Audio entertainment giant SiriusXM, the home of Howard Stern, said on Tuesday that it added 279,000 subscribers in its satellite radio unit during the fourth quarter and lost 63,000 in its Pandora business, an improvement over a year-ago loss of 88,000.
As previously signaled, the firm also recorded a nearly $1 billion non-cash impairment charge for its Pandora music streaming service, due mainly to the impact of per-play royalty payment costs. The charge amounted to $976 million.
“The uncertainty we have this year and the potential for higher royalty costs will likely drive lower margins and have a meaningful impact on Pandora’s profitability over the coming years and this drives the bulk of the expected impairment,” Jennifer Witz, who recently succeeded Jim Meyer as CEO of SiriusXM, told the Citi TMT West Conference last month.
Besides statutory royalty rates for artists, Pandora has direct licensing deals with major label groups. And Witz said a recent fall in ad revenue for Pandora amid the coronavirus pandemic was accompanied by consistent consumption of its music streaming product, which will hit profitability as the overall royalty cost for the music streaming service rises.
Sean Sullivan, SiriusXM’s CFO, told a morning analyst call that audience engagement for Pandora, while benefiting from more music streaming usage, had been impacted by a competitive market with Spotify, Apple and Amazon and an expected royalty rate hike.
“We have a taken pragmatic view of royalty costs in our assumptions,” Sullivan added after posting a hefty impairment charge for Pandora based on its royalty cost structure. Witz also told analysts Pandora was busy drumming up new content, including podcasts, to improve audience engagement across connected devices and in cars.
“We’re clearly focused on a decline in listenership. It has been harder than we expected. But the monetization has been very strong at Pandora,” she added of the management team offering new music and non-music product for audiences and advertisers.
The audio giant, controlled by John Malone’s Liberty Media, said that at its core SiriusXM business self-pay subscriber net additions came to 407,000 in the final quarter of 2020, compared with 341,000 in the year-ago period. It lost 128,000 paid promotional subs after gaining 14,000 in the year-ago period. That resulted in fewer user gains than the 355,000 recorded in the fourth quarter of 2019, but brought the firm to 34.7 million total SiriusXM users at the end of 2020.
The company’s music streaming service Pandora ended the year with nearly 6.3 million total users. Full-year advertising revenue at Pandora declined 1 percent to $1.18 billion “despite significant weakness in the advertising market resulting from the COVID-19 pandemic earlier in 2020.” Fourth-quarter ad revenue jumped 22 percent to $425 million.
SiriusXM’s fourth-quarter financials swung from a $243 million profit in 2019 to a loss of $677 million, due to the charge, despite a 6 percent revenue gain to $2.19 billion.
“SiriusXM turned in strong operating and financial results in 2020: We grew SiriusXM self-pay subscribers, revenue, adjusted earnings before interest, taxes, depreciation and amortization, and free cash flow despite the pandemic,” said Witz.
She also touted the benefit of the company’s push into podcast, including via the acquisition of Stitcher. “SiriusXM, Pandora and Stitcher, together with our investment in SoundCloud, now reach an audience of more than 150 million people. We are bolstering our position as North America’s leading audio entertainment company with new innovative talk shows and podcasts, streaming music channels targeting younger audiences and extended deals with major media brands, such as NBCUniversal News Group.”
On the analyst call, Witz also touted Howard Stern for choosing with a recent contract renewal to remain with SiriusXM and continue his flagship show for another five years. “Howard is at the top of his game, with remarkable interviews and commentary,” she said of Stern, while also pointing to expanded comedy content to come from Kevin Hart after the Hollywood star inked a new multi-platform deal with the satellite radio company.