From Billion-Dollar EDM Company To Near Bankruptcy

Billion-Dollar-EDM-Company-To-Near-Bankruptcy

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As if EDM news couldn’t seem to get any worse with the possible death of Soundcloud, and major record labels pushing Spotify to end free music streaming, What next?

A billion dollar EDM company possibly going out of business? It’s definitely possible.

The end might be near for a once billion-dollar EDM company as they are now low on cash and close to Bankruptcy. Read below the Forbes interview with the CEO of SFX Entertainment, Robert F.X. Sillerman.

Nearly three years ago, Robert F.X. Sillerman stood stone-faced on the cover of Billboard magazine. Dressed in all black, the music mogul–who once appeared on the 2005 Forbes 400 list with a net worth of $975 million–held a disco ball that had been colored in gold and silver to represent the earth.

“Robert F.X. Sillerman has a $1 billion plan to conquer the world of dance music,” read the publication’s cover line.

Today, that blueprint to take over the electronic dance music (EDM) world is in shambles, the result of poor management, suspect financial planning and a certain hubris that Sillerman, who corporatized the live music industry in the 1990s, could do it all over again. On Saturday, Sillerman gave an interview to FORBES and said that he takes “full responsibility” for the issues within his SFX Entertainment. Despite this, the 67-year-old CEO said that he is the right man to run the troubled business and that he still wants to own the company even though he reneged on a plan to take it private earlier this month.

“We don’t have enough time on this call to talk about the mistakes I made,” said Sillerman during a 30-minute phone conversation from his New York City home, his voice gravelly and occasionally interrupted by a breathing apparatus due to a past bout with tongue cancer.

While he survived that battle, Sillerman is now in a fight to salvage SFX Entertainment, which went public at $13 a share and was valued at more than $1 billion in Oct. 2013. On Friday, the stock closed at 91 cents a share. SFX now has a market capitalization of $88 million.

But where did it go wrong for SFX? At the time of the company’s formation, Sillerman boasted of his ability to go toe-to-toe with Live Nation, the live events behemoth which was formed out of the firm he sold to Clear Channel for $4.4 billion in 2000. That company was also called SFX. His plan was to spend $1 billion to buy EDM-related companies around the world, telling FORBES in 2012: “If we do this with the right people this will be bigger than the first SFX.”

On Saturday, however, Sillerman was fielding questions on whether the company would go bankrupt–he said there was a “zero percent chance”–and admitting that he didn’t work with “the right people.” It’s also unclear if he was ever the right man for the job.

“I Know Nothing”

“I know nothing about EDM,” Sillerman told Billboard in Sept. 2012. “I meet the people whose places we’re buying. And I haven’t a fucking clue what they do or what they’re talking about. Not a clue. And I love it. I just love it.”

When presented to the public–and later, Wall Street–the plan for SFX Entertainment seemed simple enough: roll up local EDM event organizers under one umbrella organization that could drive profits by providing structure and efficiency. It wasn’t a plan too dissimilar to Sillerman’s moves with the original SFX where he spent more than $1.2 billion to gobble up regional rock promoters, venues and management companies in the late 90s. The company was sold to Clear Channel in 2000 and became the basis for Live Nation five years later.

Sillerman’s new frontier was to be EDM, a genre whose live events like Electric Daisy Carnival and Belgium’s Tomorrowland were drawing millions of neon-wearing, glow stick-flashing young adults to festival grounds around the world. Sillerman and Shelly Finkel, his close associate and SFX’s eventual vice chairman, hardly listened to the music but saw the opportunity in what they believed to be the millennial generation’s rock and roll. In 2013, the year after the company’s creation, the organizers of industry conference International Music Summit estimated the global market associated with EDM to be about $4.5 billion in sales.

SFX, however, had problems from day one. Details surrounding the company’s formation remain disputed, and today Sillerman faces a lawsuit from acquaintances who allege that they are cofounders. That suit, led by dance promoter Paolo Moreno, alleges that Sillerman, who was completely unfamiliar with dance music, took the idea to acquire and combine global EDM companies from him and his associates after they had agreed to work with the businessman and Finkel. Moreno claims that Sillerman was mainly brought in to help organize financing for the business and that he had presented his plan to others, like billionaire Ron Burkle, before choosing Sillerman.

“Mr. Sillerman had no intention of consolidating the EDM industry before he met Paolo Moreno in January 2012,” said Steven Feldman, a Hueston Hennigan LLP attorney representing Moreno and two other plaintiffs.

Sillerman denied this when talking to FORBES, noting that he never founded the company with Moreno and stopped working with him after learning of past legal run-ins, a conclusion that Feldman also disputes. The lawsuit is set to go to trial in October in a federal court in Los Angeles and has been one of a handful of elements to weigh heavily on SFX’s stock in the last year.

When asked what exactly went wrong with SFX, Sillerman offered two explanations: mistakes in management and a “misunderstanding of the complexity and time of marketing partnerships.” He did not name any specific people with regards to personnel issues, though music industry sources pointed to the fact that many of the people who sold their businesses to SFX did not stay long after closing their deals. Among them was former Beatport CEO Matthew Adell, who stepped down less than two years after selling his company for $50 million in early 2013. He declined to comment for this story via email.

On the subject of corporate partnerships, Sillerman said he underestimated the time it would take to sign up sponsors for SFX’s events. While he pointed to lucrative deals with Anheuser Busch, MasterCard and T-Mobile and those companies’ increased yearly ad spend, the SFX CEO admitted that his earlier business models anticipated greater participation from brands.

Part of that underwhelming reality may have to do with the public relations nightmares that can occur while running EDM festivals. As the genre has grown in popularity, so too has the quantity of reports of drug-induced injuries and deaths at concerts. Earlier this month in Los Angeles county, two female attendees of Live Nation-run event HARD Summer died of apparent drug overdoses.

Though these unfortunate events have more to do with the young generation experimenting with different ways of altering their consciousness while listening to music than the music itself, MDMA-based drugs have a certainly become a part of EDM culture. Could it be that Sillerman didn’t fully understand this–or just how skittish it would make brands?

“No, I don’t think the mistakes I made had anything to do with my lack of background on this particular type of music,” he said.

Perhaps the bigger question centers on the inherent limits of EDM’s popularity. Few suggest the genre is declining—not yet, anyway—but there’s evidence that points to a plateau. FORBES first started charting DJ earnings in 2012; a year later, the collective income of the top ten acts had doubled. But from 2013 to 2014, the increase slowed to 11%; this year, it’s only 2.5%.

In some ways, that’s good news for Sillerman and SFX: the cost of talent is no longer skyrocketing. But the flattening rates for top acts may be symptomatic of demand, a signal that EDM more broadly is approaching a saturation point—and that pouring more money into creating more festivals, Sillerman’s plan all along, is not a viable strategy anymore. But he doesn’t seem to be worried about anything of the sort.

“This year, there are 88 festivals that we anticipate doing,” said Sillerman. “And there are between 105 and 110 scheduled for next year.”

That is, if SFX is still around in a year to run those events.

Forbes

 

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Photo Credit: Christopher Polk (Getty Images)

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