Speculation continues that satellite radio company SiriusXM will buy multi-faceted concert promoter Live Nation. What has been mostly a Wall Street suggestion was revived last week when SiriusXM announced it would acquire music streaming company Pandora in an all-stock transaction worth $3.5 billion.This triggered some equity analysts to reiterate their opinions that a merger is not only sensible but inevitable.
By all appearances, Liberty Media chairman John Malone is interested in creating a new category of full-stack music company. Liberty owns 71 percent of SiriusXM, which invested $480 million in Pandora in 2017. SiriusXM portrayed the deal as an opportunity to learn about an IP-based music service at a close distance. Not just a silent partner, SiriusXM took three board seats: CEO Jim Meyer, CFO David Freer, and chairman Greg Maffei. And given acquisition’s timing, SiriusXM seemed to be kicking Pandora’s tires for a possible purchase of the remaining 81 percent of shares it didn’t already own.
One need only look at Pandora chairman Greg Maffei’s CV to see why people expect a SiriusXM and Live Nation merger. Maffei is president and chief executive of Liberty Media, which owns 34 percent of Live Nation and a majority share in SiriusXM. And he’s on record about his interest. Speaking at the Deutsche Bank 2015 Media, Internet & Telecom Conference, Maffei said it would be “very logical” to cross-promote Live Nation and SiriusXM. But even though Liberty has stakes in both companies, SiriusXM was doing little to reach Live Nation consumers, and vice versa. “That’s probably my fault,” he admitted. But if Liberty Media owned a majority of both companies, Maffei would be in a better position to leverage one against the other.
Broadcast radio, an old joke in some corners of the music business, would also be a sensible part of a full-stack entertainment company. It just so happens that Liberty Media made a play for iHeartRadio earlier this year when the company was trying to restructure its interminable pile of debt. Liberty Media offered about $1.2 billion for 40 percent of the company but was rebuffed. But the play for iHeart was the clearest signal that Liberty Media is looking for ways to piece together different but related pieces of the entertainment business. The bid also reflects Malone’s ability to spot a bargain.
Malone has excelled at mergers and acquisitions throughout his career. Malone has a history of good timing, too: in 2009, Liberty Media put $530 million into a then-struggling SiriusXM, a remarkable event for both companies considering the immense levels of free cash flow SiriusXM generates today. Eleven years earlier, he sold cable company Tele-Communications, Incorporated, an accretion of communications companies 41 years in the making, to AT&T for $48 billion, a 30-percent premium over that day’s stock price. Two years later, the Internet bubble burst and telecom values plummeted. AT&T’s assets would be acquired by Charter Communications.
Consider a combination of three leaders in their fields: SiriusXM, Pandora, and iHeartRadio. Three types of radio companies under one roof would create an equation like: 1+1+1=3.2. Pandora and iHeartRadio currently compete for advertising dollars; in the future they could attract brands that want to spend on both platforms in one transaction. SiriusXM content, like the influential country station The Highway, could be heard on Pandora. SiriusXM would have three ways into the automobile. In turn, Pandora would have an opportunity to sell its on-demand service Pandora Premium to SiriusXM’s 28.2 million (as of June 30, 2018) self-pay subscribers.
Another threesome makes sense, too: a Live Nation-SiriusXM-Pandora combination. Brands could spend on sponsorships and advertising across Live Nation and Pandora. Anything that would help Live Nation’s sponsorships would greatly aid its bottom line: Live Nation basically promotes concerts to sell tickets to fans and sponsorships and advertising to brands. Advertising makes up the majority of Pandora’s revenue. SiriusXM and Pandora are now able to create content for both platforms and merge their live events operations. The three companies need not be bedfellows. Each is a distinct company with a unique culture and established brand. But a three-way merger would present opportunities to create added value. At the very least, Live Nation should covet the granular data Pandora’s has on each of its listeners.
Ironically, radio is central to Live Nation’s origin story. Live Nation was originally a division of Clear Channel Communications, later renamed iHeartMedia. In 1992, the FCC changed its rules on ownership to allow a company to own more than two broadcasters in the same market. The 1996 Telecommunications Act upped the ownership limits even more. In the wake of this deregulation, Clear Channel acquired hundreds of radio stations over the next decade.
In 2000, Clear Channel acquired concert promotion company SFX Entertainment for $4.4 billion. Robert Sillerman—who later rolled up EDM promoters and took the company public in 2013—had created SFX by rolling up regional promoters into a single, national promoter. SFX was renamed Clear Channel Entertainment. Clear Channel believed its ownership of a national radio company and national concert promoter would allow for synergies neither company could achieve independently. Imagine using its radio footprint to promote concerts in markets across the countries. It looked good on paper. But Clear Channel ended up spinning off Clear Channel Entertainment in December of 2005, taking the company public and rebranding it into Live Nation.
Fast forward 13 years to 2018. Live Nation’s revenue is 3.5 times greater than when it became a standalone company. (LN had a record $10.4 billion in total revenue for 2017, a whopping 24% growth year-over-year). Its ticketing division, Ticketmaster, the result of a 2010 merger, is the beneficiary of a frothy concert business. Promoters and music festivals around the U.S. and the world have been acquired and integrated into Live Nation’s promotion business. Ticketmaster regularly acquires smaller ticketing companies to provide a presence in new markets. In short, the company is a beast (in a good way).
Analysts might be right: Live Nation and SiriusXM should just merge already. Adding satellite radio and online streaming to concert promotion and ticketing makes sense, right? On paper, yes. Live Nation-SiriusXM, or whatever the new corporation would be called, would be the ultimate full-stack music company with minimal overlap. The combined company should—repeat, should—be greater than the sum of its parts. All it would take is for John Malone to engineer a merger of two companies in Liberty Media’s portfolio. That shouldn’t be a problem for Malone. If there’s a will to merge, there will definitely be a way.