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Deezer, entering US, will sound like Spotify, act like Netflix

The subscription-music service you've probably never heard of is bigger than all its brethren except Spotify. Now it's diving into the US, not with a splash but a ripple. North American CEO Tyler Goldman explains why.

Tyler Goldman, the North American CEO of Deezer, is leading the company's charge into its 183rd country, the US. Deezer

The US is the great white whale of the music business, and Deezer is aiming to snag it with a bunch of small hooks rather than one shining harpoon.

Deezer, a subscription streaming-music service that began in France in 2007, has 16 million monthly active listeners and 5 million paying subscribers. That puts it behind only Spotify, with 10 million paid members, in its category of services that let you rent all the music you want for a monthly fee. Deezer has risen through the ranks by blanketing the globe -- it's available in 182 countries, in a world that has fewer than 200 nations -- while steering clear of the biggest markets out there.

Now Deezer is entering the US, the largest market for music by sales, and it's doing it in stealth mode.

"What's strange would be to keep doing what other services have done with very limited traction," said Deezer North American Chief Executive Tyler Goldman in an interview. The dozen music services in the US have taken a one-size-fits-all approach to be generally available to the mainstream public and "have no subscribers," he said.

So Deezer doesn't have a publicly available product for anyone in the US to try. It's entering the US first through a partnership it formed last month with speaker-maker Sonos and then through a similar partnership with Bose that it struck last week. To Sonos owners, Deezer is offering "Elite" streaming-service with CD-quality music streams priced regularly at $19.99 a month, currently $9.99 a month in a promotion for those who sign up for a full year and in a $14.99 deal by paying month-to-month. To Bose SoundTouch and SoundLink owners, Deezer is offering a "Premium Plus" service for $4.99 a month, another discount from its going rate of $9.99 a month.

Goldman wouldn't specify how many members Deezer has attracted in the few weeks it's been available in the US through the speaker-maker deals, but he said it was a level that's "material relative to what other services have already, who have been in the US for many years."

Generally, subscription streaming music is growing rapidly, with giants like Google, Amazon and Apple jumping into the fray alongside hot startups like Spotify, but overall it remains small. According to the Recording Industry Association of America, paid subscriptions grew 23 percent in the first half of the year compared with a year earlier, but their total value -- at $371 million -- was only 17 percent of the $2.2 billion in revenue derived from digital music.

Goldman attributes that limited penetration to dissatisfaction.

"There are only 30 million global music subscribers today, which would reflect that users are not that satisfied to the point that they're willing to pay," he said.

However, the model of subscription streaming is new and a stark difference from how consumers have been paying for music for decades -- individual payments for ownership, be it of records, CDs or downloads. Limited traction is as much a result of consumer unfamiliarity as anything else.

That's the reason why Deezer's approach of tackling bite-size market segments in the US is so important, Goldman said.

"Instead of saying 'I'm going to figure out how to do that for 3 billion people'...I'm going to figure it out in groups of hundreds of millions," he said. "There may be 20 million to 25 million audio enthusiasts in the US out of 300-plus million [people], but globally that number is closer to 100 million. Maybe other companies aren't doing this because they're not looking at this on a global basis."

The executive said Deezer will launch to a number of other US subsegments during the next 12 months preceding a wide release to the general public. Some of the groupings will be "much bigger" than the audio enthusiast category that it's pursuing initially with Bose and Sonos.

This isn't the classic road map Deezer has followed to launch in other countries, all of which are smaller. The company traditionally will tailor its service for a particular country, market to its tastes and set up a partnership with a leading telecom provider there to distribute.

That approach, however, doesn't translate well to the US. The population is so large and diverse that music tastes and preferences run a much wider gamut than in the majority of the countries where Deezer has expanded.

And while partnering with mobile carriers has been a successful tactic not only for Deezer abroad but also for Spotify, the strategy has largely fallen flat in the US. Beats Music, now part of Apple, launched in January with a splashy deal with AT&T, the second-biggest carrier with 110 million wireless customers at the end of last year. But by May, Beats Music had only 250,000 paying members.

So for strategic inspiration in the US, Deezer is looking elsewhere. "If you look at Netflix or you look at Facebook or any category, they generally started with more narrow categories," Goldman said. Netflix started with laser discs in the Bay Area and Facebook began with one school for its social network, he said.

"A lot of people wrote off Netflix early on," he said. "Netflix showed they were able to create in their bundle of offerings a tremendous amount of value. Deezer is on its path to doing that, and that's why Deezer is going to be a giant winner in this category."