By Keith Nelson Jr (@JusAire)
Hitting a target through a crowd depends on your knowledge of the target just as much as it does on the equipment you use. Deezer, founded in 2006, is the second most popular music streaming service globally but has had its reservations about entering the crowded U.S. market as recent as 2012. A year and $1.1 billion in global streaming revenue later they announced U.S. expansion. Debuting in the U.S. with their FLAC-encoded edition, Deezer Elite exclusively through Sonos wireless speakers, Deezer’s is aiming for the people who do not mind dolling out extra cash for pristine sound.
In an EXCLUSIVE interview with CulturedApproved, Deezer's U.S. CEO Tyler Goldman discusses debuting in the world's biggest market for music after eight years, how to win over fans and how none of the other subscription services are competition to Deezer.
Elite Before You Crawl
Deezer is debuting in the United States with Deezer Elite, an edition of Deezer which provides FLAC-encoded music streaming. Usually songs are streamed in MP3 format. How do you get the original songs into FLAC to stream? Are they converted in a different process than other streaming services use?
Tyler Goldman: That's a great question. As you know, master files are at a much higher quality encode to start with. What other services generally do is convert it to a much lower quality in order to compress it to deliver the file. It’s easier to deliver a smaller file size. Our challenge was to produce a higher quality. You’re not converting it. You’re just keeping more of the quality of the original master. FLAC stands for a lossless format, whereas MP3 by definition is a lossy format meaning you're kicking out data.
How are you able to stream larger music files at scale?
Tyler Goldman: We’re a streaming service. Users can actually download the file and take it with them when they’re not connected. Most of the usage happens in real time. In terms of the lossless format, or the higher bitrate of the Deezer Elite, it’s really geared more towards an audio enthusiast. In particular, someone who listens at home as well as on mobile. Someone who is using high quality speakers where they are going to pick up more of the sound differential. On a mobile device. with the headset, you’re going to hear the sound difference less.
I was not able to sign up for a Deezer account on the official website. Why are you only allowing U.S. fans to sign up for Deezer Elite through owning a Sonos product?
Tyler Goldman: We really wanted to perfect the use case. Facebook started with one school and then went to multiple schools, then all schools and then to the general public. In this higher quality product we want to make sure it works very well. So, it’s very complicated given the large file sizes. A lot of our users stream to a lot of different people in different rooms. Then we’re going to go to a broader part of the audio enthusiast movement. Then you’ll see us launch a bunch of products that are not geared at the audio enthusiast at all but for the mass market.
Competing Against Free
Over 35% of music listeners on Spotify skip a song within the first 30 seconds and over 70% of both Deezer and Spotify's tens of millions of active users only use the free service. Music subscription services have bundled subscription cost with consumers' cell phone bill, exclusively streamed new album releases and everything under the sun to gain paying subscribers. According to Goldman, Deezer has a solution to the problem of Free.99:
With Deezer Elite it seems as if Deezer's attention to high fidelity audio is what sets you apart from the rest of the music subscription services. How will that affect the manner in which you market Deezer in the United States?
Tyler Goldman: I wouldn’t say the high quality is what sets us apart. I think what sets us apart is our ability to deliver on what different markets need. High quality is just an example of what the audio enthusiast market needs. But there are other markets that have needs. Generally what you see is the music services have one product for everyone and they don’t deliver enough value. So, we’re not really competing with other people in the subscription space. What we are competing with is free. Which is that most people don’t pay for music these days, because the value of the pay service is not high enough.
What do you mean by the value of the pay services not being high enough?
Tyler Goldman: The biggest subscription service in the world, or at least in the United States, is SiriusXM which has 27 million people paying $15 a month. The reason why people are doing that, those subscribers are, because [SiriusXM] is producing value. I think it’s incumbent upon us and I think we’ve done a really good job and will continue to do a really good job to drive value. If you look at Sirius, they’ve really narrowed in on a very defined use case, which is a user in a car and delivering that experience that competes against free terrestrial radio. So, that’s why you see us roll out these different market segments and products, is to provide enough value to get people to pay.
With Beats Music's introduction earlier this year, music curation has been viewed as the next logical step in music consumption. Deezer has Deezer Editors who curate playlists. Who are these editors and how are they chosen?
The [Deezer Editors] have expertise in a number of different areas. They have Expertise in certain type of genres that they know really well. They have great artist relations and really deep understanding. They also tend to understand different markets. You know if you’re an EDM dance fan, it’s really a global phenomenon. So, if we have a great editor in Sweden they’re really going to clue you in to great dance music in Sweden that you can listen to in L.A. One of the things that we have done better than anyone else in the market is really understanding that music is global and that music tastes are global.
The Future Of Music Streaming Services
On-demand streaming is breaking out of the “alternative” and etching its own tradition in the music industry. Roughly 23% of all revenue from music in America (the world’s largest music market) derived from on-demand streaming in 2013. Popularity is not a currency that a business can sustain itself on for too long and while Spotify has over 40 million active users, it has lost over $200 million due to paying 70% of revenue to rights holders. Deezer's U.S. debut was helped by $130 million in funding from U.S. business Access International, owner of Warner Music Group. They've also held exclusive Live Deezer Sessions with artists such as Ed Sheeran, but Goldman explains that their relationship with artists is more nuanced than meets the eye.
Apple released a new U2 album unexpectedly through the release of iOS8. How do you feel about that move and what will Deezer do in terms of artist collaborations?
I think what Apple did was interesting. It was very broad based, so a lot of people were surprised or maybe not excited to have an album put into their catalog without their asking. My feeling is we work incredibly close with artists in a market by market basis and understand that globally we’re in 180 countries. In those markets, over half of the music is local. There’s a very large U.S. bias that ,somehow, people in Romania are listening to just U.S. music.
What is the future for music streaming?
I think streaming is going to become the dominant way in which people listen to music. It doesn’t really make sense to have files anymore, whether they’re physical files or electronic files. People want access to everything anywhere. You can look at Netflix and other markets outside of music and you can see the success.