Go­ing against the flow to take on Spo­tify

Deezer hopes its lo­cal ap­proach can help it com­pete with stream­ing ri­vals, says Matthew Field

The Sunday Telegraph - Money & Business - - Technology Intelligence - Naer­ingsliv Da­gens

Mu­sic stream­ing was once dis­missed by the main­stream mu­sic pub­lish­ing in­dus­try. It was a hang­over of piracy and viewed as a way to cheat them out of rev­enues. Yet this year’s hottest list­ing was that of Swedish gi­ant Spo­tify, which was valued at $30bn (£21bn) when it floated on the New York Stock Ex­change.

It is also a field al­most uniquely pi­o­neered by Eu­ro­pean com­pa­nies. One such ri­val to Spo­tify is Deezer. Head­quar­tered in Paris, the com­pany is hop­ing to chal­lenge the dom­i­nance of Spo­tify and show there is room for more than one player in mu­sic stream­ing. But in one of the most hotly con­tested tech­nol­ogy tick­ets out there, Deezer, like the oth­ers in Spo­tify’s wake, has to prove it is not just an also-ran.

De­spite the May down­pour out­side Deezer’s start-up style London of­fice, chief ex­ec­u­tive Hans-hol­ger Al­brecht is up­beat. “Every­one sees a huge op­por­tu­nity when it comes to stream­ing,” he says, “Peo­ple have talked about a $60bn mar­ket, and the tra­di­tional mu­sic mar­ket was never big­ger than $20bn.”

While Deezer may play se­cond or third fid­dle to Spo­tify in most mar­kets – aside from France where it is the largest provider – it has been boosted by the gen­eral up­lift Spo­tify’s bumper list­ing gave to the sec­tor.

“Clearly Spo­tify helped to crys­tallise val­ues,” Al­brecht adds.

The 54-year-old Ger­man is a broad­cast­ing vet­eran, serv­ing as chief ex­ec­u­tive of Swedish tele­coms groups MTG and then Mil­li­com. He made the switch to Deezer in early 2015, which at the time was pre­par­ing its route to­wards a €300m (£263m) po­ten­tial float in France. Then, Deezer’s rev­enues were around €140m, broadly com­pa­ra­ble to ri­val Spo­tify. But with tech gi­ant Ap­ple, with its long pedigree in the mu­sic in­dus­try, launch­ing Ap­ple Mu­sic that year, in­vestors were uneasy.

Since then Spo­tify has grown into a beast, bal­loon­ing to 70m pay­ing users. Deezer, mean­while, only has around 6.5m pay­ing users and 14m monthly users. But a €100m cash in­jec­tion from in­vestors Ac­cess In­dus­tries and tele­coms group Orange in 2016 gave Deezer a new boost af­ter it pulled its plans to go public. Rev­enues have grown to €300m, with losses of around €60m. Al­brecht says with­out mar­ket­ing costs it would be break­ing even.

But there is stiff com­pe­ti­tion. Not only Spo­tify and Ap­ple (40m sub­scribers) but giants such as Google, with its new Youtube Mu­sic, and Ama­zon Mu­sic. Face­book, too, is thought to be eye­ing the mu­sic busi­ness. There are also smaller play­ers try­ing to cor­ner a niche. Tidal, launched by rap­per Jay-z, fo­cuses on ex­clu­sive tracks from artists such as Kanye West and Bey­oncé. Soundcloud, which has around 140m users, is mostly free and re­lies on am­a­teur and user-cre­ated mu­sic rather than labels, but has strug­gled to make money.

Deezer’s dif­fer­en­tia­tor is lo­cal mu­sic. “We have a mar­ket-by-mar­ket ap­proach,” Al­brecht says. Deezer has fo­cused on France and Ger­many, but has also had suc­cess in eastern Europe and Brazil. It has also ex­panded into ser­vices such as pod­casts. In 2017 it con­trolled around 4pc of mu­sic stream­ing sub­scribers. Spo­tify dom­i­nates with close to 40pc, while Ap­ple Mu­sic has around 17pc and Ama­zon around 10pc.

But its slow growth is partly due to its old strat­egy – bundling its app and sub­scrip­tions with tele­coms providers. Spo­tify, mean­while, went af­ter con­sumers and en­cour­aged shar­ing and net­work­ing. It also tack­led the US early on, creating a vi­able chal­lenger to Ap­ple Mu­sic.

“Part of Deezer’s chal­lenge is to show why you would choose them in­stead,” says Gre­gor Pryor, a mu­sic in­dus­try ex­pert at law firm Reed Smith. “It’s a good time to be in this busi­ness,” adds emar­keter an­a­lyst Paul Verna, “but Deezer doesn’t have the deep pock­ets.”

Al­brecht ad­mits the chal­lenge they faced af­ter the aban­doned ini­tial public of­fer­ing.

Cap­i­tal from Ac­cess has given them more time to grow. “Back then we didn’t have the lever­age,” he adds. “When I joined three years ago it was time to change it, to change the phi­los­o­phy.”

There could well be con­sol­i­da­tion as well as growth. Tidal has come un­der crit­i­cism for al­legedly in­flat­ing plays on cer­tain sound­tracks, ac­cord­ing to Nor­we­gian news­pa­per

(Tidal is also based in Nor­way). The com­pany de­nies the al­le­ga­tions.

And not every­one is con­fi­dent about Deezer. “Dif­fer­en­ti­a­tion from Spo­tify is cru­cial for its com­peti­tors,” notes Glob­al­we­bindex an­a­lyst Chris Beer. “The ques­tion re­mains whether [Deezer’s] lo­cal suc­cess is enough.”

Hard­ware could also play a big role in stream­ing’s fu­ture. As Ama­zon and Google in­vest in their smart speaker tech­nol­ogy, it is im­por­tant for ri­vals to keep their apps on hard­ware plat­forms. Al­brecht ad­mits Deezer toyed with the idea of its own hard­ware, but has since moved to en­sure it is part­nered on all ma­jor smart speak­ers.

Al­brecht is cer­tainly proud of Deezer’s prod­uct, but prag­matic about its fu­ture. A fresh float could be two or three years away, but there are no plans yet as to where or when. He also

‘It’s a good time to be in this busi­ness, but Deezer doesn’t have the deep pock­ets’

‘When I joined three years ago it was time to change it, to change the phi­los­o­phy’

says the com­pany doesn’t plan to sell, but notes “there will be con­sol­i­da­tion in the mar­ket, there is al­ways a chance and we are an at­trac­tive as­set. We will see, but we are not here to sell.”

But he re­mains con­fi­dent. The key for­mula has been com­bin­ing dif­fer­ent strands of the in­dus­try, from a sub­scrip­tion base to a record com­pany to a tech­nol­ogy out­fit. It’s a com­pli­cated busi­ness, but Al­brecht thinks it’s work­ing.

“You need to be in­no­va­tive. We think we can stay on par with the big guys,” he says.

Rag 'n'bone Man, above, is one artist who ap­pears on stream­ing ser­vices such as Deezer. The Paris-based firm is fac­ing com­pe­ti­tion from sev­eral ri­vals

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