In 2004, a time when George W. Bush, CD-ROMS, and Myspace loomed large in the collective imagination, three club music nerds and DJs in Denver—Jonas Tempel, Bradley Roulier, and Eloy Lopez—launched a webshop for dance music. They had already been digitally ripping music from vinyl to perform live during their sets, but in an era when DJs were still lugging around crates of records to gigs, the idea of creating an online marketplace for dance music downloads brimmed with potential.
Beatport launched in January 2004 with 79 labels, mainly house music-focused, in its catalogue. Over the next decade, the platform would mature into a catalyst for the worldwide explosion of dance music—and particularly, that of the EDM movement, where massive crowds, venture capitalists, and superstar DJs turned club sounds into big business. As the company's inventory grew, its charts—Beatport's top sales rankings, broken down by genre—became an industry standard for measuring a DJ or producer's success. When Robert Sillerman's dance media conglomerate SFX Entertainment bought the company in 2013—for $58.6 million—Beatport was the hottest startup in all of electronic music.
Almost immediately after acquisition by SFX—a live events company boasting an expansive portfolio of festivals and promoters, including Tomorrowland, Electric Zoo, and Mysteryland—Beatport's fortunes changed. Alleged corporate mismanagement from the new owners, a fast-changing technological climate, and a conveyor belt of new products that drew focus away from Beatport's founding mission led to the spectacular and very public crumbling of one of dance music's pillars. SFX filed for Chapter 11 bankruptcy earlier this year, with Billboard reporting that its stock had plummeted to just over one cent a share. The bankruptcy culminated in Beatport laying off nearly 50 employees—approximately half of its staff—and shuttering all of its departments that do not involve the direct sales of music.
To understand what the story Beatport means—both for the company and for dance music culture as a whole—we have to go back to a time before massive drops and millions of dollars, to the town of Denver, Colorado.
Over the phone from his home in Denver, former staffer Lloyd Starr—who joined Beatport as a software developer in 2003, and later ascended the ranks to become Chief Operating Officer, and then President of Beatport Pro, a vertical specializing in music library management software for DJs—paints the early days of the company as the stuff of startup utopia. "I was there right at the beginning, prior to launch," he says. "I was the first employee at Beatport! We were building [the platform] before iTunes launched. Nobody paved the way." The tiny staff worked long hours and weekends in an office so small that they had to stack servers on their own desks. "In the early stage, it was a very tight group of individuals," he says. "Passionate music people."
"It didn't have a name—I named it. It didn't have a logo, so I designed one. We didn't have an interface or software. We hand-built this thing."—Jonas Tempell, Beatport co-founder
For its first six years, Beatport was helmed by co-founder and CEO Jonas Tempel, a DJ and self-described computer geek with a penchant for graphic design and a nose for entrepreneurship. "It didn't have a name," says Tempel of the fledgling company. "I named it. It didn't have a logo, so I designed one. We didn't have an interface or software. We hand-built this thing."
Matthew Anthony, who founded LA-based independent house label Perfect Driver Music in 2012, stresses Beatport's importance to small labels like his: "As a boutique label, Beatport was Perfect Driver's bread and butter in terms of sales," he says. "It's still our number-one marketplace today. The top chart positions remain a sought-after goal for our artists."
In 2007, Beatport took a $12 million investment from tech investment fund Insight Venture Partners, at a $50 million valuation. Although it was a major coup for the platform—and an early indicator of dance music's gigabuck potential—the investment would forever alter the course of Beatport's fortunes. "As soon as you take investment money, like it or not, your business is for sale," explains Tempel, with a touch of ire. "The performance of the company, not the profitability of the company, is what is value. It's about selling the future."
Industry journalist Bob Lefsetz has suggested that Sony was so interested in Beatport's future that, in 2007, the Japanese behemoths put forth an $125 million offer for the company; under pressure from investors who wanted to hold out for more, the deal was declined. When the economy crashed in 2008, investor confidence dried up, and with it any chance for so lofty a valuation. By then, however, Beatport was troubled by an even more systemic issue: technology.
As a store where DJs and listeners alike could purchase MP3s and WAVs, Beatport was part of the digital wave replacing CD-ROM and vinyl, creaky technologies that had been around for decades. During the company's first five years, the platform grew into a go-to music marketplace for much of the dance music community, among competing services like Stompy, Traxsource, and Juno. By the late 2000s, though, streaming picked up momentum, with the likes of Pandora and Spotify having entered the fray. The impending obsoletion of the file-downloading format placed Beatport in a sticky spot. There are only so many DJs who want to buy WAVs and MP3s to play at gigs, and that finite market did not jive with the growth-bent venture capitalists who had invested in the firm. A friction emerged between what Beatport had been successful at doing––selling MP3s to DJs and fans––and what it needed to do to continue to sustain growth.
"It was a pretty toxic time in the company," says Tempel of that period of internal turmoil. He was reticent to alter the company's vision of a marketplace for DJs, but pivoting to exploit the oncoming EDM boom—portended by the flashy successes of EDC, Vegas, David Guetta, and Deadmau5—seemed to many the only surefire path to the kind of growth that the investors were looking for. "People were struggling to get along, losing faith in things," Tempel says. "The investors were putting pressure on us to sell the company, and I didn't want to. There was pressure to replace people, and the replacements weren't fitting in well. It was really tough."
The pressure increased. Tempel resigned in 2010. The two remaining founders of Beatport, Bradley Roulier and Eloy Lopez, lessened their involvement dramatically before quietly severing ties with the company entirely. Roulier would subsequently focus on DJing as one half of EDM duo Manufactured Superstars; Lopez would go on to become the President and COO of online radio service Digitally Imported.
In August 2010, Matthew Adell, a storied music tech exec with Napster and Amazon on his resume, was promoted from COO to CEO and tasked with preparing Beatport for sale. Tempel considers this the beginning of the end. "When the founders left, there was a new leadership that ignored that the founders of the company ever even existed," he says, referring to the new regime's mandate of an aggressive expansion of the company's services. "From that moment forward, you could draw a line to every single product that was made post-2010, and not one of them works."
Indeed, it's likely Adell had Tempel's vision firmly in mind when, at the beginning of his keynote speech at IMS Ibiza in 2011, he said, "The recorded music transaction business is dead." The statement was a eulogy to the Beatport of old. It was time to change. Over the next few years, the Beatport site would roll out a whole new menu of features, including mixes, DJ profile pages, a store for samples to use in music production called Beatport Sounds, events listings, a portal for streaming live DJ sets named Beatport Live, and Beatport News, an editorial outfit focused on the dance music world. (Fans looking primarily to peruse Beatport's webstore, however, could select to view the site in "Classic" mode).
"As soon as you take investment money, like it or not, your business is for sale. The performance of the company, not the profitability of the company, is what is value. It's about selling the future."—Jonas Tempell
"The organization was in the best [position] for success in the five years leading up to the acquisition," says Starr of the hope-filled period after the investment from Insight Venture Partners, but before SFX took the reigns. "We had really started to run it as a business. I'd say it was a high time."
Bob Sillerman's burgeoning dance media conglomerate SFX came calling in February of 2013, and purchased the company for $58.6 million. One of the most storied entrepreneurs in entertainment, Sillerman had started making his fortune in the 1990s by buying up regional rock concert promoters and creating an events empire (also named SFX), one he eventually sold for $4.4 billion to Clear Channel, who relaunched it under the name Live Nation. A decade later, Sillerman was looking to retrace the steps that had made him a music industry mogul, this time to the beat of EDM.
Sillerman started a new company under the SFX Entertainment banner and began purchasing dance music properties from all over the world, including a 75% stake in Dutch festival cornerstone ID&T (Tomorrowland, Q-Dance), Made Event in New York (Electric Zoo), Totem Onelove Group in Australia (Stereosonic, Creamfields), and a 50% interest in Brazil-based Rock in Rio. SFX also acquired a 75% interest in an E-commerce platform called Paylogic, the marketing agency Fame House, and a music-based social media platform named Tunezy.
Beatport was to be the company's crown jewel, gleaming in green and black. "I know nothing about EDM," Sillerman had told Billboard in 2012. Perhaps he meant the comment as a conciliatory quip, an acknowledgment that he knew trust could not be bought. Either way, it proved to be a literal statement, and a prescient one at that.
SFX's $58.6 million acquisition constituted huge numbers in dance music, but it suggested that the company's value had increased only minimally since Insight Venture Partner's investment of $12 million half a decade prior, at a $50-million valuation. This was likely due to digital music sales reaching a plateau at Beatport and in the industry at large, but SFX didn't seem worried. Beatport was going to be the hub through which the conglomerate's swelling billion-dollar portfolio of properties would reach the consumer, a one-stop shop. The club DJ was no longer king, as she had once been; the "EDM fan" was the new focus, and launching a newfangled Beatport free music streaming service would be the coup de grace of SFX's astounding encroachment of the dance music space.
"On paper, the SFX concept probably made a lot of sense," says Tempel. "But I think that vision of 'Let's make a billion dollars!' turned a lot of people off. When you're waving around cash, it's pretty hard to negotiate for the best deals. And one thing that I know instinctively about dance music culture is that whenever someone seems like an opportunist or an outsider, people tend to not trust their motives. I think people looked at SFX as a get-rich-quick model."
This distrust is a position shared by many behind the scenes in dance music. "I saw it [SFX] as a Wall Street play—that's why I never did a deal with them," Insomniac Events CEO, EDC progenitor, and major SFX competitor Pasquale Rotella told Billboard last month. DJ Eric Sharp, an 11-year veteran of the West Coast club scene and professed long-time Beatport user, echoes this sentiment from the trenches of the underground. "Dance music came from a subculture," he says. "It wasn't created as a brand or a trend to attract consumers. So when someone like Sillerman comes along who, to my knowledge, has no history within dance music, he's seen as an outsider just trying to cash in."
In October of 2013, SFX went public with an IPO of $13 a share, and soon went into freefall. It became clear that SFX's rapidly assembled portfolio of properties had been purchased at premium prices and had loaded the company with hundreds of millions of dollars in debt. "The last thing we'll be thinking about is margins," Sillerman said to Forbes in July of 2012. "You know if you make cars or washing machines or something like that, I guess you have to focus on margins. That's not the way I view the entertainment business—I view it as an art not as a science." Unfortunately for Sillerman—who was not available for comment on this story—SFX's shareholders cared about margins.
SFX's empire was premised on the the idea that its various properties would align to support each other. This idea was never given a chance to flourish, as the company's disastrous IPO obliged the company to shift its focus to damage control. The company's market cap value—a metric for determining the "market value" of a company—dropped by a third between December 2013 and March 2014. Amidst the stock market turmoil, SFX laid off as many as 20 Beatport engineers in December of 2013—a quarter of the company's staff—and closed its satellite San Francisco office (its other offices, in Denver and Berlin, remained open). By October 2014, a year after the company had gone public, SFX's stock price had dropped from $13 to approximately $5 a share. A year after that, in October 2015, it was down to 93 cents a share.
Back in Denver, Beatport's expansion into myriad consumer-facing services was not going well. The streaming platform struggled to find an audience. "Beatport's streaming efforts were always half-hearted," says Mark Mulligan, Managing Director of London-based media-tech analysis firm MIDiA. "Its core customer base is DJs, producers, and wannabe DJs and producers. They go to Beatport to either buy the downloads, or find out which ones to download from Torrents. They're not going there as music listeners."
Even worse, In August of 2015, Beatport fell into scandal after notifying labels that their payments had been frozen, a situation exacerbated when it became clear that a number of major labels were, in fact, still getting paid, while independent labels were forced to hold out. The very entities that Beatport was founded to support were being shafted. "I am deeply embarrassed, both personally and professionally, by what has happened," Sillerman said in a statement two days later. The remaining payments were forced through, but the writing was on the wall.
Beatport posted a $5.5 million loss in 2015. SFX filed for Chapter 11 bankruptcy in February of 2016. Sometimes referred to as "reorganization bankruptcy," Chapter 11 allows a company to remain in operation as it attempts to restructure its finances. SFX began wholesaling and downsizing its properties. Sillerman stepped down as CEO at the end of March, and Beatport was on SFX's bankruptcy auction block by May. Other SFX properties, like Fame House and Flavorus, were sold for pennies on the dollar to mammoth media conglomerate Vivendi/Universal Music Group. The auction for Beatport was at first postponed, then suspended, though the company published a statement explaining that it would "continue considering offers."
"We're back to dedicating 100% of our resources to the store, and to our core customer, the DJ."—Terry Weerasinghe, Beatport VP of Music Services
To survive, Beatport shut down Beatport News; its struggling streaming platform; its digital distribution, platform Baseware; the Beatport Live video portal; and maintenance on its mobile app, laying off around 50 employees in the process. At the time of this writing, the only thing left under the Beatport banner is the webshop, where people can buy MP3s and WAVs, and Beatport Sounds.
"We're in a refocusing period," says Terry Weerasinghe from Berlin. Hired as Beatport's VP of Music Services in 2013, he's now in charge of its marketing, content curation, and business analytics departments. "The features we were developing—streaming, video, the news platform—they require time and investment to develop. Some of the ideas were good ideas, but with the debt load that SFX took on, it just wasn't financially realistic to continue investing in those services, so we took them offline. We're back to dedicating 100% of our resources to the store, and to our core customer, the DJ."
For the first time in a long time, Beatport's current business model is something its current staff and founding members can agree upon. "Beatport doesn't have to be a dot-com, billon-dollar store," says Tempel, echoing the words of an open letter he recently penned to Beatport. "That's just a fantasy people created. Beatport needs to be the world's best platform to buy dance music. That's it's only job. That's the way forward."
Perhaps even more importantly, dance music still needs Beatport. "I'm hoping that they make it through Chapter 11 in a positive way," says former Beatport Pro president Starr, who parted ways with the company in January 2016, to co-found a consulting firm named Velocity Plus. "There are a lot of labels—out of the 37,000 independent labels that are out there, let's just say 40% of them rely on somewhere between 50-and-70% of their revenue coming through Beatport."
Matthew Anthony of Perfect Driver agrees: "If Beatport went away, it would push Perfect Driver to the brink of nonexistence. As it stands, we don't take home much revenue, barely enough to keep the lights on. To run a label the right way, there needs to be cash flow. Without Beatport, I have nothing to fall back on."
To Richard Tullo, a financial analyst from Wall Street firm Albert Fried & Company, what brought SFX down was actually quite clear. "Too much debt and not enough focus on due diligence and integration—as well as faulty assumptions on the level of the sponsorships SFX could sell—conspired to kill SFX," he explains. In the bigger picture, Tullo posits that the EDM machine may have only been a short-lived financial opportunity to begin with. "EDM growth will level off this year," he says. "The best festivals will continue to sell out, and mediocre festivals will close or cut days. Festivals will never be as big as they were, because the millennial is aging out of the demographic."
It's easy to view the fall of SFX as a cautionary tale about the danger of a subculture being commodified, but the debacle can just as easily be seen as a lesson for the corporate world about the obstinance of outsider communities. Prior to the EDM boom, dance music had been a grassroots and marginal community for decades, its constituents skeptical of any attempt to make a buck off its preciously guarded authenticity. For all its attempts to connect with a new generation of dance music lovers, SFX never connected with the dancefloor lifers at the genre's core. "SFX was built in the EDM bubble, when it looked like EDM was going to rule the world," music industry analyst Mark Mulligan told THUMP. "The problem with when a subculture goes mainstream is that it alienates its core audience. When the newly won, casual fans move onto something else, there is a gaping hole left behind."
That's why even though EDM was one of the biggest fads in recent memory—a fad it was, and as a fad it will go. On the bright side, Beatport survived the fallout—even if in terms of personnel, it is totally unrecognizable from the faces that built it in the early 2000s. Amidst the rubble of SFX, Beatport has returned to the mission with which it began: to be the world's best web store for purchasing dance music. As of this writing, the company—per a Beatport rep—stocks over 6 million tracks from over 46,000 labels. On an average week, 25,000 new tracks are added to the store; on an average year, the site receives over 40 million unique visitors.
The company still faces the same existential challenge it's been struggling to answer for most of its history—the impending obsoletion of downloading—but for the first time in decades, Beatport will have a chance to answer on its own terms. "I don't think you can guarantee success in any form anywhere," says Jonas Tempel. "But if there's anyone that should be able to do it, it's Beatport."
Jemayel Khawaja is Editor-at-Large of THUMP –– @JemayelK