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SiriusXM’s profits fell in the third quarter from a year ago on higher expenses and lower profits from Pandora, but overal revenues rose thanks to SiriusXM subscriber growth, the satellite radio company reported on Tuesday.
Sirius XM Holdings Inc. reported net income fell to $247 million, or earnings per diluted share of $0.06, in the quarter ending Sept. 30, 2022, from $343 million, or $0.08, during the third quarter last year. In its Pandora and off-platform segment, gross profits fell 12% on lower subscriber revenue and higher costs from investments in podcast content, the company said in its earnings release.
Revenues rose 3.6% to $2.28 billion from $2.198 billion in the third quarter 2021, while adjusted EBITDA was $720 million for the quarter, roughly flat year-over-year. The company reiterated that it expects full year revenues of $9 billion, with an adjusted EBIDTA of $2.8 billion.
Total operating expenses rose by more than 15% to $1.813 billion in the quarter on increased subscriber acquisition costs, marketing, sales and general administrative expenses.
Subscriber acquisition costs rose 21% to $86 million due to higher equipment installations by automakers, executives said. That and along with investments and other expenses caused the company’s free cash flow to fall 44% from a year ago to $329 million.
In addition, SiriusXM announced its board voted to raise the quarterly cash dividend by 10%, which it will pay out later this month. The company returned $262 million in capital to stockholders in the quarter, chief financial officer Sean Sullivan said in a statement.
“We continue to drive growth and focus on a disciplined approach to cost management across our organization,” chief executive Jennifer Witz said on a call with analysts. “While near-term objectives remain top of mind, we are focused on the strategy and investments that will drive long-term value for our stockholders.”
SiriusXM third quarter financial highlights:
SiriusXM reported 32.2 million self-pay subscribers, reflecting an increase of 187,000.The total number of subscribers rose to 34.2 million, including a decline of number of 49,000 paid promotional subscribers. The company’s self-pay monthly churn rate remained at record-low levels at 1.5%.Revenue for SiriusXM rose 5% to $1.7 billion compared to last year on self-pay subscriber growth and a 6%-increase in advertising on the SiriusXM platform.Total cost of services at SiriusXM rose 3% to $665 million for the quarter from the third quarter 2021.
Pandora and Off-Platform third quarter financial highlights:
Gross profit for Pandora and Off-Platform segment fell 12% to $173 million for the third quarter 2022, from $197 million a year ago.Pandora monthly active users fell 7% to 48.8 million compared to 52.6 million in the third quarter a year ago, and subscriber revenue declined by 2%.Pandora Plus and Pandora Premium self-pay subscribersheld flat at 6.3 million.Advertising revenue edged 1% higher to $407 million, as total ad-supported listener hours fell to 2.75 billion in the quarter compared to 2.89 billion a year ago. Podcasting and off-platform business revenues rose 37% to $123 million.The total cost of services increased by 7% driven primarily by investments in podcast content.
A federal judge has rejected one of Pandora’s key arguments in its legal battle with comedians, dismissing claims that a licensing group called Word Collections was operating as an illegal comedy “cartel.”
Months after a slew of comedians (including the estates of George Carlin and Robin Williams) sued Pandora to seek more royalties for spoken-word content, the streamer fired back in May with allegations that the comics had violated federal antitrust laws by doing so.
Pandora claimed that by teaming up with Word Collections to demand such royalties, the comedians were effectively trying to create a “monopolistic portfolio” of comedy rights, aimed at “dramatically increasing” the prices streamers must pay for comedy.
But in a ruling on Wednesday, Judge Mark C. Scarsi dismissed those claims. He said Pandora had not properly alleged that Word Collections and the comedians had conspired to fix prices, nor that they amounted to an illegal monopoly in the comedy world.
“Pandora’s description of Word Collections’ impressive but short list of comedians whose works it licenses does not suffice to demonstrate that Word Collections owns a dominant share of the comedy recording market in the United States,” the judge wrote.
The ruling is a blow for Pandora, though not a fatal one. The judge left open the possibility that the streamer could re-raise the issue, and the company can still pivot to other defenses, like the more fundamental argument that comics are simply not legally entitled to the added royalties they’re seeking.
A rep for Pandora declined comment.
Judge Scarsi’s decision came amid a long and tricky fight over how and when streamers like Pandora must pay for the comedy recordings that appear on their services – a more unsettled legal question than one might think.
Every piece of music is covered by two copyrights – one for the sound recording itself and another for the underlying work that’s been recorded. Streaming services like Pandora pay for both when it comes to songs, but for comedy records, they’ve typically only ever paid for the recordings.
Part of the problem is that there is no society like ASCAP or BMI to collect such royalties for spoken works. Over the past 18 months, two groups – Word Collections and Spoken Giants – have moved to fill that void and have begun asking streaming services to pay those fees for comedy; those efforts are what prompted Spotify to pull down some comedy content last fall.
And since February, a number of comedians have taken the issue to court, accusing Pandora of willfully refusing to pay for content: “Pandora did what most goliaths do: it decided it would infringe now to ensure it had this very valuable intellectual property on its platform to remain competitive, and deal with the consequences later. Later is now.”
Pandora has sharply refuted the allegations, arguing it has “always satisfied its copyright obligations” by paying “millions of dollars in license fees every year” for comedy recordings. It says that comedy records are less akin to music and more like movies, for which streamers like Netflix typically pay only a single, all-encompassing license, regardless of the various elements that are used in the film.
If Pandora’s antitrust counterclaims remain dismissed, those core arguments about copyrights and licenses could now take center stage in the case.
Richard Busch, a prominent music litigator who is representing the comedians, told Billboard on Thursday that he and his clients are “obviously very happy with the decision.”
“We always believed the antitrust counterclaim Pandora brought was ludicrous and a transparent attempt to intimidate these legendary comedians,” Busch said. “The court could not have been clearer in its ruling. We now hope to be able to focus on and litigate the serious copyright infringement claims that are at the heart of this litigation.”
