French on-line music streaming service Deezer will launch in more than 100 countries in the coming weeks, and the start-up is negotiating with roughly a dozen telecom operators on partnerships in a bid to expand its global reach.
Chief Executive Axel Dauchez told Reuters on Tuesday that Deezer's approach differed from its rivals, such as U.S.-based Pandora and Sweden's Spotify, because it had decided to avoid the U.S. market because of the high costs and intense competition involved.
Instead he said Deezer will soon launch in a slew of other places overlooked by its rivals, including Germany, Italy, Spain, Turkey, Indonesia, Korea, Mexico and Brazil.
The minute that I tell the major music labels that I am not interested in signing for rights to the U.S., the negotiations over terms become much much easier, Dauchez said in an interview.
Instead we aim to sign global licensing deals, without the U.S. or Japan, so we can roll out in dozens of countries quickly.
It's a risky strategy given that the music business generates the lions' share of revenues and profits in the United States.
The U.S. has also been at the forefront of deep changes in the music business as giants like Universal Music and EMI try to survive despite rampant online piracy, and Apple continues to be a powerful force a decade after opening its online music store iTunes.
Today a crop of streaming websites like Pandora, Rhapsody, Spotify and Lastfm.com are also jostling to convince American users to sign up for their free and paying services.
FRANCE TELECOM PARTNERSHIP
In what Dauchez dubs an industrial-style expansion, Deezer has designed its site to deploy quickly in many countries now overlooked by the music industry, from Botswana to Indonesia.
We built our site to be able to deploy in a hundred countries with the flip of a switch, he said. The music industry earns 80 percent of its profit in seven countries so there are many under-monetized countries.
In contrast, he said Deezer's competitors had less of a global approach so far, adding that Spotify was in 8 markets, while Apple's iTunes was in less than 30.
Deezer, which is privately held and has raised some 15 million euros from investors to date, now has 20 million users signed up for its free streaming service in France.
Asked whether Deezer would need to raise additional funds to fuel its international expansion, Dauchez said that it would depend on the level of investments needed next year.
Less of a household name outside its home market, Deezer just launched in the U.K. last month and is also betting that its integration into Facebook -- a feature it shares with key rivals -- will help it grow abroad.
The site has roughly 50 million euros in revenue and Dauchez said he expected it to break-even this year. It has signed deals with about four major record companies and is now negotiating with a few others, boasting a catalog of 13 million songs.
In summer of 2010 Deezer signed a crucial partnership with France's biggest mobile operator, France Telecom's Orange, in which Deezer's ad-free premium service, which usually costs about 10 euros a month, was bundled into some smartphone and broadband offers.
The deal helped Deezer rack up some 1.4 million paying clients -- up from just 25,000 -- and was seen by the mobile operator as a way to improve customer loyalty. Under the terms of the deal, France Telecom took an 11 percent stake in Deezer.
We hope to replicate the Orange model with other telecom operators, said Dauchez, declining to say which operators it was in talks with.
(Additional reporting By Marie Mawad and Gwenaelle Barzic; Editing by Christian Plumb)