Deezer Drums Up $109 Million In New Funding From Old Allies

Two old friends have given Deezer a welcome capital injection. The music-streaming service announced Wednesday it had closed a 100 million-euro ($109 million) funding round led by the American holding company Access Industries and the French telecommunications firm Orange, which are two of Deezer’s biggest believers. The company said it would use the money to acquire more subscribers and accelerate the introduction of new products and features.

“We’re in the early stages of the music-streaming market, and it’s quickly becoming the primary distribution channel for music,” Deezer CEO Hans-Holger Albrecht said in a statement. “The additional funding will allow Deezer to consolidate our position.”

The investment came less than three months after Deezer suspended its plan to launch a 343 million-euro initial public offering that would have valued the company at more than 1 billion euros. At the time, the firm cited unfavorable market conditions, which presumably included Wall Street flogging Pandora Media Inc. after the radio-streaming company revealed a small decline in its user base during the second quarter of 2015.

Neither Access nor Orange would comment on the size of the stake their funds bought them, but both companies have already invested heavily in Deezer’s success. In 2012, Access, owner of Warner Music Group, invested $130 million in the company, which bought it a stake sizable enough that Deezer described Access as a “cornerstone investor.” Orange, at one time the owner of 11 percent of Deezer, is among several key telecommunications partners that offer Deezer as part of a service bundle to their customers.

At that time, Deezer had fewer than 1 million active paid subscribers, a number the company’s grown to just shy of 3 million, according to documents the firm prepared ahead of its planned IPO. When describing its total number of subscribers, it includes another 3.5 million inactive subscribers it’s added through telecommunications partnerships.

While commendable, that growth lags behind the progress shown by Spotify, which went from 5 million to 20 million paying subscribers over the same period.

Much of Spotify's success has come in the U.S., an increasingly crowded market that features competitors such as Apple Music, Rhapsody and Tidal. Yet Deezer has largely eschewed the U.S. market, pushing into developing markets instead. The company claims a presence in 180 countries around the world, more than three times as many as Spotify (available in 58 countries) and quite a few more than Apple Music (115 countries).

To deepen those roots, it has invested in licenses of catalogs of music made in those markets. As a result, its 40 million-song catalog is the largest of any streaming service.

The added investment has come at a moment when record companies, Warner Music Group among them, are watching music-streaming rush toward becoming the dominant source of revenue in the business. In 2015, Warner became the first major label to see its streaming revenue exceed its downloading revenue.

Services such as Deezer have also grown into an attractive selling point for mobile carriers. A survey conducted by the TK Musicomms released during CES 2016 found that 40 percent of respondents would switch wireless providers if it meant getting free access to a music-streaming service.