Why The SFX IPO Is Bad For EDM

http://www.forbes.com/sites/bobbyow...is-bad-for-edm/

SFX Entertainment’s recent IPO seems to have met both some backlash and bad timing, as it’s stock continues to struggle to come back to its original IPO price of $13 per share. Part of this is due to the stock market having a case of the yips over our boys in Washington being unable to come together to fund the government, so there’s your bad timing. The other part is due to the IPO stock offering being on the high side to begin with, much like the Facebook IPO last year.

But the fact that we’re even talking about the stock price rather than the company’s impact on music is the problem here, and it’s a symptom of a larger malady that pertains uniquely to the entertainment business. Once a company goes public, it becomes beholden to the stockholder and not the customer, and that’s bad for a company based around a totally creative product. In this case its music, more specifically electronic dance music (EDM), where SFX has made its big play.

Just a refresher on SFX – it’s the brainchild of chief executive and chairman Robert Sillerman, who saw how EDM was becoming the next big trend in music and wanted to cash in on its popularity. The initially company went on a buying spree, rolling up several event producers as well as online music store Beatport, and was planning on using the IPO money for additional acquisitions of other major EDM events.

It’s great when someone has so much confidence in a part of the music industry that he invests heavily in it and then convinces Wall Street to invest as well. Unfortunately that also brings about a self-fulfilling prophecy, meaning that when big money comes into something artistic, the art inevitably gets squeezed out in favor of something safer and therefore deemed more likely to result in a profit (although this rarely seems to happen).

We’ve seen this scenario played out before in the entertainment business, most notably during a period that I call Music 1.5, or the era just before the introduction of online music. As I outlined in my book Music 3.0: A Survival Guide To Making Music In The Internet Age, it was during this period that the CD was introduced and record labels became cash cows when consumers rushed out to replace their personal libraries with the new and more expensive digital version of the music they already owned. This meant that CDs were flying off the shelves with minimal production or marketing expenses, so the profit margin was unusually wide. Then the labels got a totally unexpected gift of a new marketing avenue when MTV launched, and sales soared to greater heights than ever before.

During this period from 1982 to around 1990, so much cash flowed into the record label coffers that suddenly both Wall Street and Madison Avenue wanted a piece (they took almost zero interest in the industry previously). Before you knew it, relatively tiny Warner Bros was purchased by corporate heavyweight Time Inc, Universal by Matsushita (then later by Vivendi), EMI by Thorn Industries, and Columbia by Sony (the other two major labels at the time were Polygram, which was already owned by the Dutch electronics company Philips, and BMG, which was owned by the German giant Bertelsmann AG).

The problem was that many of the street-wise music execs that made the industry great were replaced by corporate suits more concerned with quarterly profits than the music and the customers of the time. Prior to this period, many of the acts that we consider legends today took multiple releases to break through with a hit (think Fleetwood Mac, Bruce Springsteen, David Bowie, and Tom Petty and the Heartbreakers, to name just a few). But now the leash became a lot shorter since quarterly profits were of the utmost importance and if an act didn’t hit right away, it could be one album and done. The business changed for the worse in that era because of this attitude, and it’s still something that we’re dealing with to this day.

That’s why the fact that SFX went public in the first place is much more important than where its stock price sits. Once big money enters the picture, the art suffers.

Some in the industry think that EDM has already peaked, and that a major player trying to monopolize the industry will just hasten its decent, spiraling up costs while homogenizing the product. Undoubtedly some will get rich along the way (a few of the bigger DJs are doing so already), but music consumers will most likely be poorer for it as a result.

But this is how the music business of the last 30 years has worked, so there’s no need to weep. It’s just time to move on to the next scene and enjoy its blissful innocence before the money finds it.

___________________

"In a world of illusion you only see what you feel"