SiriusXM Warns of $1 Billion Impairment Charge for Pandora

SiriusXM
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SiriusXM

The audio entertainment giant forecasts a non-cash hit from per-play royalty payments to copyright holders for its music streaming service Pandora.

SiriusXM, the home of Howard Stern, said it expects to record a $1 billion non-cash impairment charge for its Pandora music streaming service, due mainly to the impact of per-play royalty payment costs.

"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, newly-installed CEO of the audio entertainment giant, told the 2021 Citi TMT West Conference during a session that was webcast on Thursday.

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 pandemic was accompanied by consistent consumption of its music streaming product, which will hit profitability as the overall royalty cost structure for the music streaming service rises.

The SiriusXM boss also pointed to increased competition from music streaming rivals like Spotify and Apple Music, which has reduced revenues from ad-supported Pandora listeners. "The decline in the Pandora MAUs (monthly active users) has been a bigger challenge than we expected and it's one of my primary areas of focus," she said.

Also Thursday, SiriusXM said it added 909,000 net self-pay subscribers to finish 2020, with around 30.9 million self-pay subscribers, exceeding the company's most recent 2020 subscriber guidance. SiriusXM plans to unveil its full-year and fourth quarter 2020 financial results on Feb. 2.

Witz during her virtual investors conference appearance also talked up SiriusXM's renewed contract with Howard Stern, which will see his live show extend its run with her company for another five years.

"He's an incredible talent, and he's done an incredible job. That's such a key part of our content bundle, so we're really pleased that Howard is staying with us," she told the Citi conference.

Stern's deal also covers his archive for seven additional years. Financial terms of his latest contract with SiriusXM weren't disclosed.