Two years ago, I wrote about the just-completed IPO of SFX, venture capitalist and entrepreneur Robert F.X. Sillerman’s market capitalization of his electronic dance music empire. It’s a good time to take a look at how that’s turning out.
Sillerman, who earlier in his career had founded Clear Channel (the company that eventually became Live Nation), had spent the previous couple of years acquiring a series of high-profile EDM event producers. Among these were TomorrowWorld and Electric Zoo, as well as U.S. EDM promoters Disco Donnie Presents and Life in Color, and the North American division of Holland-based ID&T Entertainment, the world’s largest dance music concert promoter, which puts on the Sensation White events, an EDM concert series held across Europe that made its U.S. debut at the Barclays Center in Brooklyn in 2012. SFX also bought Beatport, an online music retailer specializing in EDM.
Focus on EDM
Sillerman’s serial acquisitions of live-music event companies didn’t seem particularly out of the ordinary a few years ago; live music had already established itself as the main revenue generator for the music industry, and corporate consolidations at the galactic level, including in a business that has seen major labels from a dozen to just three in less than 20 years, were already common.
But what set SFX apart at the time, and still does, to a large extent, was Sillerman’s focus on EDM, which was a small niche in the U.S. until the end of the aughts, and the fact that he was looking to monetize the industry through the stock market. At the time he announced his intentions, in June 2013, the country was still shaking off the worst effects of a pernicious recession that had begun five years earlier and had been precipitated by bad actors, including the bank that handled SFX’s IPO. And EDM, while still growing in the U.S., had nowhere near the market or mindshare that it does in the rest of the world.
Last year, EDM was a $6.9 billion global industry, according to an IMS business report issued in mid-2015. But that was a smaller increase than in previous years. At the same time, as per Billboard, EDM festivals, whose attendance had increased tenfold since 2007, saw capacity remain flat last year. These tidbits, coupled with reports that promoters in Las Vegas, the epicenter of EDM in North America, were relying less on big-name DJ residencies, suggested that EDM’s ride was slowing, at least in the U.S., still the world’s largest music market (live and otherwise) but never as dominant in the EDM universe.
Bumps In The Road
The NASDAQ exchange that SFX was listed on has more than doubled in the last five years. EDM may have hit a cultural inflection point in the U.S., but wouldn’t the five-year-old bull market that U.S. stock markets have been experiencing keep SFX’s ride going? Not really, in part because consolidation had sucked much of the air out of the festival space. SFX had to contend with buying sprees by competitors like Live Nation, which bought a majority stake in Stureplansgruppen Live (SPG Live), the Swedish promoter behind the 100,000-capacity Summerburst Festival, and AEG, which debuted the CRSSD Festival in San Diego.
These moves make acquisitions — SFX’s business m.o. — more and more expensive.
Cornering the market in some commodities can be very profitable, but in the case of dominating a niche, and a fickle one at that, SFX watched its stock price plunge from the $13 IPO to $3.69 in July. Sillerman’s response was to try to reverse what he had wrought: in February he announced he would buy back all of the market shares of SFX, taking the company private. But Wall Street and SFX investors are still wondering where Sillerman was going to get the financing he needed to pay for the approximately $2-per-share premium he was offering as an inducement to shareholders to sell him back the stock.
Why This Matters
There are still plenty of financial machinations going on behind the scenes at SFX, more than need to be laid out too graphically in this publication (although the stock chart does somewhat resemble an RT-60 decay graphic). Some of them are downright scary — Beatport, SFX’s online EDM retail store, ominously informed rightsholders in August that it would delay royalty payments because taking SFX private again had “trapped certain earned label payments.” But SFX’s troubled foray into EDM tells us other things worth noting about live music. For starters, if you agree that there is some correlation between the decline in recorded music sales and the increase in the ability for consumers to make their own original recordings on Garageband or FL Studio — and many people do — then EDM is especially vulnerable to that dynamic. Few DJs can be confused with musicians, and the tools of the trade have low barriers of access. One of the fastest-growing sectors of the musical-instrument retail business is DJ equipment, which is making it far easier for anyone to scratch and spin to their heart’s content.
EDM is also at risk because, in the largest music market in the world, it’s still just another flavor on a big menu. It’s still pop music, with all of the ephemerality that comes with that, versus the lifestyle status it holds in much of the rest of the world. And with artists like Lady Gaga and Katy Perry integrating some characteristic EDM thumps into their Top-40 releases, pop music’s love affair with EDM has also noticeably receded. And even hip-hop, the genre that many consider as having set the stage for EDM in the U.S., has began sliding towards music’s own version of Social Security: oldies tours. In the highly compressed life spans of pop culture entities, is EDM already looking at a round of greatest-hit packages?
Essentially, what SFX did was package a genre for a completely different audience, one made up of stockbrokers and hedge-fund managers. And, as it turned out, it wasn’t that much different from the dubious packages of tranched mortgage loans that tanked the economy eight years ago. The question is, will music’s fling with Wall Street turn out better than real estate’s romance with it? Well, most of the houses are still standing, but many of them have different owners than they once did.
