 per cent on Monday, cutting the value of the all-stock deal to less than US$2.5 billion for Pandora shareholders.

Pandora was once an Internet darling. The company promised to bring the anachronistic radio industry online, delivering stations personalised to the taste of every user. It attracted millions of customers, slowly lured advertisers online, and its market value approached US$8 billion in 2014. Yet what was once a fast-rising startup, and then an early online media success story, is now a company in decline.

Advertisers remained stubbornly loyal to conventional radio, and Pandora's leaders missed the next revolution in online audio: on-demand streaming. First YouTube, and then Spotify began offering users catalogues of all the music in the world, delivered not just on radio stations but via playlists, videos and full albums.

Pandora's management resisted a sale for a couple years and shuffled through a couple of CEOs, including Tim Westergren twice. In his second go-round, he tried to compete with Spotify and Apple Music head-to-head, building an on-demand product to complement Pandora's radio service. But the company was six months late in launching the system and royalty payments to the record industry led to continued losses. "There was the expectation the company would launch the premium services earlier than it did,'' CEO Roger Lynch said in an interview recently, while denying the company was in sale talks. Pandora is in the process of negotiating new record company deals now and expects to reduce its losses, he said.

Mr Lynch took over after Pandora finally gave in to Sirius's entreaties, selling a minority stake and handing over three seats on the board. Mr Lynch came to Pandora from Sling TV, the online video service from satellite TV provider Dish Network Corp. BLOOMBERG