Music-Streaming Service Deezer Files IPO

Deezer IPOParis-based music streaming service announced Tuesday September 22 that it plans an initial public offering (IPO) later in 2015. The French company plans to list its shares on the Euronext Paris stock exchange. Deezer-CEO Hans-Holger Albrecht declined to say how much the company seeks to raise However, analysts see Deezer’s valuation at around EUR 1 billion (USD 1.12bn). The IPO would mean that investors finally are finally offered a direct way to invest in the subscription based music-streaming industry.

First mover advantage

According to CEO Albrecht the move by Deezer to tap the markets is taken to be the first company listed on a stock exchange. Although US-listed Pandora Media (ticker: P) also offers streaming music, it is not comparable due to the offering of an internet radio service and not subscription based music catalogues. Recently, competitor Spotify was able to raise USD 500 million from investors in a private placement, valuing the market-leader at roughly USD 8.5bn. The interesting thing is that Deezer will place new shares, so existing shareholders will not exit. The most recent shareholder breakdown showed that Access Industries (owned by Len Blavatnik) is the largest shareholder with a 27% stake, followed by telecom company Orange with 11%. The music labels Warner Music, Sony Music and Universal Music together hold 15% of Deezer’s shares. The company has currently 4.8 million paying subscribers, compared to Spotify’s 15 million. The French music-streamer saw its revenue increase with 41% in the first six months of 2015, totaling EUR 93.2 million. It reported EUR 142m revenues in 2014.

Growing pie

There are a number of companies active in the music-streaming business. Recently Apple joined the party with its Apple Music-service, however received lukewarm reviews from users. Next to market leader Spotify and Deezer, other names are Tidal (Wimp) and Qobuz in Europe, which both also offer higher quality streaming. Deezer offers CD-quality streaming in its home country France as well, but not in all other countries where it is active. In most cases, higher quality also means a higher price and therefore these packages are often priced at USD 20 compared to USD 10 for standard, MP3 320kbps subscriptions. Most services are comparable, but have differences in user interface and slightly diverse catalogues. For instance Qobuz holds a strong position in Jazz & Classical (but also offers other genres), whereas others have deeper dance or pop-catalogues. It’s no fighter market (yet), according Deezer CEO Albrecht. “The streaming business will not be ‘winners take all’, so we are confident in our ability to carve out a place”, Mr. Albrecht said to Reuters. According to WSJ, the streaming-music market amounted USD 1.87bn as at end of 2014, triple the revenue compared to 2011. In the same period, revenues in the music industry stayed more or less flat after years of decline. Streaming-music may be the long-sought answer for the music industry to increase its revenues.

Investor opportunity

The streaming-music industry is relatively young and in many countries the market for subscription based services offers a lot of potential. Many music-customers have to become aware of the services and make the switch. Downloading will be less attractive. Also traditional hardware is increasingly adapting to the new trend. Whereas Netflix changed the TV & movie-industry, customers did not embrace the music-streaming services yet, simply due to unawareness. This will probably only a matter of time. It seems a very smart move by Deezer to be the first to float its shares and offer investors an opportunity to join the ride.

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