Summary:

French startup Deezer, a venture-backed streaming music provider that competes directly with much-discussed Spotify in Europe, today announced a two-tiered premium service model intended to extract revenue from power users. The site claims 16 million visitors and 11 million registered users, some of whom will now […]

deezerFrench startup Deezer, a venture-backed streaming music provider that competes directly with much-discussed Spotify in Europe, today announced a two-tiered premium service model intended to extract revenue from power users. The site claims 16 million visitors and 11 million registered users, some of whom will now be expected to pay €4.99 ($7.42) each month to remove advertising and hear higher-quality streams, or €9.99 monthly to add a desktop app and mobile streaming to phones including iPhones, BlackBerrys and Android devices.

As we’ve seen with Spotify’s still-too-low paid-user conversion rate, the vast majority of users are loath to shell out monthly fees to improve on the free-streaming experience. Drawing subscription revenue from a low percentage of power users to cover streaming costs that aren’t offset by advertising income isn’t yet proven as a business model, and Deezer is going to have a difficult time showing that it’s different from its rivals in that respect. Paid subscriptions for music have always been a tough nut to crack, and mobile apps aren’t yet bringing in new customers. And as free desktop streaming services continue to improve, largely due to better user interfaces and shorter loading times, premium offerings from stream providers actually become less attractive rather than more appealing.

Unlike Spotify’s, Deezer’s service is already available in the U.S., though its Stateside catalog is severely limited at present. (Want one of Green Day’s hits? You’ll have to settle for a cover band.) The company reportedly has agreements with all four majors, but its licenses obviously vary from country to country. The premium services will be rolled out first in France, then elsewhere in Europe.

Deezer revealed a €6.5 million round of funding from AGF Private Equity and CM-CIC Capital Prive last month, bringing its total funding to €12.2 million over two years. But with a far-better-funded rival in Spotify, Deezer still has an uphill climb to win consumers’ attention.

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