Deezer has the cash to become a serious player in the music streaming market. And it’s setting its sights on SoundCloud.
Last year, SoundCloud reported that it only had enough cash to survive until December. Since 2016, the platform has lost over 100 million users. In less than a year, it also lost 75% of its $1 billion valuation.
Others have passed on an acquisition. Spotify walked away from acquisition talks. Google reportedly mulled an offer that never materialized.
In a desperate fundraising round last February, top executives jumped ship. Without a clear path to profitability, the company was forced to let go of 173 people and close two major offices. Then, a bombshell dropped. Just two months ago, in a leaked all-hands meeting, SoundCloud revealed that it only had fifty days of cash left to live.
To save the company from bankruptcy, investors fired CEO Alexander Ljung. After they approved $170 million in emergency funding, SoundCloud promised to turn things around.
Just one month later, another bombshell has dropped.
Despite executives’ reassurances, leaked documents reveal that SoundCloud won’t become profitable until 2020.
To say that SoundCloud stands on shaky ground is an understatement. But the streaming platform may finally have a savior. And no, it’s not Chance the Rapper.
Oh, wait. Deezer’s in the United States?
Last year, Deezer launched in the United States.
In Europe, the French-based streaming platform has emerged as a solid alternative to Spotify. The platform has a over 40 million songs and 40,000 podcasts.
In the US, however, the company has faced stiff competition from streaming leaders including Spotify, Amazon, Apple, and Pandora.
In fact, when Deezer launched in the United States, Forbes contributor Bobby Owinski wrote,
“Deezer Launches In The U.S., But Does Anybody Care?”
The company’s presence in the United States has remained muted. Yet, the French streaming platform has silently worked on a plan to emerge as a strong frontrunner.
To remain relevant in an increasingly competitive global landscape, Deezer CEO Hans-Holger Albrecht shared his strategy with Reuters.
The company will target selected markets in Latin America, Asia, and Africa where Spotify hasn’t dominated the market. Countries include Guatemala, Bolivia, Nigeria, Senegal, South Africa, Paraguay, and Columbia.
Albrecht told Reuters,
“I strongly believe in the localization of content. While Spotify is mainly playlist-focused, we are betting on local differentiation, and this has helped us become number one in gospel in Brazil.”
Deezer has a plan to hire local editors in each targeted country to create original content, similar to Netflix.
Another plan also includes a possible SoundCloud acquisition.
Will Deezer purchase SoundCloud?
Last year, Len Blavatnik’s Access Industries (parent company of Warner Music Group) took control of Deezer.
Deezer still gives close to 60% of its revenue to major labels. Apple Music reportedly pays around 55%. In long-term deals signed this year, Spotify pays 52%. Albrecht said that the company plans to negotiate future deals closer to Spotify’s numbers.
But how? By drastically increasing their user base.
Albrecht confirmed that Deezer has searched for possible acquisitions in the streaming market.
“Deezer is making a serious run. There will be a lot of consolidation, if you are Deezer or Spotify. SoundCloud’s massive user base — one that is melting as it grapples with a shrinking pile of cash — lets you convert,’ into a much bigger player.”
Talks reportedly fell through when the independent streaming platform refused the buyout.
Speaking with Reuters, Albrecht confirmed that Deezer would purchase SoundCloud, but only “at the right price.”
Mark Mulligan, a Midia research analyst, explained how the move would help the platform.
“Blavatnik has a card to play. An efficient way to compete against integrated tech giants like Apple and Amazon would be to combine Deezer, Warner Music and all the other concert and artists management firms he owns to build a full-stack music powerhouse.”
But would SoundCloud execs allow the sale?
SoundCloud won’t become profitable until 2020. As with former CEO Alexander Ljung, the company has yet to present a path to profitability.
Should Deezer scoop up the platform, it may help both platforms compete against leaders in the streaming market.
However, with the company still bleeding money, a question looms over SoundCloud executives. Would they ever allow such an acquisition? Or would they let the company crash and burn?