October 28, 2014
Considering how crowded the music streaming field already is -- what with Apple, Amazon, Spotify, Google, Rhapsody, Rdio, Pandora and YouTube plying that trade to various degrees - one would initially think someone would be crazy to join the fray. Nevertheless, Deezer, the second largest music streaming service around the world, has decided to enter the U.S. market -- with a specific strategy. Its initial offerings are aimed at rejuvenating the high-quality audio market with Deezer Elite and Premium Plus. CEO/North America Tyler Goldman offer details into their strategy
What made you decide to get involved with Deezer?
When I look back on it, there were a couple primary factors: 1) Audio consumption was growing exponentially on a global basis; consumers had more ability to use audio than ever, thanks to mobile. And 2) despite the fact that audio consumption was going up, there were no clear winners in delivering a great audio experience. You compare that to video programming, where there were two entities head and shoulders above everyone else -- Netflix and YouTube -- no one has seized the best way to create a compelling audio experience.
I joined the company before Deezer launched its "high-quality audio goes to markets" strategy. If you take the assumption that no one today has been able to deliver a great programming experience for audio content, I say the reason is that generally people tackle a problem in terms of one product for everyone. The product we talk about with Deezer Elite is specific market segments. In this case, we're talking about audiophiles, and the one big need for audiophiles is, of course, higher quality audio. We have the opportunity to build a great programming service; the other goal is the right execution. How do we do that? Go after different markets and "super-serve" their specific needs.
Deezer became the #2 streaming service in the world without even being offered in the U.S. What was the moment or incident that made you decide the time was right to move into the U.S. market?
It was more of an eventuality that we would come to the U.S. We started our roll-out aimed toward the global market. It made sense to enter the U.S. this year for a couple reasons. The U.S. market is over-indexed in several market segments -- audio enthusiasts being one. Second, a lot of the hardware partners we work with, such as Sonos, are global in nature; they work on global solutions. Third, with the U.S. being such a big market and having worked with Sonos and hardware manufacturers elsewhere, we finally felt that the time was right to launch an offering geared toward the high-quality market because there are quite a number of audio enthusiasts.
Did the competitive streaming situation in America -- what with Pandora, Spotify, iTunes Radio/Beats Music, Amazon, etc. - convince you that going after the high-end consumer was the best way to go?
Generally, we have found that the audio enthusiasts in this market segment historically bought most of their music. They were not willing make the audio quality trade-off you make with a streaming service; they were still listening to their personal collections.
If the free streaming side business, as some predict, goes through a "thinning of the herd," where only the strongest and/or biggest survive, will that change your business strategy here, in terms of possibly offering a free service of your own?
Clearly, we offer the consumer choices as well. Elite is one of several Deezer services. Elite is just solely going after the audio enthusiast, but we're going after many different market segments. The high-quality audio is just an entry point. We'll be offering services to many different types of consumers. Even so, our competition is not with Spotify, Beats or Rhapsody. Our competition is with YouTube and Pandora. We need to produce enough value so consumers will be more than willing to pay. Today there's only 2% penetration for paid services. We're competing for the 98% of users who are not paying today.
You chose Sonos to be your partner for the Elite service. Were there other potential choices ... and what made you decide to choose them?
There were a lot of great choices and companies, such as Bose, but we decided to launch with Sonos because we're very focused on the higher end of the audio enthusiast market. All of their products support a 16-bit service. We have since launched with Bose, which currently is the only way to get Deezer Premium Plus.
Obviously, you're initially marketing Deezer to Sonos' clientele ... are you and Sonos doing anything to recruit potential customers?
Collectively, we're doing a lot of things for Sonos because it's a very high-end product. One reason we picked them is that they have very high market penetration with home integrators. These are people who integrate high-quality audio in audiophiles' homes for $5,000 or more. We have a big marketing program for home integrators with Sonos.
With Bose and our new Premium Plus service, we have more of a mass-market focus. We're more focused at retail - especially big box retailers such as Best Buy, who has done a lot of integration engineering with Bose.
As you mentioned earlier, American consumers -- having gone from vinyl to CD to mp3 retail to streaming - have downsized their audio "taste" in terms of lesser and lesser quality. How confident are you that Deezer and other high-quality audio streamers can persuade those consumers to re-appreciate the better sound?
Probably two things. One way to look at it is this: Say you go out Saturday night until 2a, when the only thing open is Kentucky Fried Chicken. You get an eight-piece bucket meal with a side of wedges. That doesn't mean you wouldn't rather eat at a gourmet restaurant - especially if you get the chance to taste the difference. The proof is in the pudding. Users, by and large, have not been signing up for premium services of other streaming services because they don't like the audio quality. They're voting with their feet and wallets. By making Deezer Elite available, which offers five times the quality of audio, we expect to drive a large number of Sonos subscribers who have been waiting for a real quality service. For them, the future is here now.
Speaking of high-quality streaming services, Neil Young is launching Pono in the near future. Would you consider that to be a rival, or do you feel the more high-quality services improves the chance of growing the market?
Pono is going after the high-quality market, comprised of 1.6 million audio enthusiasts Deezer is going after lots of markets; audio enthusiasts comprise a small part of that. We applaud anyone like Pono and Neil Young because it's a very underserved market.
Would you expect Deezer's Elite service to eventually be made available with other partners, besides Sonos, in the future?
The audio enthusiast market is big enough where not everyone uses the same hardware, so it's inevitable that over time, more partners will be available for Deezer. And, as the Elite service rolls out globally, we'll add more partners to service all 182 countries.
How do you come up with the price point ($10-$15/month) and do you expect that rate to stay at the rate, go down a bit should there be efficiencies of scale popularity, or be subject to inflation like everything else?
Right now, we feel $9.99 a month is a very attractive price point when we're offering a much higher audio quality - five times the audio quality - than other streaming services. As long as we're priced the same, our audio advantage makes Elite a very easy decision for consumers. In my personal opinion, over the long term, I expect high-audio quality to be like HDTV -- a standard for all audio offerings.
More recently, you pacted with Bose for the launch of a Premium Plus service. Why Bose ... and what's the audio difference between Elite and Premium Plus?
Premium Plus offers a 320 KB service, which is still as high as any music service. That's the max for mp3s, Spotify, Beats and Rhapsody. Elite is geared to a different market segment than Premium Plus; it's part of our plan to create different services for different markets.
There have been reports that Apple is trying to lobby labels to lower their catalog price so they can lower the monthly fee. If they do that, would you expect the labels to offer you the same deal?
All services that exist are generally competing on the same cost. The services that win will build the best product and services. I don't know what's going to happen should that happen, but I'm less focused on those particular businesses than I am on creating additional value for our customers. It all comes down to the value of the product. People have shown -- evidenced by the success of Netflix and SiriusXM - that they are willing to pay for a great media service. And it's not just content that wins -- because we essentially offer the same audio content -- it's in delivering a great media experience.
Deezer just announced that it has acquired Stitcher, a Talk radio aggregator. Will that be a separate entity that would appeal to a totally different market segment, or do you see it dovetailing with Elite and/or Premium Plus?
The acquisition allows Deezer to introduce new talk and entertainment offerings to Deezer's mobile apps and web services, leveraging content from Stitcher's 35,000 on-demand radio shows and podcasts. We see talk as another underserved consumer segment, similar to audio enthusiasts, which Deezer Elite addresses. So, they are different segments that we are targeting with a differentiated set of features.
More than 35% of terrestrial radio consumption is not music, so there's a broad addressable consumer market that most streaming music services are ignoring today. We see the ability to deliver better talk streaming solutions in the same way that we are doing in music to super-serve the needs of our global audience of 16 million users.
Stitcher currently carries eight out of the top 10 terrestrial radio shows and features content from over 12,000 content providers, including NPR, BBC, Fox News, WSJ, This American Life and others. As a part of the deal, Deezer will also utilize Stitcher's leading auto presence to expand its own distribution into the automotive infotainment market. Stitcher is enabled in more than 50 models in 2014, including BMW, Ford, General Motors, Jaguar and Mazda vehicles. It was also an Apple CarPlay and Android Auto launch partner.
Finally, in your eyes, what's going to be the deciding factor why Deezer will survive and prosper in what seems to be a "Wild West" of digital music delivery?
Again, it comes down to providing a great media experience. That's why we've grown so fast around the world. We have customers who love our service. Why? We understand that users in France and Brazil value different experiences, as do 16-year-olds wearing headsets and 58-year-old jazz fans listening in their office. We have to use our brand to meet the different needs for of the consumers. It's not just content or great software; it's the overall experience.