Dailymotion's $160 Million "Shotgun Wedding"*

stephane richard orangeStéphane Richard, CEO of Orange

Photo: Photo by Flickr user Feuillu

Update: We’ve spoken with early Dailymotion investor Fred Destin who’s given us more details about the deal.Earlier:

Orange, the biggest telecommunications firm in France, has now announced that they’re in exclusive talks to buy 49% of Dailymotion, the “YouTube of France”, valuing the company at around 160 million dollars. The deal will allow Orange to gradually increase its stake to 100% by 2013.

Here’s what we were able to learn about the deal talking with various sources.

We learned from a person inside Orange that the deal isn’t signed yet, and the parties are still haggling over price. The $160 million valuation being talked about now is much lower than the $300 million mooted yesterday. The deal is being done through Orange’s “Audience and Advertising” division.

Another source, a person familiar with Dailymotion’s circumstances told us that this is pretty much a “shotgun wedding” and that the writing was on the wall since Dailymotion raised money from the Fonds Stratégique d’Investissement (FSI), the French government’s sovereign wealth fund, which is also a big shareholder in Orange. (Orange, also known as France Telecom, is a formerly state-owned utility.)

The point of the investment was to arrange a face-saving exit for one of the most heavily-funded French startups, which is slowly sliding in marketshare against Google‘s YouTube, with the likeliest candidates being Orange or media conglomerate Vivendi. Orange already bought a stake in Deezer, a music streaming site which is popular but is getting its arse kicked by Spotify.

Dailymotion is profitable or at least breakeven, but only on reported revenues of less than $25 million. Talks with big French TV networks to licence their content and turn Dailymotion into a “French Hulu” broke down as those networks decided to build their own owned and operated internet video sites. TF1, the biggest network in France (and Europe), is suing Dailymotion for copyright infringement.

What’s more, Dailymotion’s biggest investors, Partech International and Advent Venture Partners, are desperate for an exit, the person told us, as they are trying to raise new funds and are having trouble doing so. Partech had a good exit recently with Brands4friends, a private sales site, being acquired by eBay for $200 million, but that’s not enough. They need another big exit soon. 5 of Dailymotion’s 7 board members are VCs, and these guys are desperate to unload their stake.

The slightly forced nature of this deal and VCs impatience to exit are basically the reasons why it’s only for 50% now. Presumably Orange’s money will go to VCs to sell their stake now rather than for Dailymotion, and Orange will slowly buy the rest of Dailymotion, probably at a lowered valuation.

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