Launched in France in 2007, where the service is profitable, on-demand streaming service Deezer has started an aggressive international expansion late 2011, with over 130 countries targeted in 2012. Most recently the service launched in 35 Latin American markets. Simon Baldeyrou, COO and CFO of the Paris-based company since 2009, spoke with .Biz about Deezer's expansion strategy, its relationship with ISPs and competitors, and the future of streaming services.
Billboard.biz: While Deezer launched in 2007, your international expansion only started in 2011, but it seems to be moving fast…
Simon Baldeyrou: Unlike Spotify, which started expanding abroad much earlier, we have been focusing on showing that our economic model was working in France. After having built our fortress in France, where we are now profitable, we started to look at our international expansion. We began with the UK in September 2011, where we have implemented the basis of our international strategy: adapting the language, the currency, the editorial, the catalog, and building a partnership with local ISP [Orange in the UK]. The whole model is replicable in other countries.
We have now launched throughout Europe, Australia, Canada, New Zealand, an aim to be shortly in every country of the world, except the US and Japan.
Why won't you try and enter the US?
The US is the world's biggest market, but it is also the most competitive. This is also iTunes' main market. The price to enter the market is very high. We wish Spotify will manage to evangelize customers on streaming there.
How can you negotiate deals for local repertoire in every country of the world?
We have negotiated worldwide deals with record labels, including with Merlin. Furthermore, we negotiate deals with local record companies. Besides selling in their homeland, we offer them the possibility to expose their catalog worldwide! We have also built our know-how: not one label has left our service since we started operating in 2007; last year, we distributed over €30 million rights in France.
Your first deal with an ISP was with Orange in France, which took a stake in Deezer; how does it work elsewhere?
Orange took an 11% stake in Deezer, but that was a negotiation apart from the commercial deal. Other ISPs don't and won't have a stake in Deezer. The general idea is for the ISP to bundle the Deezer offer in its subscription service. We have deals with Deutsche Telekom in Austria, Belgacom in Belgium, etc.
Does Deezer's subscription rate mainly rely on ISPs customers? What would happen in France, for example, if Orange decided to put an end to the bundling of Deezer service in its subscription offers?
Orange is very happy with the deal, which clearly helped us grow in France, but now most of our new subscribers come directly to Deezer, not through Orange services. Deals with ISPs have a strong impact at launch mainly, it helps Deezer gain visibility quickly. On demand streaming services still require huge mass marketing to be understood by the consumers, visibility in [ISPs] physical stores is key.
Who are your customers, how do they use Deezer?
We have 18 million accounts, including 1.5 million premium customers [subscribers, be they through ISP services or direct subscribers]. The most represented age category is 15-24 and males over 35. Average subscribers listen to over 60 hours of music a month, half of it from a mobile device. Deezer's access from a mobile device itself is divided in two: half offline, half connected.
In June 2011, Deezer restricted its free access, which is now limited to 5 hours per user per month. How has this impacted your business?
Everybody knows the free model is not profitable in itself, it is made to drive customers to discover and subscribe to a service. We have waited as long as possible [to implement free access limitation] to try and make it smooth for our clients. The subscription rate has jumped 5 times since we implemented that policy, but that is no surprise, since we were not focusing on recruitment before.
Some major labels wanted you to adopt Spotify free policy, which allows 5 plays per title, without time limitation - why were you reluctant to it?
If a customer is not able to listen to the songs he wants to listen to, he just won't come back. We feel it is more powerful to let him listen to his favorite songs, but for a limited amount of time.
In May, you launched an open API letting people develop apps based on Deezer, what is the goal?
We wanted to outsource innovation and let people around the world develop music-based apps, without the nightmare of negotiating rights. That is for non-commercial use only. Some cool apps have already surfaced, such as games, collaborative playlists, etc. This is a way for us to reach new clients, as customers need to subscribe Deezer to use these apps.
Who are your competitors?
Spotify is a direct competitor, but the market is so wide that we see them more as partners to evangelize customers on streaming. We believe our web-based approach is much more flexible though, and belongs to the future of the Internet, allowing for example people to access their account from any device.
Is Deezer profitable?
Deezer is profitable in France since 2011. We are in an investment phase abroad. We had a €50 million turnover in 2011, against €14 million in 2010, and €6 million in 2009. 80% of our revenue comes from subscription, which is our growth driver, 20% from advertising.
Reports say you are looking to obtain €50 million ($62.5 million) and €100 million ($125 million) in additional funding?
We don't comment this information at this point; what I can say is if we wanted our growth to accelerate, we might consider getting additional funding.