Pandora Media, the internet radio company, agreed to take a $150m investment from private equity group KKR as losses steepen and it hunts for a potential buyer.
KKR’s injection would strengthen the company’s balance sheet and enable it to “evaluate any potential strategic alternatives, including a sale”, said James Feuille, one of two Pandora board members who will resign in a governance shake-up that the company also announced on Monday.
Pandora, the world’s largest digital radio service with about 80m users, has struggled to compete in a crowded music streaming space, as rival Spotify has rapidly added customers.
The company revealed its cash pile had shrunk to $203m at the end of the first quarter, from $243m at the start of the year and $383m a year ago.
Pandora has been pressured by activist shareholders to explore a sale, and there have been rumours that Liberty Media’s SiriusXM could be a potential buyer. The company said it would look at the possibility of a sale in the next 30 days, before the KKR deal is due to close.
KKR will get a new class of preference shares that rank above common shareholders, and it will be paid dividends on those shares of at least 7.5 per cent.
Shares in Pandora rose 5 per cent in after-hours trading. The stock has lost 20 per cent this year.
The radio service, facing sluggish user growth and ad sales, is looking to convince people who use its free service to start paying. In the past year as more people signed up to pay for music streaming, the industry has heralded subscription streaming as the format that will propel music to a more stable business model.
However Pandora faces steep competition from Spotify and the world’s largest technology groups, such as Apple and Google. Spotify and Apple together boast 70m paid subscribers, to Pandora’s 4.7m.
The company earlier this year said it would cut about 7 per cent of its workforce.
Richard Sarnoff, KKR’s US head of media and telecoms, will join the board and the company is also looking for additional directors to replace the two departing board members.
Pandora announced the governance changes as it reported steeper losses in the first quarter. The company posted a first-quarter loss of 24 cents a share on $316m in revenue, compared to a loss of 20 cents a share in the same period a year ago. However, earnings were less severe than Wall Street analysts had predicted; the average forecast was for a loss of 34 cents a share, on sales of $318m.
Pandora said it had signed up nearly 1.3m customers to its paid subscription services since mid-March. This includes more than 500,000 for “Premium”, a $9.99 a month service that Pandora debuted in March to mimic Spotify’s paid product. Total paying customers grew to 4.7m in the quarter, from 3.9m a year ago.
“Although it remains early days, we are enthusiastic about the launch of Pandora Premium,” said Tim Westergren, chief executive, adding that the results were “consistent with our expectations”.
KKR’s investment comes weeks after the music industry reported its fastest rate of growth since 1997 as streaming subscription revenues surged 60 per cent.
“A true pioneer in digital music, we believe that Pandora is uniquely positioned over the long term given the sheer size of its user base,” said Mr Sarnoff.
Pandora’s financial difficulties come as Spotify, the other big independent music streaming service, has enjoyed red-hot growth, adding 20m paying customers in the past year. Spotify is gearing up for a public listing as soon as the autumn.
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