After Cancelling Its IPO, Deezer Raises Another $109M From Access And Orange

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Deezer, the Paris-based music and other audio streaming service with 6.3 million users that planned but ultimately cancelled an IPO last year, has now tapped existing investors for more funding. Today the company is announcing that it has raised another €100 million ($109 million), led by Warner Music Group owner Access Industries and with participation also from French carrier Orange.

The funding, according to CEO Holger Albrecht, will be used for “operation and execution,” both to fund the workings of its existing business and also to invest into marketing to grow users in the 180 countries where Deezer operates. It may also potentially be used to pay more money to rights holders: the company also announced today that it has expanded its catalog to 40 million songs (its rival Spotify claims “over 30 million”).

Coming as it does in the wake of a failed IPO bid that Deezer at the time blamed in part on a “nervous market” amid poor market showings from Pandora and video streaming business Netflix, Deezer’s cash injection might appear like it’s coming at a desperate time. But Albrecht paints a different picture. He told TechCrunch that this was always an alternative plan in the background to the IPO roadshow.

“We had a discussion early in the process, and all the existing shareholders were in support of us raising €100 million,” he said. “If you don’t get the valuation you want, there are shareholders who want to put in their own money rather than pushing through the IPO. It was open and transparent: ‘What do we need to proceed with our plans and our ambition?’ Was the question we asked ourselves.” He added that the funding will help Deezer put off plans for an IPO “until we want to do it.”

“The explosion of music streaming creates a unique opportunity to build a truly personalized service for listeners. Deezer is at the leading edge of this change with a differentiated offering that emphasizes unique localized experiences” said Guillaume d’Hauteville, Vice Chairman of Access Industries, in a statement. “We are proud to continue to support the innovative Deezer team.”

“Consumers everywhere are listening to music on their mobile phones, and this represents a massive opportunity for engagement and increased usage. Capitalizing on this shift, Deezer has built a high-quality service, constantly improving its user experience with new services: personalized radio, high-definition audio, lyrics and now the largest music catalogue in the world,” said Pierre Louette, Chief Executive Officer Delegate, Orange, in a statement. “We’re thrilled to be investing in the music streaming market as we have always been convinced it was a tremendous opportunity to drive innovation on a global basis.”

Deezer is not profitable right now, but by choice: “We could turn the company very fast into profitability,” Albrecht said, if the company spent less on marketing and customer acquisition.

This seems like slightly false logic and only short-term profit. With competitors like Spotify and Apple Music continuing to grow and nab market share from each other, sitting still would quickly turn into sitting on an ever-shrinking island. Just today, Spotify announced two more acquisitions that point to how it’s continuing to explore ways of growing its own business and ties to its customers.

Down the road, Albrecht hints that Deezer too might be eyeing up ways of growing its business. But it may not be by building new products itself. Albrecht has described the spectre of Amazon and its all-in-one bundled model of offering multiple media services across video, music and more for one price by way of Prime. This could point to players in other categories like video looking for music partners to create their own bundled offers.

“There are logical partnerships based on the Amazon model so there may be an opportunity for us to work together with companies like Netflix,” he said. “Short term both of us are capturing momentum in own markets, but there will be movements in this area, with music and video combined. This market is just at the beginning and a lot of scenarios you can see.”

He would not comment on how that might translate to M&A, though. The company has in the past moved into new categories through acquisitions. For example, it added a significant amount of podcast content when it acquired Stitcher last year, and now has some 40,000 podcasts on its platform.

Deezer is not disclosing its valuation with this round or giving any updates on its user numbers or financials. When it planned to raise $343 million in the IPO, the listing would have valued the company at between €884 million and €1.088 billion (or $1 billion to $1.24 billion).

At the time of its IPO roadshow, Deezer claimed 6.3 million customers across 180 countries, but with only 1.5 million paying Deezer for subscriptions. The remaining 4.8 million are “bundle subscribers” who pay a blended fee to partners such as carriers, giving Deezer a much smaller cut in return. Orange is one of Deezer’s strategic partners for these bundled services. As a point of comparison, Apple Music earlier this month passed 10 million subscribers, and Spotify claims over 75 million users, 20 million of them paying.

The funding today brings the total raised by Deezer, founded in 2006, to €185 million (about $202 million), with the bulk of that coming in the last few years.

(Deezer has publicly disclosed previous rounds of €14.7M between 2007 and 2011 from co-founders Daniel Marhely and Jonathan Benassaya, Thomas Ehrel, Xavier Niel, DC Music, Idinvest Partners and CIC-CM Capital Privé; then another €70 million in 2012 led by Access Industries to add to today’s round. Orange has never disclosed the exact amount that it has invested in the company, although around 2012 it owned about 11% of the company.)