This Could Finally be the End of the Line for Pandora Media

The music-industry graveyard is full of once-hot digital players who fell on hard times due to the changing economics of the business over the past decade or so, and they could soon be joined by one of the earliest music startups: Pandora Media.

The struggling music-streaming service has come so close to disappearing so many times over the past couple of years that it seems to have nine lives, so it’s possible that it will somehow manage to soldier on. But there are signs that this could finally be the end of the line.

On Monday, the company said that it is exploring “strategic alternatives,” which is thinly disguised code for “we are looking for a buyer.” The stock [fortune-stock symbol=”P”] is down by 24% this year, and it has lost more than 75% of its market value since 2014.

Pandora has been for sale before, although not officially. It was said to be looking for acquirers early last year, and reportedly had talks with Amazon and satellite-music operator Sirius XM. But then founder Tim Westergren returned to take up the reins as CEO, and said that a sale wasn’t in the cards.

Before Westergren returned, Pandora made a last-ditch attempt to reinvent itself in late 2015 by spending $75 million to buy Rdio, a highly-regarded but financially bankrupt streaming service.

The purchase was part of a plan to move away from the company’s roots as a digital radio provider (which meant lower costs but also restricted the service’s flexibility) and to build a subscription business to replace its previous advertising-based model, which had stalled.

In March, the company launched a $9.99-a-month streaming service to try and compete with the giants of the industry — Apple Music, Google Play and Spotify.

The results, however, have so far been fairly unimpressive, at least from a financial perspective. In the most recent quarter, Pandora lost another $132 million, and the company said it is likely to lose another $120 million in the current quarter. Last year, it lost $340 million. That’s more than half a billion dollars in losses in 18 months.

For most streaming music companies, including Spotify, the cost of paying music companies for licensing rights makes it virtually impossible to make much money. Spotify pays out about 85% of its revenue in the form of licensing fees and lost almost $200 million in 2015.

The math in Pandora’s case has actually gotten worse instead of better. Because of the way the music business is structured, it paid less when it was defined as a “streaming radio” provider (radio services have to abide by certain rules, which restrict the amount of control users have over what they listen to).

Since it acquired Rdio and launched its Pandora Premium streaming service, the company has had to cut deals directly with the record labels (radio services pay a set fee that is established by a licensing board). So its costs have actually increased.

Revenues rose in the latest quarter by 6%, which was better than most analysts expected, and the number of Pandora subscribers climbed by about 20% to 4.7 million. But the number of hours those subscribers spent listening to music on the service fell, and the number of active listeners also dropped, as it has done repeatedly over the past few quarters.

At a time when Apple Music — which is less than two years old — has more than 20 million paying subscribers, and Spotify has 50 million, Pandora’s 4.7 million subscribers look fairly unimpressive. They might make a nice addition for someone else’s existing business, but it’s probably not enough for the company to survive on its own.

Meanwhile, the pressure on the company to sell has ratcheted upwards, driven in part by Corvex Management, a hedge fund (run by Keith Meister, former right-hand man to corporate raider Carl Icahn) that acquired a 9.9% stake in Pandora in May of last year and has been pushing for a sale.

The financial pressure could intensify even further if the company can’t find a buyer. It announced on Monday that it has agreed to raise $150 million from legendary hedge fund Kohlberg Kravis Roberts in order to fund its operations, via a preferred share issue.

Those preferred shares give KKR a significant amount of leverage over the company, including a seat on the board of directors, and they will also force Pandora to pay the fund a dividend of at least 7.5% every quarter until the shares are bought out or converted into common shares.

As for who might be interested in acquiring Pandora, the number one name on most lists is Sirius, which has made several overtures. The satellite provider first approached Pandora in early 2016 with an offer that was close to $15 a share, and then returned later in the year with another offer, but no deal was forthcoming.

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