In this first guest post, French music industry blogger Hugo Amsellem explains why local music streaming service Deezer may have difficulties whilst Spotify should flourish: over-reliance on music streaming alone is not a sustainable model, he argues…
For those who missed the news, Deezer just raised a second €6 million round from private equity funds.
Formally known as BlogMusik, the service was forced to shut down due to a lack of licensing agreements. 2 years and many negotiations later, the company eventually came up with a legal and complete platform, ready to roll. By then, competitors did launched other innovative streaming services, and even if Deezer is perceived as a success with 10 millions users worldwide, it appears that the service lags behind its competitors. This "Deezer" example raises a problem that relates to a culture of entrepreneurship and innovation in France. How do French startups always end up as the second or third players in their market?
Back in 2007, if I remember correctly, France was the leading country in legal streaming. Then, during the following 2 years, no major innovations were made, apart from additions of back catalogue. How do you make profitable platforms without service innovation, and business model innovation? Well you don't, and you spend 2 years burning the cash you just rose because you have to keep the boat afloat and pay the interactive royalty rate in addition of the guaranteed minimums required by the major labels.No need to show proof that the free streaming of songs on the internet is not profitable, but if you still want to be sure, read this article. With unassumed growth, streaming services go straight to their doom and they know it.
No risk, no success!
So, if these startups need short-term cash to consider profits in medium and long term, why don't they raise funds? In France, large capital investments in insecure areas are very rare. French Investors do not believe in the profitability of a service whose business model is largely yet to be defined and who requires a lot of money to survive before reaching the break even. In the meantime, Spotify raises € 50 million, and innovates throughout the value chain of online streaming to reduce uncertainty and propose a many-headed business model to investors.
Born in the wrong time and wrong place?
This scenario could suggest that French tech startups often arrive on a virgin and small national market with a relatively low demand. For example, apart from the early adopters, uses of online music streaming were not real and were yet to be democratised. Companies like Deezer or MusicMe made the first part of the way, showed the way for others, but could not innovate long enough in order to make profits from gained and retained market shares. This seems to be a major obstacle to the emergence of a French Google or any French market leader startups.
Are – what we (and the French government) often define as "French entrepreneurship success stories"- becoming other failures? Will our reluctance to take risks result in following and uncompetitive firms? In this very case, it appears that un-innovative music streaming services will not survive, and that the only way out will be a takeover by a group of Telecom for whom music is a loss leader to sell subscriptions, and therefore for whom music does not necessarily need to generate direct revenues.So much for music diversity…