Pandora CEO, Pressured to Sell, Gets Last Chance to Beat Spotify

  • Music streaming app is best shot to spur growth, cut losses
  • Activist Corvex with 8.8% stake urges company to weigh options

Pandora Media Inc. co-founder Tim Westergren took over for his second run as chief executive officer in March 2016 to revive the online radio company and avert a potential sale. A year in, he’s about to take his best shot at proving Pandora can survive on its own.

Pandora is poised to introduce a new service, dubbed Premium, that offers customers millions of songs on demand for $9.99 a month. To succeed against the industry’s dominant players, Spotify Ltd. and Apple Inc., the Oakland, California-based company will have to convince some of its 81 million users to trade their free, customized radio stations for this a la carte buffet.

Tim Westergren

Photographer: David Paul Morris/Bloomberg

Once a rising star that brought old-fashioned radio online, Pandora has been losing listeners and money. Its travails have attracted activist investor Corvex Management LP, which has carved out an 8.8 percent stake and is pressuring Westergren to consider other options. While the CEO publicly opposes a sale, several board members are open to the idea or at least giving Corvex seats on the board, according to people familiar with the matter.

“After all this talk of consolidation or a merger, it seems clear Pandora is trying to be a really strong standalone company,” said Amy Yong, an analyst with Macquarie Research who recommends buying the stock. “Much of that will hinge on their ability to do a subscription product and compete with Spotify.”

Westergren, 51, has preached swift action since taking over as CEO, and asked for patience to execute the company’s plans to enter two new businesses -- concert ticketing and on-demand streaming.

Once a pariah in the music industry, Pandora has repaired relations with record labels and publishers by settling disputes over royalty fees and promising to help promote artists. The Minneapolis-born Westergren, a musician, emailed the heads of the three major record labels the morning he took the top job and hammered out deals for their catalogs within a few months.

Yet patience is wearing thin in some quarters. Pandora reported a year-over-year drop in listeners in each of the past three quarters, while Spotify added more than 20 million paying customers in less than year. Advertising growth has slowed, and the shares, issued at $16 in June 2011, peaked at $40.44 in March 2014 and are now trading at $11.69.

“Pandora has clearly failed as a public company,’’ Rich Greenfield, an analyst with BTIG LLC, wrote in a note this month. The company must sell itself or risk war with Keith Meister’s Corvex Management, the second-largest shareholder, he warned.

Billionaire John Malone’s Liberty Media Corp. and its Sirius XM Holdings Inc. subsidiary have expressed interest in buying Pandora, while also sending the stock down 6 percent in late February after saying the company was overvalued.

Last Waltz?

“The dance with Liberty and Sirius has been going on for so long that I don’t know what’s going to happen,” Yong said.

Pandora, meanwhile, has extended the deadline for shareholders to propose new directors, giving investors like Corvex time to ponder their next moves and spurring speculation among current and former employees that other actions may be afoot. Two directors will be up for re-election at the company’s next shareholder meeting -- Westergren and Tony Vinciquerra, a media executive to Corvex’s liking. 

Corvex, which has regulatory clearance to acquire 15 percent of Pandora, has been increasing its stake while pressing the company to do better -- or sell. To assuage anxious investors, Pandora has fired staff and hired an adviser to review options including a sale. Corvex has signed non-disclosure agreements to get updates on the performance of Pandora’s subscription services, people familiar with the matter said.

With an annual shareholder meeting yet to be scheduled, the two sides have been locked in negotiations over the next steps, according to people with knowledge of the matter. Absent a sale, Pandora may expand the board to include Corvex representatives, said the people, who asked not to be identified. Pandora declined to comment, as did New York-based Corvex.

Days before retaking the helm at Pandora a year ago, Westergren compared Pandora to Netflix Inc., another digital media pioneer. While both companies brought their respective industries online, there was a crucial difference.

Netflix anticipated its business would change and switched to streaming from delivering DVDs by mail. Investors now value Netflix at more than $62 billion. Around the same time that Netflix introduced its on-demand video service, a Swedish entrepreneur named Daniel Ek started an online company offering music on demand: Spotify.

Now, Pandora is trying to catch up, going up against larger companies with its future hinging on a me-too product.

“While radio will remain the centerpiece of all music consumption, consumers want everything in one place,’’ Westergren said in an interview a couple months ago. “We want to keep people who’ve gone off Pandora to listen to on-demand songs on YouTube or whatever. That was not abating. It became clear we had to offer everything.’’

— With assistance by Beth Jinks

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