The $6.9 Billion Bubble? Inside The Uncertain Future Of EDM – Forbes
by May 30, 2024EDM, a $6.9 billion global market predicated on large-scale live events, is about to change. (Photo… [+]
Yesterday marked the deadline for publicly traded electronic dance music conglomerate SFX Entertainment to find a buyer in its long-delayed sales process. With no clear bidder in sight, SFX’s future—and that of its many EDM festivals, including TomorrowWorld and Electric Zoo—looks uncertain.
You would not have known it from the scene at last month’s TomorrowWorld outside Atlanta, GA, where some 160,000 people camped, danced and found themselves rolling in mud. With over 170 acts across eight stages and three days, the festival was a beautiful mess of endless drops and unexpected inclement weather, which turned its sprawling grounds into a 500-acre mud bath. Patrons attempting to leave on Saturday night were stranded on their way home, forcing organizers ID&T to limit activities on the third day to the 40,000 campers already on site–and issue costly rebates on parent company SFX’s behalf.
“We don’t have enough time on this call to talk about the mistakes I made,” SFX CEO Robert F.X. Sillerman told FORBES in August, discussing the company’s dramatic fall on public markets after listing its shares on the Nasdaq at a $1 billion valuation two years ago. Since 2013, the company has sold nearly $300 million in bonds to finance its operations and acquire EDM festivals around the world.
“This year, there are 88 festivals that we anticipate doing,” said Sillerman who heads up the conglomerate which owns festival-throwers including TomorrowWorld’s organizer ID&T. “And there are between 105 and 110 scheduled for next year.”
Whether those events happen remains to be seen. Once a fast-growing industry, EDM’s build up has slowed considerably as the market matures. In 2014, the top ten acts earned $267.5 million, but that was only 11% more than they did in 2013. Over the past year, the total is $274 million, up just 2.5%. Overall market revenue grew 37% in 2013 compared to 12% in 2014, according to Billboard. Dance’s slice of U.S. track sales was flat at 4.6% last year, Nielsen reports.
As this summer festival season concludes, it’s clear that the electronic dance music industry, a $6.9 billion business predicated on large-scale live events, is about to change.
“It’s gotten a little saturated in the last couple of years,” says Insomniac Events founder and CEO Pasquale Rotella. One of the first U.S. rave promoters, he got his start throwing illicit West Coast parties and now runs some of EDM’s biggest events including Electric Daisy Carnival Las Vegas, a 400,000 person three-day festival with versions in New York, London, and Puerto Rico. Rotella and his competitors have witnessed a rise in the number of festivals in recent years thanks to the arrival of European transplants such as Dutch ID&T, which runs Belgium festival Tomorrowland and its U.S. offshoot, as well as an influx of smaller local promoters springing up in towns from Connecticut to Ohio.
“I do think the West Coast is saturated, the East Coast is saturated in some areas, but the middle of America could use some festivals–not on the scale of what people are striving for,” Rotella notes. Rotella believes plenty of cities could support events for 10,000 people, but promoters who want to throw a 50,000-person festival ought to reconsider–unless they can turn it into a firework-flinging destination festival.
“[Las] Vegas doesn’t have enough people who live in the area to support a festival of [EDC’s] size,” explains Rotella, who points out that most EDC Las Vegas attendees are out-of-towners. “You could see any of the artists that play EDC anytime because they tour everywhere, so it’s definitely the whole package that makes people come that weekend.”
Waiting for Tomorrow
Like EDC, TomorrowWorld revelers travel from far afield to make the festival itself a destination. Promoters seemingly spare no cost to create an otherworldly environment: stages spread between several lakes, water adornments include illuminated plastic flower buds which rise above the surface and change color. Beside them, plastic fish periodically spray streams of fire which radiate heat to the people walking across the bridges. On land, giant mushrooms line pathways.
Though the crowd is mostly Caucasian the fashion is multicolored: neon tutus, draped glowstick necklaces, underwear as outerwear. Muscled men without shirts sip from CamelBaks with bandannas tied around their heads, while topless women in furry boots once white find themselves sidestepping puddles. The air practically drips with PLUR–the rave slogan of ‘Peace Love Unity Respect.’ A man wearing a beaded facemask emerges from the dance pit and offers his fist in a silent bump to two shirtless strangers as he departs. Onstage during a set by duo The Chainsmokers, a woman proposes to her girlfriend. In the food court, I meet ecstatic attendees from New Jersey, Germany and Texas.
“I can tell you’re from New York because you’re wearing black,” a flat-capped woman says to me as we shuffle to beats by Jonas Rathsman on a dancefloor suspended above a lake. “Do you have any K?”
Jake Udell, manager of lineup mainstays Krewella and Zhu, agrees that destination festivals remain major draws for hungry EDM fans, especially broad genre weekends such as Coachella that he says are now eating into the electronic event market by booking DJs.
“On the electronic music festival front, there are a couple that have insulated themselves during the plateau, like EDC and Ultra,” says Udell. “I don’t think those festivals will struggle but seeing festivals pop up in every single city across America, just dance music–I think those are struggling.”
A reveler at the first TomorrowWorld in 2013 (Image credit: 2013 Getty Images)
“Expenses Go Up”
Even with a solid number of attendees, festivals have become increasingly expensive to throw. Though opening acts might cost under $5,000, headliners such as Tiësto and David Guetta can regularly charge upwards of $500,000 for a festival slot. Those fees have been rising: In 2012, the top ten acts earned a combined $116 million but that number more than doubled the following year as clubs and festivals around the world threw increasingly larger piles of money at the biggest DJs.
“I think the market will correct themselves so you won’t see over-payment for artists, because artists are not getting that same fee in the marketplace as the festival,” says Udell. “The festival was willing to pay $500,000 or $1 million for an act that was worth a quarter million [dollars].”
Production costs have also soared in recent years as festivals attempt to outdo each other with firework displays, extravagant stages and lavish light shows. Though promoters declined to offer profit specifics, SFX’s public filings provide a guide. Its most recent second quarter report showed revenue of $121 million, 81% ($98 million) of that from ticket sales and sponsorship at live events such as Life In Color Austin, Rock In Rio Vegas and Electric Zoo Tokyo. Service costs, comprised of talent and production payouts, came in at $86 million–just $12 million less than event revenue. SFX reported an overall operating loss of $27.8 million.
To estimate the balance sheets of a particular event: If some 40,000 attendees pay upwards of $400 to camp and 15,000 purchase $350 3-day passes, ticket revenue circles $20 million. Add in sponsorship from the likes of Budweiser and T-Mobile, plus concession sales, and revenue likely inches north of $30 million. But when lineups cost close to an estimated $10 million, with the likes of David Guetta, Tiësto and Kaskade notching top billing, and production costs near that, the profit margin quickly narrows.
“I’ve partnered in or created 14 different festivals that would be in the 40,000-plus range in 2015 and I’ve always seen attendance numbers go up, but expenses go up as well,” says James “Disco Donnie” Estopinal, cofounder and CEO of Disco Donnie Presents which is now owned by SFX. Estopinal, who partnered with Rotella until 2012, was key in spreading club shows and festivals throughout the Southern U.S. including New Orleans, Orlando and Dallas.
“Even this year festivals continue to grow. Are they growing at the 30% [rate] they were 2-3 years ago, no, I don’t think so, but they’re still growing at a nice 15-20% a year,” says Estopinal, suggesting attendance remains buoyant.
Rotella believes production costs for festivals have plateaued, and that promoters are now getting creative with their dollars. But between paying acts and building stages, the multi-million dollar revenue created by charging $300-plus per ticket is quickly swallowed up, especially when the appetite for newness is larger than the increased attendance.
Corporate Cash
For festivals to profit, they need support from advertisers–not always an easy pitch for events born after raves targeted by the Illicit Drug Anti-Proliferation Act, a 2003 bill aimed to prohibit individuals from spreading controlled substances.
“It was impossible to get sponsors back in the day for any event,” recalls Rotella, who says major corporate sponsors started getting involved around 2012.
“We were contacting them, they weren’t calling us back–now they are contacting us and we are having people bid against each other,” agrees Estopinal.
Nowadays, brand sponsorship offers cash injections that range from tens of thousands to seven figure deals, depending on the scope of the sponsorship and the size of the festival. A sponsored stage at a 150,000-person festival warrants more corporate dollars than a tent for handing out samples at a 30,000-person event, for example.
Estopinal believes brands are not deterred by the frequency of drug-related deaths (there have reportedly been at least five fatalities in the last four years at EDC Las Vegas, while two partiers died at the 2013 New York Electric Zoo alone.)
“I think most of the brands that are getting involved are involved in other rock and country festivals already. They have the same issues as dance music festivals, it just doesn’t get as much publicity,” says Estopinal. “I haven’t heard anybody mention that part of it in the long time.”
Despite the presence of eager fans and brand cash, the festival business remains a tough one to make money in.
“When you go into a first year festival you are going to take a loss if you want to do it right,” says Estopinal, citing the challenge of building a new market. “The second year hopefully you come close to breaking even and by year three you should be profitable–if it’s not then they don’t always work.”
Rotella agrees. “I’ve done events that have not made money for many years,” he chuckles. “Insomniac was a nonprofit organization for 15 years but now things are legit. I did it for my love and passion… I was probably crazy for doing it as long as I did.”
As seasoned promoters whose businesses rely on live events, both Estopinal and Rotella believe EDM shows in the U.S. will weather the forthcoming drop, and continue to look overseas.
“Festivals will fluctuate in size, but what I think will allow people to survive those fluctuations is innovating,” says Rotella, explaining that large-scale live electronic music events nearly stopped completely in 1992 but returned in the mid ’90s. He is optimistic: “We’ve been through a lot of those and we always just adjust what we’re doing and prepare for the bouts so we can win people over and show them a good time again.”
Indeed, dance music has been a part of American culture long before it proliferated from warehouses and clubs into multi-million dollar festivals. Until more of these live events start making money, audiences should brace themselves for fewer outings.
“I definitely think the market is going to correct itself and the blockbusters are going to win,” agrees Udell. “A lot of other ones that came up over the last three years either by independent promoters or by the big boys, the numbers are not there and they are not surviving.”
Back in the artist’s lounge at TomorrowWorld, an eager fan approaches a red jacketed and sunglasses-wearing DJ Snake. “Never turn down,” he says, reaching to shake the French hitmaker’s hand.
“I won’t, man,” DJ Snake replies, heading out to play his set with his black-clad crew in tow. But with the looming festival downturn, there may not be a choice.
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