Deezer rides a doozy of a storm as CEO is ousted by investors

[France] Music search and discovering service Deezer is currently caught up in a storm of controversy: its co-founder and CEO Jonathan Benassaya has effectively been forced out by his investors. After Deezer faced mounting competition from services like Spotify, it’s emerged that investors ousted the founder in order to put in place a more experienced business manager to both reorganize and perhaps prepare some kind of exit. They’ve been disappointed with Deezer’s performance towards a premium service and low advertising revenues.

The rumour that this was about to happen began last week grew a head of steam over the weekend, as reported by music expert Philippe Astor on French site Electronlibre (Google translation). Midem, the annual conference for the music industry, is currently taking place in Cannes, France and the departure of Jonathan Bessaya from Deezer was one of the buzzing topics during the weekend. One of the things that confirmed this rumour was that the CEO was due to participate on a panel on Saturday during Midemnet (the part of Midem focused on the online music industry) but he conspicuously did not show up. His name was even up on screen during the panel he was supposed to attend. On this panel was also Paul Brown, SVP of Spotify, that is widely regarded as a Deezer killer.

Deezer had tried to make changes to its model over the last months, from a free service to a premium based one (€9.99 for unlimited streaming a month). Announced in November 2009, this premium model probably (according to Electronlibre) attracted only 10,000 people in about three months. The 100,000 target before the end of 2010 seemed impossible to reach. Of course, Deezer still has 10 million users in Europe, 6m of them in France, but if it cannot monetize these users, or make them switch to the premium model, it’ll be hard going for the company.

Deezer raised €6.5 million in October 2009 in a series B round, bringing the total amount invested to approx €12.2 million, but a big part of this money was used to pay royalties to majors (one of the strengths of Deezer were these agreements, but it seems they had weakened the company). That’s certainly a reason why, as explained by Philippe Astor in his article, Deezer could not invest in the development of a new rich desktop client (such as Spotify, or iTunes) since desktop clients are clearly seen by music experts or even by consumers as the winning format, the “digital jukebox”.

Mike Butcher adds:

There are two ways to take this news. Either it’s part of a worrying pattern in the French tech scene where founders are ruthlessly replaced by investors who are hungry for the business to be run by a more career professional manager. To a greater or lesser extent, this effectively happened to Benjamin Bejbaum of DailyMotion. And similar happened to Tariq Krim, founder of Netvibes.

The other way to take this is that the controversy has arisen because, in French tech culture, being the CEO is considered to be everything. This is not the case in the U.S., where startup founders are usually quite happy to be kicked upstairs to a Chairman role or somesuch, because founders are still considered the rockstars. Not so in mainstream French business culture, where, to be the rockstar, you have to be the CEO. This is the reverse of the UK or US scene, where founders get the respect, and the CEO is generally seen as just a business person brought in to make things run smoothly. In France, once a tech founder is not the CEO, it’s like Samson losing his hair. I wrote about this at length a while ago.

Thus you get a scenario where the CEO is dragged kicking a screaming out of the building, or just starts not turning up to big events (see above) rather than making a more dignified transition to a chairman role and saving the investors the problem of having to mount a coup d’état.