How appropriate that Deezer announced a partnership with Pepsi in December 2014. Together, they launched the Midem Artist Accelerator to support managers, agents, labels and publishers as they look to grow their artists’ profiles.
Why appropriate? Because like Pepsi, Deezer is the plucky number two to a market behemoth. Pepsi has Coke to contend with. Deezer pits itself against Spotify.
But there is one important difference. While the fizzy drink market is in decline, streaming music is booming.
According to SoundScan/Wall Street Journal, paid downloads of albums and songs declined nine per cent and 12 per cent respectively in the US in 2014. Digital song sales fell to 1.1 billion from 1.26 billion in 2013.
By contrast, people streamed 164 billion songs in 2014 – that’s 54 per cent more than the 106 billion streamed the year before.
Deezer is now well-placed to reap the rewards of a gamble on mobile streaming music that began in 2007, long before iPhone and Android transformed the way content is consumed on mobile.
It wasn’t easy. In the late noughties, mobile data was expensive and coverage was patchy. But today Deezer has six million paid users, and 16m monthly active users. That’s some way behind Spotify’s 10m premium subs, but it still makes Deezer clearly the world’s second biggest player (and it has more subs to come from the acquisitions of Muve and Stitcher).
The French firm recently upped its global ambitions after a careful France-first strategy. That saw Deezer grow through partnerships, primarily with Orange, in its native country before embarking on a huge expansion plan.
Today, it’s live in 180 countries. In September it added the US to its list, though it launched with a high bit rate service targeted at audiophiles first. Deezer built the offering with home audio company Sonos.
Clearly, Deezer is now on a tear, buoyed by its sales growth and the financial safety net provided by the $130m it raised in 2012. But dangers lurk everywhere. There’s a PR issue with the music talent itself. Artists such as Thom Yorke and Taylor Swift have shown how uneasy artists can be with the streaming music model.
Meanwhile, both Deezer and Spotify music contend with an army of emerging competitors: Apple’s Beats Music, Google Music Play All Access, Sony Music Unlimited, Rdio, Muve Music, Rhapsody and YouTube Music Key.
Hot Topics met Christopher Coonen, COO of Deezer, to find out more about these challenges, the company’s journey and its future plans.
Since 2007, when Deezer launched, a huge number of companies have tried to launch streaming music launches – from Vodafone to Nokia to Twitter. They’ve all gone. Why has Deezer survived?
I’d say there are four reasons. I think first mover advantage is very important. We learned from our mistakes quickly and established ourselves early with partners and the public. Second, we were careful to build a very strong presence in one country before going global. We timed that right. The fact is, If you’re in only one country today, it’s going to be very tough.
The third reason is we were mobile first right from the beginning, and that meant our product had the right design and UX as streaming matured and moved from the desktop.
I think you can see the difference when you launch our app between Deezer and others that started with a web experience first.
Finally, we worked hard to create strong relationships with rights owners.
At first you worked closely with Orange in particular. Back then mobile operators and handset companies had much more direct ambitions in streaming music. What happened to that?
Well, for us, these firms are still very important partners. They are key to our distribution and they have deep relationships with customers that have helped us to develop the product over time. We’re working with 32 mobile operators at the moment, including Orange, Telenor, T-Mobile and Tigo (LatAm/Africa).
But as the market has changed we’ve made new alliances with other brands that get us distribution, like Bang & Olufsen, Sonos and various car makers.
What is your strategy regarding bundling and even white labelling of your service?
We started out bundling a limited amount of free access with mobile plans and so on. Then, two years ago we started going direct to consumer as well. Now, we do various bundles such as the one with the Samsung 5, which offered six months free.
As for white label deals, we’ve never done them and never will. This is very important. We have been asked many times, and could have made a lot of money. We always refused.
That was hard, but in markets we’ve been in the longest as a standalone brand, we have very high Net Promoter Score (NPS) ratings.
What is your attitude to free?
The free service is a way of reaching new people, and the plan is to get as many as possible to convert to paid and to do this as quickly as possible. It’s a vital part of the funnel, but we also spend millions acquiring new subs via affiliates like Google, Facebook, Shazam and so on.
How do you regard the coming onslaught of streaming music competition from YouTube, Apple, Amazon and the rest?
If you take a step back you can see physical sales have dropped off and now downloads going the same way. So there are maybe 30m people paying for a music subscription in a total marker of 3.5bn. That’s less than one per cent. There’s a huge runway, and room for more than one or two players. If these big new entrants can help educate the market, that’s good for us.
Are you concerned about a potential price war from these new players?
I doubt it will happen. We’re all trying to change the perception of music, and fight privacy to show people that music is worth paying for. I think a price war would certainly be a mistake.
Aside from the competitive threat, streaming music also faces a PR battle while artists like Taylor Swift question its economics. What’s the Deezer position on this?
My point of view is that streaming is the future and artists need to understand that we’re trying to help them. We pay substantial amounts back to the rights holders, so they really need to work this out with their labels.
I should add that we have 35m titles on the catalogue. That’s the largest of all streaming music services, so I think that says a lot about how much artist support there is.
We offer artists and fans the potential to lift sales through discovery. It’s also interesting to note that the average music consumer spends €20-€30 a year on iTunes compared to the average €60-€120 a year spent on a subscription service like Deezer.
Is Taylor Swift content on Deezer?
No, other than the odd song from a compilation. She wanted to have her new album 1989 pulled from free and offered only to premium subs. But because we believe in free as a way to convert people, we decided to pull 1989 from both free and pay.
Does Deezer have ambitions to offer more than music access? What about gigs, merchandise and so on?
We’re already investing in artist marketing with ‘Deezer sessions’, which are one-off recordings that create an event around given concerts. We don’t sell tickets or merchandise yet, but it’s a logical step. We’re thinking about it.
And what about spoken word? You bought Stitcher last year – how will you integrate it?
Our vision to be the leading audio platform. You’ll notice I didn’t say music there, but audio. Stitcher has an incredible catalogue that includes rich content like BBC Radio for example. We haven’t finalised our plans for it yet, so for now it is still a standalone service.
In general we are expanding beyond streaming music to make what we offer richer for subscribers. We did a deal with Disney, for example, where we created a dedicated destination for streaming songs, and videos and soundtracks and games.
Most recently, we launched a new Lyrics service via a partnership with LyricFind, making Deezer the first global music streaming service to integrate synchronised lyric streaming. We want to give music fans the opportunity to see the words of their favourite tracks in real time.
Finally, you raised $130m from Access Industries, which is the parent company of Warner Music Group. How do you respond to questions about the ethics of being part-owned by a rights holder?
We have quarterly meetings with each of the three majors, and I can tell you that when we meet Warner they definitely do not give us any special conditions! They treat us like any of our competitors.