by : Business, December 2013, Featured Articles

The Economics of EDM

The Economics of EDM

The EDM industry has exploded into a lucrative business platform. Attendance at the top twenty global festivals jumped from 1.9 million in 2009 to over 3.4 million in 2013. As well, digital sales of recorded music, according to the International Federation of the Phonographic Industry, IFPI, grew by 9.8% in 2012 and much of this, it is suggested, is due to EDM (the 2013 data is likely to be even more impressive). This and other figures are quoted in a recent econometric study that may have gone out on a limb, by giving EDM a worldwide value of  $15-20 billion–a number that, if true, would exceed global sales of all recorded music.1 Yet, major players at EDM festivals apparently earned nearly $4.5 billion last year.2 Overall, and as will be seen from other data, it is difficult to challenge the assertion that EDM is quickly becoming the music of the millennial generation and that its ascent into the mainstream will be predictable.  Even in business circles, the medium is now often referred as the “next generation of music”.3

Driven by ebullient revenues, EDM is becoming better organized too.  The business now hosts two major conferences:  The International Music Summit (IMS) in Ibiza, Spain, and the EDMbiz in Las Vegas. Moreover, it has produced its first lobbying group, the Association For Electronic Music (AFEM).  The creation of AFEM comes in the wake of EDM’s emergence, especially, from the U.S. music underground—thus, the new EDMBiz conference in Las Vegas. AFEM will meet for the first time this spring at the Winter Music Conference (WMC) in Miami. The WMC already bills itself as the oldest and largest EDM industry gathering of its kind in the world, and AFEM is paying its respect.  This newly formed nonprofit trade group aims to strengthen and further the genre by bringing together artists, managers, labels, promoters, publishers, and broadcasters.  But one of AFEM’s first tasks will be to oversee the collection and aggregation of data to better estimate the global economic value of Dance (which, in spite of the econometric study cited above, is still lacking).

The Board of AFEM, incidentally, is truly international, and led by the Briton Ben Turner, IMS co-founder, and Kurosh Nasseri, a US entertainment attorney and Grammy Trustee.  In addition, the board of advisors represents a vast panel of industry personnel, including (i) James Barton, recently appointed president of Electronic Music, Live Nation; (ii) Patrick Moxey, Ultra Music founder and President of Electronic Music for Sony Music, and (iii) Tom Windish, founder of the famed Windish Agency.

Wall Street 

It is noteworthy too that Wall Street investors have recently turned a sharp eye to the rave industry and the young generation of consumers behind it. SFX Entertainment (SFXE) went public in October with a $260 million share offering at NASDAQ that helped the company acquire major festivals and promotional companies across Europe and the United States. This is history in the making, for it is the first instance of a flotation that acquaints investors with EDM. And as SFXE put it at the time,  we view [the electronic music culture] as a global generational movement driven by [a] rapidly developing community of avid followers.”4

Shares prices have since fallen by nearly a fourth. A decline of investor confidence during the government shutdown did not help.  Especially troublesome, was the release of SFXE’s financial records showing summer losses from the early closure of the Electric Zoo music festival in New York City due to two drug-related deaths (the first drug-related EDM festival closure ever).

Nevertheless, the prospects for SFXE could change for the better. Robert F.X Sillerman, media mogul and erstwhile founder of SFX, has placed $1 billion in acquisitions behind the electronic music industry as he leads the company’s development and expansion in that area  (Sillerman had sold SFX in 2000 to Clear Channel which then merged with Live Nation; he is back in control with a 57% ownership stake)5. The company is in negotiations with up to fifty other EDM-related businesses, and has tentative agreements with about one third of them. Sillerman has said that his long-term plan involves “using the Internet to connect fans of dance music.6

Mega Festivals 

The growth of EDM’s festival marketplace has been facilitated and heavily influenced by technology and the digital age. It is all the more remarkable given the decline in attendance numbers at other genre festivals and concerts. And it is not just a case of more attendees; the number of new EDM festivals has risen by a third. Furthermore, the genre reports a festival audience of over 3.5 million people between the ages of 18-35: this EDM crowd is arguably the most marketable in history and one that can be depended on for a very good level of disposable income.7

Live Nation, the largest concert promoter in the world, and now a rival of SFX, sees electronic music festivals as having the greatest growth opportunity. Coachella – which stands as one of the top-ranking music festivals in North America – brought in 405,000 people over the course of two-weekends.8 Baauer, Pretty Lights and fifty other electronic musicians were some of the major attractions at this year’s festival. Over the years, EDM has transitioned from having a presence at Coachella to artists becoming headlining acts. The festival generated over $47 million in revenue for 2012 and 2013; impacting the local California economy with $20 million in taxable sales over a nine-day period.9 Miami, FL has also benefited from the rise in electronic music festivals, hosting the Winter Music Conference for the 28th consecutive year. Ultra Music Festival, also in Miami, booms with over 165,000 attendees and generates in $79 million in net tax revenue (it brought in another $10 million in state and local tax).10

Future of Industry

As the rapid expansion of electronic music and festivals continues, big business is recognizing the impact the genre is having on the industry in spite of the recent drug -related deaths. Concert promoters, for instance, are being pressured to produce even bigger and better festivals. While the demand to book the best acts, produce extravagant visual shows, and feature state-of-the-art sound continues to climb, so does the price range for festival tickets. Last year, Ultra Music Festival offered multiple days passes starting at $399 with VIP access quoted at $850.11

The EDM genre and festival market are both a part of a global movement that is breaking boundaries across a variety of music platforms. It is telling that Last.fm reported an 80% decrease in its Hip Hop listeners within the last year but a doubling of its EDM base.  This sea change in listening habits is supported, as was shown, by other data. What is noteworthy is that deep-pocketed financiers seem to appreciate the special nature of the moment and are prepared to skirt at last the risk of a direct investment in a music form.

By William Kiendl

 

Endnotes

1. Langdon, John D. “Electronic Dance Music (EDM): The Digital Panacea.” An Economectric Market Study of Electronic Dance Music Market and Culture (n.d.): n. pag. Rpt. in Massive Advisors. By Jennifer C. Lai. New York City: Massive Enterprises, 2013. 1-3. Web.

2. Langdon, John D.;  op. cit.

3. Mac, Ryan. “Tiesto And The Evolution Of The Electronic Music Business.” Forbes. Forbes Magazine, 02 Aug. 2012. Web. 01 Dec. 2013.

4. Gara, Antoine. “SFX Entertainment Unveils Earnings Minus Electric Zoo Drug Fiasco.” The Street. The Street, 22 Nov. 2013. Web. 01 Dec. 2013.

5. Sisiaro, Ben. “A Concert Mogul Is Betting on Electronic Dance Music.” A Concert Mogul Is Betting on Electronic Dance Music. New York Times, 5 June 2012. Web. 1 Dec. 2013.

6. Mac, Ryan. “SFX Entertainment To Take Electronic Dance Music To Wall Street With IPO.” Forbes. Forbes Magazine, 28 June 2013. Web. 01 Dec. 2013.

7. Langdon, John D.;  op. cit.

8. Horseman, Jeff. “Coachella: Goldenvoice VP Talks about Festival’s Impact.” The Press-Enterprise. PEcom Blogs, 25 Sept. 2013. Web. 01 Dec. 2013

9. Godard, Thierry. “The Economics of Electronic Dance Music Festivals.” SmartAsset Blog. Smart Asset, 22 Aug. 2013. Web. 30 Nov. 2013.

10. Thierry, Godard; op. cit.

11. Sky Lab. “Tickets.” Tickets. Ultra Enterprises, Inc., n.d. Web. 04 Dec. 2013.

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