Beatport Tells Labels and Artists Their Money Is 'Trapped' Inside Its Parent Company

Robert Sillerman
SFX Entertainment

Robert Sillerman of SFX Entertainment

To run a store you need inventory. You then sell that inventory, whatever it is, to people. To secure inventory, you buy it from the people who make it. Question: what if you don't pay for your inventory, but keep selling stuff anyways? Do you think your suppliers would be upset?

The answer is yes. Labels and artists who sell their work through Beatport received a letter (in full below) early this morning telling them their money is currently "trapped" within the byzantine and extremely troubled corporate structure of SFX, parent company of Beatport. Creators were told they would be paid "in the next few weeks" by the service. One recipient called the letter "arrogant and unapologetic."

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Obviously, digital inventory is unique in that labels get paid promptly from download sales. (Receiving payment for physical inventory is much different.) Prompt payment has always been one thing labels love about iTunes. It's a simple process: somebody buys a track, Apple collects the money, and it pays the label 70 percent.

So where, then, is the money? "SFX is currently involved in a 'going private' process that has trapped certain earned label payments," reads Beatport's letter.

SFX's corporate problems are the only reasonable culprit.

Beatport installed a new CEO just two weeks ago, brought over from SFX, in an executive shuffle at SFX. (The company also switched out some top executives this past January.) That shuffle came one month after the company raised $15 million through a stock fire sale, a signal that SFX needed cash immediately. Lacking even $15 million in liquidity when your company was valued at $1 billion less than two years prior is a bad sign.

SFX founder and chairman Robert Sillerman, who launched the company three years ago and proceeded to aggressively acquire dance-related properties in a bid to corner the EDM market, is currently in the process of trying to re-take the company private after its initial public offering was issued on Oct. 9, 2013. Since Sillerman's bid was accepted in late May, many have doubted his ability to carry through with the purchase, since his offer of $5.25 per share is so far above the stock's current price ($3.17 as of this writing) as to cast serious doubts on his ability to finance the agreement.

One financial analyst, contrasting the relative health of the dance music industry as a whole with SFX's tornado of problems, said: "It's a management problem." It's now the problem of the creators -- those who created the scene SFX would like to profit from -- too.

Already at least one digital distributor has announced it will pay the "trapped" royalties to rights holders in advance. Symphonic Distribution founder Jorge Brea said his Tampa-based operation made "provisions for situations such as this" and "wanted to ensure that our record labels and artists were to be paid as expected despite the short notice."

Beatport's letter to rights holders, in full:

Dear [client],

Since inception over 10 years ago Beatport has paid almost $200,000,000 to its label partners. Beatport's parent company, SFX, is currently involved in a 'going private' process that has trapped certain earned label payments. This process will be coming to an end in the next few weeks, at which time all payments will be able to be made. Beatport prides itself on being the broadest and original friend of the makers of electronic music and will clear this one time obstacle very shortly.

-- Beatport