Orange Bets Big On Video, Buys 49Pct Of ‘French YouTube’ Dailymotion

Orange, the French telecoms operator, has entered into exclusive negotiations to take a 49 percent stake in the online video company Dailymotion, for €58.8 million ($80 million), giving the company a full valuation of $160 million. The deal should close in the coming months, and Orange will have the option to buy the remainder of the company in 2013.

Orange says the deal will help it extend its role as a multiplatform content aggregator and distributor, a strategy that has been pushed particularly hard by CEO Stephane Richard since he took the reigns last year.

Dailymotion is Orange’s biggest online content M&A play to date, but it’s not the first. In July 2010, Orange took a minority stake in the music streaming site Deezer, and together they kicked off a co-branded music subscription service that was bundled with Orange’s broadband tariffs in France. That’s gone pretty well so far, picking up 500,000 subscribers since launching in August 2010.

We can expect to see similar services coming out of the Dailymotion deal, too. Orange had been working with Dailymotion prior to this: users of Orange’s IPTV service in France were able to access the site via Orange’s set-top box. Now the idea likely will be to bundle cloud-based premium content, delivered via Dailymotion, with subscriptions as well, which users could access on different devices, from PCs and TVs to mobile handsets and tablets.

The big difference will be market focus: Deezer is focussed on France, and that’s where Orange has sold the Deezer bundles. Dailymotion, meanwhile, gets 80 percent of its traffic from outside France. That means Orange can leverage Dailymotion’s platform to extend its offerings to other markets where it has a footprint, in particular its extensive mobile operation.

The other significant issue is that, while Dailymotion says it is the world’s second-largest online video company after YouTube (NSDQ: GOOG), that is a very distant second place. (Dailymotion averages 90 million unique monthly users these days, according to Peter Baines, a partner at Dailymotion investor Advent Venture Partners.

But YouTube, according to comScore’s rankings released last week, got nearly 145 million uniques in the U.S. alone in December.) A deal with a telco gives Dailymotion another distribution channel, and potentially a new revenue stream as well.

Currently, Dailymotion brings in around $25 million annually in sales, mainly from advertising. Baines notes that this is a four-fold increase since Advent first invested in the company a few years ago.

For Orange, the international expansion angle is key. The company has a big mobile footprint, and it has long been looking for a way to extend that into converged, multiplatform services. Most of that hasn’t gotten very far (it only offers IPTV in one other market besides France, Poland; and the long-awaited Orange TV services still haven’t come to the UK). A Dailymotion-led, cloud-based offering gives Orange another chance to tackle the international market.

“Orange is aware of its internal challenges and determined not to repeat the same mistakes when tackling the international market,” says one source close to the situation.

Baines at Advent confirms the idea of an international emphasis. “The intention is to carry on growing the international operations,” he told paidContent. “That’s where the investment will go, to scale internationally.”

Why is the deal not closing yet? A spokesperson for Orange says that there is still some due diligence to be carried out, and there are still some negotiations underway around “who is selling what percentage of their capital.” There are at least three investors in play here: Dailymotion counts Partech International and Advent Venture Partners among its bigger shareholders; and France Telecom (NYSE: FTE) and Orange also have one shareholder in common: France’s sovereign fund, FSI, has a 14 percent stake in France Telecom, and in October 2009 it invested €7.5 million in Dailymotion as well.

“But all the shareholders have been involved and we’re all moving in the same direction,” he added.

Cédric Tournay, Dailymotion’s CEO, and the rest of the management team are expected to remain with the company after the deal.