How An EDM Conglomerate Is Trying To Rule Dance Music

One of the most surreal scenes 2013 had to offer was Afrojack standing amongst a group of bespectacled bankers and traders at the NASDAQ stock exchange; clapping as confetti cannons were set off, and as the bell was rung to close a days trading. So, why was Afrojack the first DJ to close the NASDAQ? To mark the first day of trading of SFX Entertainment - the company buying up large swathes of dance music related businesses - as a publicly listed company. If 2013 was the year EDM broke fully into the mainstream, 2014 could be the year dance music entered the world of Wall Street.

Although the name SFX Entertainment may not be familiar to many, 2013 saw them spend huge sums of money in order to position itself as the main player in the world of electronic dance music.  By the end of the year, SFX Entertainment owned, or had majority stakes in: Beatport, Tomorrowland Festival (Belgium), Stereosonic Festival (Australia), Electric Zoo Festival (USA), Creamfields Festival (Australia), Liv Festival (USA), Nature One Festival (Germany).

The initial public offering priced each of the 20 million shares that the company put on sale at $13 per share, valuing SFX Entertainment at around $1.05 billion. Since Afrojack rang the bell after the first day's trading though, it's been a bit of a rocky road.  The share price has never reached the first day peak; dipping at points as low as $7.80, and at the time of writing, $10.97 per share. Nothing too spectacularly bad, but again nothing that is going to make future investors wring their hands with the glee at the thoughts of untold riches being garnered from EDM.

Which, ultimately, is one of the major issues when it comes to a company being publicly listed on the stock market. Decisions become influenced by profitability, with the main aim being to increase the stock price of the company. All companies need to be profitable to survive - that's capitalism for you - yet when a company is publicly listed, any failure to create profit is there for all to see. Since going public, SFX will now forever be judged on the value of their share price, and this puts a lot of pressure on the companies within SFX to remain profitable.

This is something many Beatport employees have found out the hard way.

Beatport was purchased by SFX for $50 million in February 2013. Beatport was a purchase that initially made a lot of sense. When the company was initially bought, SFX founder Robert Sillerman was quoted as saying that "Beatport gives us a direct contact with the DJs and let's us see what's popular and what's not. Most importantly, it gives us a massive platform for everything related to E.D.M".

By early December, it was reported that a large number of Beatport employees had been fired, in what was described by Techcrunch as a 'bloodbath'.The lay offs were mainly engineers and developers, who were working on products the company offered that weren't directly connected to the store. Little explanation was offered for the lay offs, beyond the usual company spiel that the aim was to "restructure the team and get everyone focused on one vision".

It doesn't take a massive stretch of the imagination to see that the action was connected to the failure of Beatport to turn a profit. Having reported a $2 million loss in 2012, and following the purchase by SFX, Beatport had still lost $1 million in the third quarter of 2013. The figures certainly aren't great to read from a business perspective, but the swiftness with which SFX Entertainment was prepared to cut large parts of the workforce indicates just how ruthless these big businesses can be.

The next year will give some real indication as to how the changes at Beatport will affect the business. The lay offs included developers who had been at the company since it was created, and new members have been brought in to help the re-structuring, many of them coming from three companies that SFX have also recently acquired; Arc90, Paylogic and Fame House. Tim Crowhurst, when discussing the re-structuring of the company, made the following comment "It's a widely fragmented industry in terms of where people get their news and information, where they discover content, where they listen to content, where they discover events and where they buy tickets. Our vision is to create a much more cohesive experience for the fan and every piece here has a significant role to play."

It's clear that Beatport wasn't bought solely for its position as a specialist online distributor. Laying off such a large portion of the original workforce shows that SFX was less interested in the work Beatport was doing as a company, and more interested in taking control of the brand. Crowhurst's comments seem to imply that the Beatport brand is going to be used as a front for something much larger; a combination of all the companies SFX have aquired, and to provide a centralised space that users can go too to have all their musical needs met. SFX will then theoretically have an unprecedented amount of control of the commercial dance music scene, encompassing everything from ticket sales, to festivals, to how new music is released online.

With all this in mind, it's possible that one company owning such a monopoly could easily lead to stagnation. If SFX will be using the data from Beatport to indicate to them which DJs are popular, that could in turn influence their booking policies for the festivals and clubs that they have invested in, and lead to a lack of new talent being able to break through. The swiftness in which Beatport was re-structured shows that SFX won't be too patient in dealing with the smaller arms of their businesses too. While Sillerman has previously stated he is interested in buying great businesses and empowering them to continue the work that they do, there's no doubt that SFX has it's own agenda. If a newly purchased company is not operating in the way SFX wants it to, changes are going to be made to bring it in line with the grander vision.

Quick profits and creativity are not the happiest of partners. As Bobby Owsinski points out in his article regarding the SFX IPO, creativity in the music industry is often stifled when large corporations become involved, and this is a trend that has happened in the music industry before. Such large scale investment can be held up as signal of success for a musical genre, but in reality that's often a short sighted view. The companies SFX runs can all adapt to new trends, but it is not there to support the artists or to encourage risky, creative ideas.

Perhaps that is one of the biggest misconceptions that occur when there are reports about money being invested into dance music. SFX Entertainment is not investing in music, it's investing in business.

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