Ten years ago the idea of a dance music event company listing on the NYSE was a notion considered beyond absurd. Yesterday, US based SFX announced its intention to raise in the vicinity of $175 million through an Initial Public Offering. UBS, Barclays and Jeffries are serving as the lead underwriters.
SFX’s founder, Robert Sillerman, is an entertainment veteran. He was the man responsible for acquiring regional music promoters in the 1990s and creating a national network that was initially sold to Clear Channel for $4.4 billion in 1999, who then ultimately spanned it out into what became Live Nation in 2005. Live Nation later merged with Ticketmaster and is presently valued at $3 billion.
After this he gobbled up a varied bunch of assets - from Elvis Presley Enterprises, TV companion app Viggle and 19 Entertainment, the producer of American Idol.
Dance music is Sillerman’s new interest. Last year the entrepreneur emerged out of nowhere stating he had $1 billion to spend on dance music related acquisitions. His right hand man has been former boxing promoter and Mike Tyson manager Shelly Finkel.
The companies already purchased by SFX may be unknown to readers of Business Spectator, but within the dance music world they are a big deal. SFX’s first deal was to acquire US promoter Disco Donnie Productions. They then acquired online music retailer Beatport.com for $50 million as well as taking a stake in various Miami based club and venue owners. Earlier this year they took a 50 per cent stake in Dutch promoter IDT, who put on the Sensation and Tomorrowland events. Tomorrowland is one of the largest events in the world, selling out 180,000 tickets within minutes and rapidly expanding into new territories.
Dance music has moved from an underground movement to a billion dollar business rapidly over the past decade. The International Media Summit Business Report estimates it is presently worth around $4.5 billion. The largest DJs and performers can earn in excess of $100,000 for a one-hour DJ set, with the A-list superstars capable of earning $1 million in a single weekend for a handful of shows.
Dance music events are significant in size. Australia’s Stereosonic festival, which SFX plans to acquire wholly in an unprecedented $75 million deal, will move to a two-day format in 2013. With a ticket price of $199 it is likely the event will generate over $40 million purely in ticketing revenues this year. Add to this food and alcohol sales deals, sponsorship and ancillary revenue and the event should easily generate $50 million over five events. The audience is diverse, young (generally aged 20-25) and as loyal to the festival brand as it is to the talent that headline the event. Stereosonic is indicative of other events happening across the world – significant in size, direct relationship with their audience, and large relatively untapped commercial (sponsorship and advertising) potential.
Sillerman has seen this potential and is looking to replicate what he did with Clear Channel events. Buy-up leading event promoters across the globe and, in the process, ideally create the efficiencies that come with a global concern. Sillerman also sees the potential of dance music and events as a vehicle for marketers looking to reach the elusive 18-29 demographic, an audience with incredibly fragmented media consumption habits and reducing use of broadcast media.
For brands looking for a connection with a younger audience, a way they can do this is via associating with events and artists this audience aspire to. In this sense what SFX is doing is more about creating a global youth media network rather than simply a global event company, looking to connect brands to audiences across events, activations, exclusive food and alcohol deals at events, digital channels, music and branded content. This is a build to flip strategy – roll up the companies, establish the infrastructure and process, and sell to another company (or via public listing) to hopefully realise the long-term potential and investment return. In many ways SFX mirrors the approach of most technology companies – build a product that has consumer rapport but let someone else (ie the ultimate acquirer) figure out how to generate profit.
The IPO raised will likely be used to fund future acquisitions, SFX needing a war chest to compete with Live Nation for the remaining large event promoters across North America, Europe and Australia.