Pandora is acquiring San Francisco-based music subscription service Rdio, the Oakland, Calif.-based company announced Monday after the close of markets. The announcement came minutes after Variety exclusively reported about the deal being imminent.
The $75 million acquisition includes “technology and intellectual property” from Rdio, which will file for bankruptcy–presumably to rid itself of accumulated debt–and shut down its existing service in all markets. Rdio CEO Anthony Bay won’t be joining Pandora, which will extend job offers to many members of Rdio’s team.
Pandora CEO Brian McAndrews said during an investor call following the announcement Monday that the company’s goal was to eventually offer “radio, on-demand and live music” all under one roof. He went on to describe Pandora’s existing personalized radio business business as “step one” for the company.
“We seek to be the definitive source for music discovery and enjoyment globally,” he said, adding that Pandora would offer “full on-demand paid subscription” over time. “We plan to substantially broaden our subscription business.”
McAndrews told Variety in an interview Monday afternoon that his company chose Rdio because it had “the best product” in the on-demand space. “We just were really enamored with their product,” he said.
Negotiations between the companies have been going on for a few months, according to multiple people with knowledge of the talks who weren’t authorized to go on the record.
The acquisition of Rdio represents a significant shift for Pandora. The Oakland, Calif.-based service has long focused on a more radio-like approach to online music streaming, but has recently come under pressure from on-demand music streaming services like Spotify and Apple Music. Pandora’s stock got hammered after the company released weaker-than-expected earnings last month, with executives admitting that the launch of Apple’s music service may have had some effect on its audience numbers.
Pandora currently doesn’t offer its users the ability to listen to entire albums, compile playlists or listen to individual songs. Instead, it generates personalized radio programs, allowing users a certain number of skips per hour. This is largely due to the company’s use of interactive radio licenses, which make it possible for Pandora to play songs without having to strike individual deals with record labels and publishers.
However, Pandora has lately been looking to broker more direct deals with the music industry, most recently striking an agreement with Sony’s music publishing arm. The company said that the deal will allow it to “add new flexibility to the company’s product offering over time” in a statement released last week, which could be read as a hint towards a more interactive music service. As part of its acquisition announcement, Pandora said Monday that it plans to offer “an expanded Pandora listening experience by late 2016, pending its ability to obtain proper licenses.”
Rdio offers a similar experience as Apple Music and Spotify, giving users unlimited streaming access to more than 30 million songs. At this point, it’s unclear how exactly Pandora aims to use Rdio’s assets, but it makes sense that Pandora wouldn’t continue to run the service as an independent entity, if only for licensing reasons: Music licenses typically don’t transfer to a new owner with an acquisition, so Pandora would still have to strike direct deals with the labels to keep Rdio up and running.
Pandora also wants to use Rdio’s assets as a significant part of its international expansion. McAndrews told Variety Monday that the plan was to enter new markets with a full suite of products, including on-demand. “It will just be a strong offering from the get-go,” he said.
Bloomberg reported last week that Pandora was looking to expand internationally in the coming months, with the U.K. being an early target. Currently, Pandora is only available in the U.S., Australia and New Zealand. Rdio on the other hand has a significant international footprint, and is operating in over 100 countries.
As part of the acquisition, Pandora is also getting its hands on Rdio’s trademark. However, but a spokesperson said Monday that the company doesn’t currently have any plans to use it as part of its international expansion.
Rdio was founded in 2010 by Skype’s co-founders Janus Friis and Niklas Zennstroem. Friis in particular has long had a very direct involvement in the company, and is thought to have invested more than $200 million in Rdio. In 2013, Rdio struck a deal with U.S. radio giant Cumulus, trading 15 percent of its equity for $75 million in radio advertising, that valued the company at $500 million.
However, Rdio failed to gain significant traction in a market that’s for some time been dominated by Spotify and that has seen significant investments from corporate giants like Google and Amazon. The launch of Apple Music, which has been able to attract more than 6.5 million paying users, may have been the last straw for the company. In early November, Cumulus revealed to investors that it had taken a $19.4 million writedown on its equity in Rdio this year.
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