Analysis

Deezer CEO talks freemium, Apple and… Taylor Swift fan-clubs? (interview)


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In December 2014, Deezer announced the replacement for its former CEO Axel Dauchez. From the start of February 2015, the streaming service’s new boss would be Dr. Hans-Holger Albrecht, previously boss of telecoms and media group Millicom.

Albrecht didn’t give any press interviews at the time of his appointment, preferring to spend his first three months getting to grips with the company, and mulling its strategy to compete with Spotify, Apple, YouTube and other streaming rivals.

Ahead of his keynote speech at the Midem conference in June – and Deezer’s announcement today that it’s integrating podcasts and radio shows into its service –  Albrecht held a series of interviews in London this week, including with Music Ally.

Starting with what he sees as the strengths and weaknesses of the company. “What is very good with Deezer is the proactivity we have on the product side: they have done a fantastic job in terms of developing the Deezer app as a user interface. It’s one of the best products in our industry currently,” he said.

“What’s also very good is that they have been very efficient in how they allocate resources, money and people. They came a long way with smaller resources than some of the other players in the industry. They have all the tools in place to scale up to be even more successful.”

What needs work? Curation. “We have to develop the product further from the pure attitude of ‘here are 36 million tracks, good luck!’” said Albrecht. “We have to help people navigate through all this music, whether they want passive or active consumption. And we have to scale up in terms of the markets we’ve penetrated, and how we execute sales and distribution.”

One of Deezer’s defining points so far was its global strategy: it went into more countries faster than any of its direct rivals – in December 2011 it outlined ambitious plans to launch in 200 countries by June 2012, although that has since settled to “more than 180”.

According to Albrecht, Deezer has now shifted to a three-tier global strategy. “We’re going to have our ‘A’ markets, which means focusing definitely on marketing and customer acquisition. Germany, France, the UK, Brazil and Mexico are those markets for the time being,” he said. “We’ll do partnership with telcos and direct-to-consumer marketing to get consumers into the chain.”

The second tier will be emerging markets, and the third will be countries like the US where Deezer is just launching: there, the key will be targeting specific segments, such as the audiophiles that the high-def Deezer Elite service is aimed at in the US.

It’s no surprise to see emerging markets a priority for Albrecht, given that his previous company Millicom had a network of more than 50m customers in Africa and Latin America.

“These markets, they are leapfrogging a lot of the developing world. Many in Africa and Latin America never used CDs or downloads: they are going straight from more-or-less nothing to music streaming. And it’s the same in other industries: they go straight from no banking to mobile banking, and the same with commerce,” he said.

“Things are changing very fast and growing rapidly, and people adapt very fast. The number of smartphones will double to over 2bn in the next coming years, mainly in the emerging markets.”

deezer-device

Albrecht said he is also confident about Deezer Elite’s ability to roll out globally, especially through those partnerships with hardware companies like Sonos and Bose. “Tidal is trying to follow us, which is fine, but we feel we have the upper hand,” he said, mischievously given that the pre-Jay-Z Tidal was announced on 3 September 2014 and Deezer Elite a week later – even if the latter actually launched first.

“It’s a niche, but it’s a pretty big niche if you look at the numbers those hardware manufacturers are publishing, where they are predicting up to 20m devices sold in the next couple of years,” said Albrecht.

Deezer’s desire to make its music catalogue easier to navigate will focus on helping people “push a button and get exactly what they want” – which is already seen in the company’s team of 40+ editors creating playlists, as well as its drive into algorithmically-curated streams.

It’s not just about music, though. Deezer bought talk-radio service Stitcher in October 2014, and today sees 20,000 of its podcasts and radio shows added to Deezer’s catalogue in the UK, France and Sweden, with more countries to follow later in the year.

You can be more creative about what kind of digital content you put on the platform: more sports, more comedy,” said Albrecht. “To have a perfect lean-back experience, it’s music, but also listening to your favourite news show, your favourite comedy, to listen to football one day if you’re not in the stadium.”

Aren’t football rights expensive? “In England maybe, but they are not that overpriced in other places. But it might be after-talk [after matches] or something else. The key will be you can consume it when you want.”

One important aspect to having a new CEO in place is that Deezer may be able to take a more public role in the debates around the economics of streaming music – from the role of freemium tiers to the impact on artists.

On the former, Spotify has been the focus of media coverage of whether major labels – Universal Music in particular – are looking to rein in the free tiers of on-demand streaming services. That’s a trend that would affect Deezer too, though. What does Albrecht make of it?

“Our main model is subscription: we drive direct subscriptions as much as possible. We are not building our model on freemium, although we do have freemium as well. We are a bit more open and flexible,” he said.

“There are two things we have to warn people about though. If we talk about freemium, we have to talk about free music in general: that’s the competition. Let’s make sure there’s not any other free, on-demand music like YouTube if we’re going to remove freemium. It shouldn’t just be about Spotify and its free tier.”

The big elephant in the room is YouTube, we all know that. That’s what the music industry has to come to a conclusion with,” he continued.

“And second, we have a fantastic opportunity: the streaming market is the biggest opportunity the music industry has. Let’s be careful not to kill something too fast if we haven’t been thinking about alternatives. What else are we going to do? Longer trial periods for free maybe? But we should be sure we have an alternative if we are going to reduce freemium.”

What about artists and songwriters complaining vociferously about small streaming payouts? Albrecht is diplomatic, as he must – “We all acknowledge the importance of artists: without artists we wouldn’t have a business” – but reading between the lines of his next response, it sounds like Deezer is prepared to explore new kinds of relationships with musicians.

“It’s a very complex question: there is the relationship between the labels and us, and between the artists and the labels. Do artists want to come to us directly, or do we want to change the model between labels and streaming services? I am pretty flexible in what can be achieved there as well,” he said.

“We are really at the very, very beginning of the market development, and to draw any conclusions at this stage about how much money artists get is a little bit premature. The revenue could easily triple in the coming years: there will be a huge upside for the artists and labels.”

deezer-laptop

There’s more, too: a hint that Deezer is prepared to think about going beyond the standard £9.99 monthly subscription in an interesting way too: top-ups and micro-transactions.

“The more we build for our streaming services the direct relationship with the end consumers, the more upselling potential we have in the future, where artists can monetise as well. Merchandising, fan-clubs, live concerts, ticket sales, whatever,” he said.

“There are a lot of opportunities where we can create new revenue streams: I think the debate should be more seen like that, and not just saying ‘from the look of today it’s a little money’.

“One thing is for sure: we can’t go back to the old days. Consumers and technology has moved on. But selling… There is nothing more powerful than having a link with the consumer who is paying you, and saying ‘what else can I do with that?’. Maybe many people would be happy to pay a couple of Euros for being part of the Taylor Swift fan-club…”

The prospect of Deezer offering artists the chance to charge a quid or two on top of the standard streaming subscription – with billing handled by the streaming service – for some kind of premium access to their favourite artist and their music, is a fascinating one.

Albrecht may have been thinking out loud rather than outlining a specific product development aim, but we’re fairly sure Spotify, Apple, Tidal and others will be mulling this kind of thing too.

What about Apple? Every existing streaming service is waiting eagerly (and, yes, anxiously) to see what that company announces on June 8 at its WWDC conference, which should see the unveiling of its plans to relaunch Beats Music. Albrecht plays the obligatorily-straight bat to the question about what Apple’s plans will mean for Deezer.

“They will help educate the market: it’s good if a big company like Apple moves in: it tends to accelerate understanding in the market and floats every ship upwards. What they’re going to do is still to be seen: will consumers adapt to it? We’ll see. They have 800m credit-card accounts, so subscription to it will be easy,” he admitted.

Our belief is that there will be several players in the segment – up to five players, and we’re going to be one of them. Apple will not go for [telco] partnership deals, for example, so we’ll be serving different segments of the market.”

Albrecht will also be keeping a watchful eye on competition regulators’ scrutiny of Apple’s music strategy, which appears to be gathering steam on both sides of the Atlantic.

“We have to guarantee that there is an even playing field so that we can all compete, although I’m not a big fan of building business models on complaints to Brussels: I’d rather focus on executing strategy well,” he said.

“But there is that underlying question for everyone: how do you make sure it’s fair competition? Is it fair that we have to pay 30% of our [iOS subscription] revenue to the App Store? It’s a question mark, eh? It’s something we have to ensure: that we’re competing on even ground.”

Stuart Dredge

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