EDM's Dead, Long Live... EMC? SFX's IPO Looms Large While the Industry Sells Out (From the Magazine)



The mega-festival battle lines are drawn between ID&T/SFX and Insomniac/Live Nation. The stated goal of Sillerman's mega roll-up has always been corporate sponsorship, confirmed by the WPP deal. To command an international media buy of that scale, he needs more than just disconnected events, no matter how large. With so many far-flung promoters locked up, Sillerman is now moving on to other entities. Several independent agencies report receiving phone calls from SFX vice chairman Shelly Finkel, who does all of Sillerman's initial reach-outs and who has become something of an EDM industry icon himself. The 69-year-old former boxing promoter, who wears his signature "cool grandpa" sneakers, has independent record labels, websites, booking agencies and nightclubs all on speed-dial.

"If you ever owned an entity that might have anything to do with electronic dance music, you will get the Finkel call," says a former magazine publisher who has received such a call.

Despite the chaos of Sillerman, there's a method to his madness, says another person who has dealt with him: "He's going to be good at raising money and selling sponsorships globally against all these assets."

With such a diversified platform -- even if it just amounts to a laundry list -- a single large sponsor, like, say, Pepsi or Samsung, could drop one big check to reach its youth target internationally. An end-to-end program encompassing on-site presence at SFX-owned events; endorsement from SFX-managed artists within paid, owned and earned media channels; editorial support from SFX-owned entities; and newly developed mobile or other technologies to tie it all together does sound appealing and turnkey.

"When we look to [music] partners, it tends to be one of the problems that it's so disaggregated. It's very localized, very artist-specific," says Emma Montgomery, global product director of Starcom MediaVest Group's Human Experience Center, which specializes in studying millennials and has researched EDM specifically. "The fact that SFX has tried to pull everything together in one place, to bring the entire experience under one roof, is very compelling."

To understand Sillerman's strategy better, it would be wise to look at the books of Live Nation, the core of which was built by Sillerman before its sale to Clear Channel. Live Nation's sponsorship and advertising revenue grew from $164 million in 2007 to $248 million in 2012. More importantly, sponsorships and advertising have good margins. Roughly $176 million, or 38%, of Live Nation's $459 million of adjusted operating income (AOI) in 2012 came from sponsorships and advertising. The concerts division generated nearly $3.9 billion of revenue -- two-thirds of the company's total revenue -- but contributed just $30 million of AOI.

The opportunity for SFX to build a major media platform that multibillion-dollar brands could use to get in front of hard-to-reach millennials is one that many are taking seriously. WPP CEO Martin Sorrell made this clear in a joint press release explaining why his company has taken a stake in SFX, saying, "We can help bring this valuable audience to our agencies' global clients." Even though the amount committed was relatively small for the world's largest agency group, it was important validation.

In other words, SFX will be selling a media/sponsorship play first and a music/live event business second. The idea is to use music to create a platform much larger than just selling tickets.

"What's interesting with what SFX is doing is that it's enabling brands to really be a part of the culture, be a part of the music, the events, the videos," Montgomery says. "Brands can find a natural and authentic way to be invited into the culture through community, which is better than slapping their sponsorship logo on it. I think it's really smart."

For sure, while the vision looks great on paper there's no guarantee that Sillerman is the right person to pull it off or if he has done the right calculations to make the financials work.

For now, SFX is counting on the cash flow of its acquisitions, many of which, according to the IPO filing, are operating at a loss. Also of concern: TomorrowWorld, ID&T's first attempt at a U.S. festival, and the first traveling edition of its Belgium festival TomorrowLand. The event, set for late September on a farm just outside Atlanta, is reportedly having a hard time moving tickets. At a price tag of up to $16 million, according to ID&T CEO Duncan Stutterheim, the event could incur significant losses if it doesn't sell out as expected, or at least come close.

While the timing couldn't seem worse given the pending IPO, ID&T is more than just TomorrowWorld.

At a recent press event in New York, the company presented its vision for the coming year, including the eye-popping Sensation arena tour that will hit four cities this fall (last year's two-nighter at Brooklyn's Barclays Center grossed $3.6 million, according to Billboard Boxscore). CEO Ritty Van Straalen and chief creative officer Jeroen Jansen spoke of ID&T's intention to broaden its focus from EDM to more generalized immersive experiences, a la Cirque du Soleil. ID&T could flip the script entirely and give SFX its biggest win, outside of the EDM bubble. And that might just surprise everyone.