* To issue new shares in IPO since current owners plan to stay
* Proceeds to go to deepening telco partnerships, marketing push
* Deezer faces tough competition from Spotify, Apple
* Streaming music growing rapidly but remains unprofitable (Adds banks, bullets details from press conference)
By Leila Abboud
PARIS, Sept 22 (Reuters) - Music streaming service Deezer plans a flotation on the Paris stock exchange by the end of the year as it tries to keep up with larger, deeper-pocketed rivals such as Apple Inc and Sweden’s Spotify.
The company has 6.3 million subscribers who can listen to a catalogue of 35 million songs for 9.99 euros a month.
Deezer, which analysts expect to achieve a stock market valuation of about 1 billion euros ($1 billion), and its rivals represent a shift in the music industry, away from buying and downloading tracks to listening online to songs stored remotely.
Although growing rapidly, such streaming services are as yet unprofitable, since they have high costs for licensing music and face challenges persuading people to upgrade from free versions. They have also been criticised by artists such as pop star Taylor Swift for not paying them enough.
Present in 180 countries but with the bulk of clients in France, some 4.8 million of Deezer’s paying customers get access because the service is bundled with their mobile service from telecom operators like Orange, Vodafone, and Deutsche Telekom.
Deezer’s biggest challenges will be competing with Spotify, with its huge lead in the United States, and Apple’s new Beats 1service. Profitability depends on wrangling better terms for music licenses, which now account for 80 percent of its costs.
Spotify has 15 million paying customers and raised about $500 million from investors in June, valuing it at $8.5 billion, according to media reports.
Deezer has avoided direct competition with Spotify by focusing on emerging markets in Asia and Africa. It is marginal in the U.S. where it sells the service only via speaker maker Bose and wireless carrier Cricket, owned by AT&T.
It also has a different strategy focused less on advertising and more on distribution via partnerships with 40 telecom operators, and makers of mobile phones and wireless speakers.
“The streaming music market will not be ‘winner takes all’ so we are confident in our ability to carve out a place,” said Chief Executive Hans-Holger Albrecht.
Deezer’s revenue rose 41 percent in the first half of this year to 93.2 million euros, and stood at 142 million euros last year. By 2018, it aims for positive monthly core earnings (EBITDA) and cash flow and sales of 750 million.
The floatation will allow Deezer to improve its product and distribution, Albrecht said, without giving details of the size or pricing of the issue.
Deezer decided to go public and not do a fundraising round in part because it wanted to tap markets before Spotify.
New shares will be issued in the listing since existing shareholders are not expected to sell down their stakes.
Deezer’s largest shareholder with 27 percent is tycoon Len Blavatnik’s Access Industries, while Orange owns 11 percent. Three music labels, Warner Music, Sony Music and Universal Music, part of Vivendi, together own about 15 percent of the shares.
BNP Paribas and Bank of America Merrill Lynch are managing the listing, along with Citigroup and Societe Generale. ($1 = 0.8936 euros) (Editing by David Holmes and William Hardy)