The Ledger is a weekly newsletter about the economics of the music business sent to Billboard Pro subscribers. An abbreviated version of the newsletter is published online.
The industry has exploded with six years in a row of recorded music growth, driven by a boom in consumer adoption of on-demand music subscription services. But French music streaming service Deezer, which plans to go public by merging with I2PO, a French special purpose acquisition corporation (SPAC), has mostly missed out on the gold rush.
Financial information released by I2PO last week shows Deezer hasn’t matched the industry’s growth much since it first attempted to go public in 2015. Back then (at the end of 2014), Deezer had 6.9 million subscribers and 143 million euros ($162 million at the time) in annual revenues. By 2021, its subscribers grew 39% to 9.6 million and revenue grew 180% to 400 million euros ($432 million at the current exchange rate).
But those improvements were nothing like the overall subscription market’s gains over the same period. In 2014, the global recorded music industry generated $1.6 billion in subscription revenue and 41 million global subscribers. Since then, subscription revenues jumped more than eight-fold to $12.3 billion and global subscribers grew almost 13 times to 523 million. Deezer’s peers — mainly Spotify, Apple Music, Amazon Music, YouTube Music — captured that tremendous growth.
Here are three examples of how Deezer fell behind Spotify from 2019 to 2021 (the years covered in Deezer’s financial statements):
- Deezer’s revenue grew 5% from 381 million euros in 2019 to 400 million euros ($423 million) in 2021. Spotify’s revenue grew 42.9% — over eight times as fast — to 9.67 billion euros ($10.4 billion) in those three years.
- Deezer’s subscriptions grew about 9% from 8.8 million to 9.6 million. Spotify’s subscriptions improved about 45% — from 124 million to 180 million.
- Deezer’s gross profit went in the wrong direction, falling from 18.3% in 2019 to 16.3% in 2020 and 12.1% in 2021. That’s well below Spotify’s gross margin, which improved slightly from 25.5% in 2019 to 26.8% in 2021. Gross profit is the share of revenue left after paying for “cost of sales,” which for a streaming service is almost entirely content licensing costs.
Deezer’s successes are limited to France and Brazil, despite global acceptance of music subscription services. In France, where it has 4.2 million subscribers, Deezer’s revenue improved 16.2% from 2019 to 2021. But sales in the rest of the world fell 8.7% from 172 million euros ($186 million) to 157 million euros ($170 million). It has 2.7 million subscribers in Brazil, where it landed a partnership with telecom company TIM Celular S.A. in 2016. That B2B model could be crucial for growth in other markets such as Germany, where Deezer inked a partnership with German broadcaster RTL Interactive GmbH in November.
In the fiercely competitive music streaming business, longevity is no guarantee of success. Pandora has shed listeners since 2015 and its on-demand subscription service lags Spotify, Apple Music and Amazon Music in the U.S. — although it has improved revenues. Napster — previously branded as Rhapsody in the U.S. — was one of the original subscription services but has been far surpassed by later arrivals. Many of Deezer’s peers reside in streaming’s graveyard: Rdio, created by the co-founders of video call software Skype; Microsoft’s Zune; Google Play Music All Access; Nokia’s Comes With Music; Sony’s Music Unlimited Powered by Qriocity; and Xiami, owned by Chinese e-commerce giant Alibaba; to name just a few. That Deezer, which launched in 2007, survived to 2022 is itself an achievement.
The merger with I2PO should help Deezer compete with bigger services and capture the growth that eluded it in recent years. I2PO will provide Deezer with at least 135 million euros ($146 million) for the merger. That number could be significantly higher and depends on how many shareholders reject the deal and redeem their shares before the merger: I2PO raised 275 million euros ($297 million) in its initial public offering and has 120 million euros ($130 million) in commitments from additional investors. That’s not enough to take on Spotify and the other giants, but it could help Deezer carve out a comfortable niche.
STOCKS
Through April 22, the % change over the last week, and the year-to-date change.
Spotify (NYSE: SPOT): $110.21, -19.1%, -52.9% YTD
Universal Music Group (AS: UMG): 23.65 euros, -5.0%, -4.6% YTD
Warner Music Group (Nasdaq: WMG): $31.34, -12.1%, -27.4% YTD
HYBE (KS 352820): 254,000 KRW, -13.4%, -27.1% YTD
Live Nation (NYSE: LYV): $105.91, -4.9%, -11.5% YTD
Eventbrite (NYSE: EB): $11.35, -15.1%, -34.9% YTD
NYSE Composite: 16,056.87, -2.8%, -6.5% YTD
Nasdaq: 12,839.29, -3.8%, -17.9% YTD
