French, web-based streaming service Deezer, which has yet to officially launch in the U.S, has been vamping up its efforts here for the past couple years, amidst a rapidly growing international user-base. Currently, Deezer is available in more than 180 countries, with approximately 16M monthly active users and 6M paying subscribers. This is half of Spotify’s premium user base, quite a showing.
In September, Deezer launched its high-resolution audio service Deezer Elite in partnership with U.S. audio equipment company Sonos, which offers an on-demand music library of over 35 million songs1. The move comes at a time when streaming companies are increasingly turning to niche opportunities within the high definition marketplace.
Deezer in France
Deezer was initially launched in France in 2008. CD sales still rule in France and physical product predominates over digital. But streaming, along with other digital music platforms, is quickly closing the gap mainly because of Deezer and Spotify. In 2014, revenues from digital music grew by 6%, and streaming, both ad-supported and subscription-based, increased by more than 30%. Physical revenue fell by 11.5%.2
Deezer has had the advantage because French content has seen an increase in general sales in 2013 and the beginning of 2014 and part of this boost has carried on into streaming. Deezer has benefitted both on the demand and the supply side, growing the market more than Spotify.
On the demand side, the French spend significantly more on domestically produced creative works than on foreign works. Broadcast musical works are subject to quota rules whereby a minimum percentage of the songs on radio and television must be in the French language (France has it own Ministry of Culture). Deezer has also relied heavily on partnerships and acquisitions to enable a higher degree of local market penetration: it signed with TV talent show Nouvelle Star and offered discounted 1-month subscriptions to the young audience of the show, the perfect demographic for streaming (Deezer also obtained participation in the show’s social media voting system, allowing quick access to viewers).
On the supply side, the French music industry has been subsidized by a change in the tax code made by President François Hollande: a 1% levy on smartphone and tablet sales that hurts Apple, Google, and Amazon. €86M euros ($97M) have been raised so far.3 Tech companies have been asked to support local musicians, writers, film directors, photographers, and painters, which increases Deezer’s engagement in music.
Deezer in the U.S.
For the U.S., it acquired Muve Music, the music division of Cricket, a mobile operator and subsidiary of AT&T. Muve offers a wide range of audio services, including radio, podcasts, and music downloads, and functions as a subscription based download store like Google Play. Deezer has now shut down Muve and migrated its libraries and playlists to its servers.
Deezer is expected to offer its mobile-targeted service for $6.99 per month, a better price point than Spotify’s $9.99. Billboard’s Andrew Flanagan writes that the intention is to segment the U.S. streaming market: Deezer Elite for high-end listeners and Deezer for Cricket for lower income listeners. Just adding Muve’s 2 million users to the as yet unaccounted subscribers of Deezer Elite would put the French service in second place in the U.S. after Spotify, currently with three times as many listeners.4
Deezer and Spotify
A Swedish and a French company are now at the forefront of music streaming in the U.S. They both offer access to music rather than ownership. Moreover, the new distribution model they represent is subscription-based, as if music were a utility to be paid in monthly installments. We are witnessing, in effect, a new European invasion, but this time it is an invasion of the means of music consumption.
This begs the question as to why the U.S. could not adjust earlier than Europe. Part of it has to do with an inherent egalitarianism in European culture, ultimately the legacy of two world wars in European soil and the devastation that led to welfare plans and more tax appropriation for the public good. Access to music was likely seen by Swedish and French entrepreneurs as a concept that was on par with ownership, and it may have taken the U.S. labels and even Apple a while to appreciate this. In any case, they were already highly invested in selling music piecemeal and by the time they realized that circumstances had changed, it was too late. Finally, in a continent where taxpayer money is used to pay for broadcast media to a much greater extent than it is in the U.S., the bulk financing of music purchases with subscriptions may not have been perceived as daunting.
The U.S. labels, of course, are not powerless. Initially, they reacted to music streaming by buying approximately a 10% share in Spotify, which could now serve them well. They own the music masters that Deezer will play, and could hold the French service hostage to expensive licenses. Deezer’s final ‘establishment cost’ in the U.S. might not come cheap.
By Felipe Gonzalez Abad and Peter Alhadeff
4. Flanagan, A., Billboard, “Deezer Acquires Muve Becoming No. 2 Service in the U.S.”, Jan. 08, 2015.