Market Watch

Orange Brings Deezer Premium to its Customers



French ISP and mobile operator Orange (France Telecom's flagship brand) has formed a partnership with the leading French on-demand music service provider Deezer. From September, some of Orange's mobile and internet packages in France will come bundled with Deezer's premium music service. Orange has also expressed its interest in buying a minority stake in Deezer and both companies are working on ways to integrate Orange's 'Wormee' music service that launched in April 2010 with Deezer.

Deezer launched as a free (ad-supported) on-demand music service in France in 2007. Its premium service, which costs EUR 4.99 or 9.99 with mobile access and offline playback, launched in November 2009. As of May 2010, Deezer claimed 7m unique visitors per month in France and 20m worldwide.

Analysis
Like other 'freemium' music services (ones that offer limited free access and charge for extra features) Deezer has struggled to attract enough premium customers to offset the cost of its free users. Deezer attracted only 20,000 paying users in France after six months, this translates into a conversion rate of less than 0.3 per cent, compared to Spotify's premium conversion rate of about 5per cent (in March 2010). The deal with Orange is likely to change this as Deezer stands to gain access to Orange's 13.6m French 3G user-base and 25m broadband lines.

Danish mobile operator and incumbent telco TDC proved it is possible to sell music as part of a bundle. Users have been happy to pay for music from TDC's 'Play' digital music store because the cost of the music is hidden within their monthly subscription charges. 17% of TDC's customers were subscribing to 'Play' bundles by January 2010.

Orange could have tried to emulate TDC's success incorporating Deezer within its own brand image, but has chosen to use Deezer's popularity to its advantage instead. Operators 3 in the UK and TeliaSonera in Sweden followed a similar approach when they partnered with Spotify.

By buying a minority stake in Deezer, Orange would get better visibility on the company's business and will be better placed to tightly integrate Deezer with its existing music services. The deal may make Deezer less attractive to Orange's competitors and could limit Deezer's ability to make deals with other operators in France and abroad, but Orange is a major multinational operator and the deal may make it easier for Deezer to move its premium service to some of Orange's other markets. Consequently, given Deezer's low subscriber base and poor conversion rate in the short-medium term the advantage of being bundled with Orange's deals should outweigh the potential difficulties of making deals with other operators and ISPs.  

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