France Telecom In Talks to Buy Dailymotion Stake

France Telecom is in talks to buy a 49% stake in French video sharing site Dailymotion, a company which is backed by venture and private equity firms including Atlas Ventures and Partech, Reuters reported. The venture funds would sell a portion of their shares, Reuters said. France Telecom would pay 58.8 million euros ($80.29 million) for the stake.

(Reuters) – France Telecom is in exclusive talks to buy a 49 percent stake in video-sharing web site Dailymotion, the latest move by the French telecoms group towards content partnerships.

France Telecom, which markets its services under the brand name Orange, is set to pay 58.8 million euros ($80.29 million) for the stake in the French start-up, which is the second-biggest video sharing site in the world after Google’s YouTube.

The investment will see the private equity and venture capital funds, including Atlas Ventures and Partech, that have backed the start-up since its founding in 2004 sell a portion of their shares to France Telecom.

France’s sovereign wealth fund, the FSI will remain a shareholder after investing 7.5 million euros in Dailymotion in October 2009.

For France Telecom, the deal is the third move it has made to rejig its content strategy since Stephane Richard took over as chief executive in March 2010.

Richard wants to spend less on buying content, such as the billion euros it splashed out on football rights in recent years, and focus instead on distributing content via partnerships as a way to reduce costs.

Richard has just signed a partnership with Vivendi’s pay-TV channel Canal Plus on a movie channel. [ID:nLDE70I1TG] Last year, France Telecom took a stake in music streaming website Deezer. [ID:nLDE67P17K]

“Dailymotion is one of the rare successes of the French internet and we are rethinking our content strategy so this deal fits together well. Dailymotion is the only real alternative to YouTube in the world,” Richard said at a news conference.

The deal gives an implied valuation of the French start-up of 120 million euros, about half what some analysts had expected.

This shows how the start-up has struggled to create a functioning business model despite having attracted millions of users around the world.

Cedric Tournay, chief executive of Dailymotion, said the site had about 18 million euros in revenues in 2010, up 50 percent from a year earlier, largely generated through selling ads on the website.

Like YouTube, the site is free for users to post and watch short videos. It had roughly 95 million unique visitors per month, according to Comscore, with 11 million in France.

Tournay said Dailymotion was considering launching premium services that users would pay for. He said it reached break-even last year and aims for 30-40 percent growth this year.

“We want to find a business model that will make Dailymotion profitable, not just allow it to attract visitors,” said Richard.

The deal, which should be finalised in the coming months, also gives Orange the option to buy the rest of the company it does not already own in 2013. That option caps the valuation of the company at 200 million euros, according to Richard. (Reporting by Leila Abboud. Editing by Jane Merriman)