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Why EDM Might Not Be Ready for Wall Street After All

Once held up as a shining example of dance music’s bankability on Wall Street, SFX is going private after hemorrhaging a $130.5 million loss. What does this mean for EDM's future?
March 17, 2015, 8:45pm

SFX Entertainment is the most powerful EDM empire in the world, and Bob Sillerman is its eccentric, middle-finger-flashing king. His subjects include many of today's biggest electronic music promoters and Beatport, the mp3 retailer that recently jumped into the streaming music game. After 17 months of being a publicly-traded company, SFX will soon become a private company again, as Sillerman uses the fuck-you-money he's earned as one of the richest men in America to buy back outstanding stock. So what does this news suggest? What many have been worrying about for months: dance music might not be ready for Wall Street just yet.

SFX's promoters throw more than 50 global events, including Tomorrowland, Mysteryland, Spring Awakening, Electric Zoo, Ultimate Music Experience, Stereosonic, and 50% of Rock in Rio, the Brazilian festival that will debut in the US this May. On paper, its business model seemed foolproof. As the music industry's revenue model continues to shift from record sales to live events, a portfolio of live event-focused companies seemed destined for success. Brands clearly agreed, with T-Mobile and MasterCard lining up to partner with SFX properties in an effort to reach EDM's coveted millennial fanbase.

When Sillerman took SFX public in October 2013, Afrojack rang the opening bell at NASDAQ in a flurry of confetti. As the founder of the company known today as music megolith Live Nation, Sillerman has experience taking a company public before. Still, the ballsy move was held up as a test of EDM's viability in the financial market. SFX's stock success was primed to answer the question many have been wondering: is EDM more than just a music trend?

Sillerman shaking hands with Afrojack during the first day of SFX's IPO

If the fate of one company is a referendum on an entire scene, then EDM's vitals don't look good. SFX's IPO prices started at a healthy $13 a share and slid steadily from $9 at the end of October, 2013 to between $4 and $5 a year later. Late last summer, leadership changes within the company caused financial analysts and outsiders to grumble that something was rotten in the state of Sillerman. Of course, trash talking is a popular hobby on Wall Street, but in February rumors swelled when the New York Times reported that Sillerman had told his board that he was considering taking the company private. Yesterday, after SFX posted a loss of $130.5 million in 2014, up from $110 in 2013, the company's founder confirmed the decision in a statement to the company's investors.

"Some of the growth was incorrect," Sillerman conceded to VICE in an interview last year, referring to the many properties SFX bought before and after it was flush with IPO money. Some of its struggling properties include Totem OneLove, the Australian company that owns Stereosonic, which was once seen as SFX's entryway into the Asia Pacific market. Earlier this year, SFX CFO Richard Rosenstein admitted that the 2014 Stereosonic festivals grossly underperformed. The deaths of two attendees at 2013's Electric Zoo festival in New York has cast a shadow over Made Event, which has struggled to recover from the bad press. Made Event recently partnered with another SFX subsidiary, Netherlands-based ID&T (owner of Tomorrowland and Mysteryland), to strategize a rebranding effort, including a new event in Japan. But we won't know the results of that evolution until later this year.

Read more about the ongoing story at Electric Zoo

Sillerman's decision to take the company private is a giant flashing sign that the stock market is skittish about the EDM industry's bankability. But before the buzzkill brokers starting shouting, "I told you so!" there are still several reasons why SFX and EDM aren't going anywhere soon. The company still owns many valuable properties; in 2014, it produced and promoted a whopping 937 events, attracting 4 million attendees. The inherent value of SFX was made clear when investors cried foul over Sillerman's proposed price of $4.75 a share to go private. One investor said this price was "an insult," while another said he thought each share should be worth more than $10.

SFX is not without competition. Publicly-traded Live Nation has doubled down on dance music by scooping up Insomniac (Electric Daisy Carnival, Wonderland), Creamfields and HARD in recent years. They are reportedly looking to acquire a content provider as well (Live Nation and VICE are partners in an unrelated forthcoming live music content venture). Privately-held AEG, which already owns Coachella parent Goldenvoice, has moved into dance festivals too. The inaugural CRSSD Festival in San Diego this past weekend was promoted in partnership with Goldenvoice partner LED Events' sub-brand FNGRS CRSSD.

Read more about the first-ever CRSSD Festival

But each of these companies go further than EDM. Live Nation owns Ticketmaster and has 360 artist deals with U2 and Madonna. AEG owns the O2 arena in London and the Los Angeles Kings hockey team amongst a slew of other venues. For SFX, it's EDM or bust.

Sillerman's company isn't alone in its struggles with this EDM conundrum. Speculative chatter is increasing around Live Nation's Insomniac as its colorful CEO Pasquale Rotella has been out of the spotlight since the beginning of the year, citing personal reasons. Like fellow Live Nation company HARD, Insomniac may be too dependent on the personality of its founder and his loyal, personal fanbase to ensure longevity and stability in the marketplace, some say.

An equally colorful figure, Sillerman is known for his brash personality and deep pockets (he has an estimated personal worth of close to $1 billion). His re-investment in SFX is perhaps more a statement of faith in his own business acumen than in the whims of Wall Street. Going private will allow him to swat away the nuisances of meddling boards, anxious investors, and intense media scrutiny that comes with being a public company. Maybe Sillerman was probably just too hasty with SFX's IPO. Thanks to an impressive trail of coverage on SFX's growth over the past several years, there is plenty for us to speculate over in the coming weeks.

Michelle Lhooq is THUMP's Features Editor. Follow her on Twitter.

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