Tuesday, February 9, 2016

Breaking Beatport: Examining How SFX Entertainment Destroyed A Beloved Brand

Written by John Cameron — Entertainment conglomerate SFX Entertainment filed for Chapter 11 bankruptcy on Monday – and while anyone with a finger on the palpitating pulse of electronic music knew it was coming, the announcement made for as resonant a sound of the EDM bubble bursting as any.

Electronic music exploded into a full-fledged cultural phenomenon over the past several years, and it took no time for entertainment moguls to notice. Of all of them, though, none moved to capitalize on the rapidly growing industry more quickly than Robert F.X. Sillerman. The entertainment entrepreneur founded SFX Entertainment in June of 2012 and pledged to invest $1 billion in EDM before buying up companies like Disco Donnie Presents, ID&T and Beatport over the course of what Billboard dubbed “The EDM Arms Race.”

Despite his enthusiasm, it wasn’t long before Sillerman’s so-called empire began to deteriorate. SFX’s stock steadily declined in value over the years following the corporation’s 2013 IPO, and took its sharpest dive last year. Due to numerous lawsuits, the cancellation of one festival, and breakdowns which would endanger the attendees of another, in 2015 the value of SFX’s stock dove from a little over $4 per share (roughly a third of its IPO value) down to 11 cents per share, effectively driving the multinational corporation to bankruptcy.

At this stage in the SFX saga, there can’t be an insider alive who disputes the blinding incompetence of Robert F.X. Sillerman.

If that sounds like an exaggeration, remember that the man in question is 67 years old, made his big introduction to dance music by declaring that he cared to know nothing about it – and then played dress up to look like a Bond villain in his Billboard shoot.

Eccentricities like these only account for a short snippet of his illustrious highlight reel of patently poor judgements. Unfortunately, where at first they took the form of laughable faux pas, they would magnify in scope until you could argue that – considering the impact on investor confidence that his running SFX into the ground surely had – if the EDM bubble does finally burst, Sillerman would be more at fault than any single other individual.

The incompetence at SFX’s highest tier of leadership is the very reason the company conducts business with such secrecy. Once you peel back the layers of bureaucracy far enough to observe Sillerman and his constituency closely, though, the unapologetic ignorance with which day-to-day decisions are made gives you a good idea of how a $9 billion company managed to fall $300 million in debt in less than four years.

As innumerable controversies continue to tarnish the company’s already soiled reputation on a near daily basis, its emphasis on confidentiality has become even more rigid. Especially in light of SFX’s bankruptcy filing, those employed by its numerous companies are required to keep especially tight lipped.

However, a handful of sources familiar with SFX’s dealings approached We Got This Covered to discuss the corporation – specifically, the details of its egregious mismanagement of online music marketplace Beatport. Among other things, their testimonies provide a rare window through which the unsavory business ethics of Sillerman and his contemporaries can be broken down, and the behavior patterns evident in the company’s misdeeds paint a startling picture.

The bulk of the sources’ testimonials pertain to SFX’s acquisition and ownership of Beatport, so it helps to know some background on the company. The conception of Beatport dates back to around the turn of the millennium and emerged out of passing conversations between Eloy Lopez, Jonas Tempel and Brad Roulier – the latter of whom would go on to found Beta Nightclub in Denver and tour around the world as one half of DJ duo Manufactured Superstars. Lopez originally approached Tempel in regards to a now obsolete DJ software called Final Scratch.

During an exclusive interview, Roulier told us:

Eloy went to Jonas at The Church [Nightclub in Denver] and said, ‘Hey, this software is really cool, but it’s stupid that I have to record my records into MP3s. Why don’t we build a website that just sells MP3s?’ They kind of hashed over the idea and thought, ‘Oh, well we don’t really know anybody.’ They brought me in because I was a promoter and had a lot of relationships with DJs and labels and artists and things like that.

Around the same time, Pioneer had just begun selling the CDJ 1000s – and enticed by the prospect of not having to lug crates of vinyl from gig to gig, DJs across the world ditched vinyl in hordes. Roulier recalls Josh Wink and Carl Cox to have been among the first major electronic music artists that he saw perform on the new hardware, at which point he realized that a market for MP3s would soon emerge.

Beatport 1.0 was officially launched in January of 2004 and boasted tracks from 79 different music labels. Its early team consisted of contributors like Lloyd Starr, Wyatt Jenkins, Liz Miller and Shawn Sabo – the latter of whom now performs with Roulier as the other half of Manufactured Superstars. Unlike its competition (fly-by-night online resources that went by names like Tracks To Burn, Track It Down and DJ Download), Beatport started out with strong branding elements and forged business relationships that would prove advantageous in the years to follow.

Among Beatport’s early partners was Berlin-based DJing hardware and software developer Native Instruments, and the service also locked in exclusive distribution deals with labels like Get Physical as well as with artists such as Richie Hawtin and deadmau5 (who owes much of his success to distribution deals struck with the online marketplace). Fortunately for Roulier and company, 2004 would also mark the year that Berlin eclipsed London and emerged as the leading exporter of electronic music – and Beatport had a Berlin office. “We became Berlin cool before anyone knew that Berlin was cool,” Roulier likes to brag.

Six years, four updates, and a laundry list of new features later, Beatport had cornered the market for electronic music downloads – and the contemporary EDM movement’s breakthrough into mainstream consciousness (due in no small part to the proliferation of streaming services) allowed the company to usher in its most prosperous era. Dance music quickly became an all-pervasive force in entertainment, and many of those whom had rooted themselves in the earlier iterations of its culture reaped the rewards.

However, as the very streaming services whose trajectory ran parallel to electronic music’s growth began to siphon away Beatport’s customer base, its profits began to plateau. In 2012, the company made revenues of somewhere between $15-18 million, but incurred losses of $2 million. “We brought in a full executive team by then – new CEO, CFO, CMO, all those things,” Roulier says, “so everyone was kind of preparing themselves to let somebody else take it to the next level.”

The new Beatport CEO, Matthew Adell, was forced to choose between downsizing or seeking out investment capital to reinforce the company’s assets, and it just so happened that during that time SFX Entertainment was buying electronic music brands with reckless abandon. In February of 2013, SFX reportedly purchased Beatport for just over $50 million.

At this point in the story, it bears mention that when Sillerman founded SFX and made his intentions to essentially monopolize the EDM industry known, he promised to implement a laissez faire approach and allow those in charge of each company to run their businesses as usual but with additional resources. In the case of Beatport, that’s the exact opposite of what he did.

As if having foreseen the impending disaster that was about to unfold for the company, Adell resigned shortly after signing the acquisition agreement and founding programmer Lloyd Starr took his place. Having been involved with Beatport since the beginning, Starr was personally invested in the success of the company and appeared willing to to make the best of the transition.

Jim Stout, widely regarded as the authority on sample packs and the GM of Beatport-owned music producer resource marketplace Sounds/To/Sample, was also optimistic at first but would eventually change his tune.

A source recalled:

One day, Jim Stout and I were having a conversation. This was after the SFX buyout, and I contacted him and asked, ‘So how is that going to affect things now that Beatport’s been bought out by SFX?’ He was like, ‘Nothing is really gonna change as of right now. Things are pretty much gonna stay the same. Everybody’s gonna keep their jobs – it could just mean really good things.’

But one day, we were talking about SFX for a while, and he just said, ‘I’m sick of Sillerman, I hate my new manager, and I’m sick of all the things from up top. They have no idea what they’re doing.

Stout’s attitude might have had to do with Sillerman having gone back on his word less than a year after the acquisition. In December of 2013, Beatport laid off a staggering 20 employees in their Denver offices and six in their San Francisco offices. According to TechCrunch, who referred to the incident as the “Beatport Bloodbath,” SFX corporate had considered terminating the San Fransisco employees over a conference call, but opted to fly HR reps over to break the news in person out of fear that “employees would destroy the office if not supervised.”

Up to now, the following accounts of Beatport’s operations after the layoffs were almost entirely kept from the general public. A source familiar with the goings on of SFX explains that by 2014 Beatport was “running on autopilot” and that despite the platform’s sizeable technical infrastructure, SFX only allocated enough resources to the aging systems it inherited to perform only the most crucial fixes and keep the store running.

“It is my belief that the first mistake SFX made after purchasing Beatport was laying off their engineering departments,” a source said, pointing out that a skeleton crew of systems engineers and developers were tasked with employing quick fixes for the site’s constant breakdowns. In the past, the company’s 30-person staff allowed them to work towards long-term goals as well.

After liquidating their staff, SFX’s out-of-touch leadership made a mockery of the creative side of Beatport as well. In April of 2014, a source who released music through Beatport told a particular story in which he recalls SFX to have played a role in what would end up being one of the festival season’s most poorly received artist projects.

They pulled me into the Beatport offices, and they said, ‘We have a high-paying opportunity for you,’ the source said. “Long story short, it ended up being them trying to get me to ghostwrite for Aiden Jude.

Aiden Jude was a 10-year-old DJ who would end up receiving more hate online for having a DJ career handed to him than any full-grown adult DJ likely has in their entire career. His debut release, “Tonight,” elicited an uproar from music enthusiasts since Jude’s name was on it and it was obvious he didn’t write it.

“They were like, ‘Look, we’ve got this kid, and his dad is a big potential investor,’” the source says. They later learned that Jude was the son of none other than Eddy Shapiro, a New York City real estate mogul who founded the firm Nest Seekers International. Essentially, Shapiro was willing to pay absurd sums of money to manufacture his son into an EDM child star – but what’s almost more despicable is that nobody present understood electronic music culture well enough to know how poorly it would go over.

While the Aiden Jude flop certainly didn’t yield as big of a negative social footprint as the layoffs did, it was nonetheless a symptom of SFX’s general lack of integrity. In Beatport’s early marketplace, content was king, but as the platform rolled out sponsored promotion packages (such as the one purchased by Shapiro to turn Jude into a famous DJ), the best distribution deals went instead to the highest bidder, which dealt a blow to the brand’s credibility. Being that the service’s remaining user base consisted predominantly of DJs and producers who once regarded it as a musical authority of sorts, the move would only put more distance between Beatport and its customers.

In a broader sense, every blunder made by SFX reinforced that the executives making decisions on Beatport’s behalf didn’t care enough about the outcomes of the business to acquaint themselves with electronic music – or even take advice from the very entrepreneurs they said would retain control.

“The board didn’t know anything about EDM,” a source said, “and every conversation that I recall where [Stout] was talking about his interactions with Sillerman, they boiled down to ‘I don’t know anything about electronic music, I don’t care, I just wanna own Beatport,’ basically.”

The series of SFX oversights that would prove most detrimental to Beatport, however, was the board’s blatant disregard for the technical logistics necessary to plan and execute updates and add-ons to the existing platform.

In 2014, SFX tasked its engineers with a rebuild of the Beatport store that they would brand as “Beatport Pro.”

Given the size and poor condition of the existing Beatport infrastructure, the company’s engineers simply could not take the necessary time to familiarize themselves with its architecture well enough to properly execute the Pro build in the time frame SFX allotted them.

“SFX is not a technological company,” a source said. “Because of that, they don’t understand that when you ask for something to be built more quickly, you get a shittier product.”

In a manner of speaking, Beatport Pro was built on “on top” of Beatport Classic, not into it. In programmer lexicon, the term “feature parity” refers to the principle that a system should be able to perform all the same functions as those with which it competes or is made to replace.

A source asserts that despite the programmers’ best efforts, Pro did not have full feature parity with Classic. The Classic architecture’s design made it difficult to integrate with Pro, but none of the engineers understood the classic systems well enough to provide a viable solution, and those who could had already been laid off.

On February 4th, 2015, Beatport geared up to take the Pro store live, after already running well behind on the ambitious deadline set by SFX. The switchover had been scheduled for early morning, but ended up being pushed back to the late afternoon. When they finally flipped the switch to split classic.beatport.com and beatport.com into two discrete platforms, the entire system nearly went down.

Because the classic architecture had been forced to bear the processing load of the Pro site instead of a more conventional update to the underlying architecture, Beatport’s staff scrambled to quickly diagnose issues and prepare fixes in an attempt to keep the systems online and stable. Immediately after the Beatport Pro launch, users began complaining of sluggish performance and a poor user experience on the Pro site, demanding a return to the Classic site.

SFX corporate stood on the sidelines and avoided issuing any public statements, even though by all logic they should have been the ones to take responsibility for the new product. As a result, shortly after the Pro launch numerous employees began thinking of planning exit strategies from the company. A source said, “They were just jumping ship and leaving to work for different companies.”

Even if you could tolerate the website’s functional issues, splitting the service into two separate platforms was bad for business. Users couldn’t navigate from Classic to Pro or vice-versa, meaning that if a customer didn’t already know that there were two URLs which corresponded to two platforms then they would only access the half of the library available in the site they visited.

After months of constant damage control with scarce improvements to Beatport’s functionality, SFX hired on yet another new crop of programmers. The board made an announcement that left the remaining employees in shocked disbelief. Demonstrating just how little they had actually learned from the Pro site’s catastrophic launch, the executives announced plans to also build a streaming service into Beatport’s existing interface.

A source observed:

Now we’re starting to establish a pattern in the way SFX deals with technology. They bring on an engineering team, build a new product on top of architecture that the team building the product does not understand, launch the project prematurely without feature parity – or in a state before which the product could be considered consumer ready – and then they let go of all those engineers.

Indeed, the engineers would take the streaming service live in the summer, requiring Beatport’s programmers to integrate parts of it with the Classic architecture. While the launch of the new feature didn’t turn out nearly as anomalous as that of the Pro store, the Classic architecture was then supporting the Pro store and portions of the streaming site – and what SFX’s executives did next would prove even more suspicious than any of their previous decisions.

Shortly after the launch of the streaming site, SFX rounded up all of the remaining engineers from the Pro build as well those who participated in the streaming service build and spun them off into a third-party agency called Postlight, which itself was founded by engineers previously employed by SFX.

A source speculated that SFX decided it would be too expensive to keep the engineers on payroll but sought to avoid another media circus like the one that resulted from their first round of layoffs.

“How do you get rid of 10-30 engineers without any negative press?” they posed. “You don’t fire them, you have somebody higher up create a new agency and just transfer your engineers to them so that they’re never out of a job and they never have to go looking for a job.”

Around the same time, two more Beatport fixtures finally reached their threshold. It might not have surprised too many of Stout’s colleagues that would eventually resign – he certainly didn’t keep his disdain for Sillerman and his cohorts a secret from the rest of the staff – but the resignation of Lloyd Starr felt like the end of an era for those who were more personally invested in the company culture.

The last of the founding programmers (whom had even been fired and rehired during his time as CEO and still stuck with the company), Starr’s unyielding dedication to the Beatport brand played no small part in fostering the team mentality that held what was left of the brand together, so the thought that such a stable personality losing enough faith in the company to quit shocked the remaining employees.

No matter its function, a company is defined first and foremost by the people who make it up – and to many, the day of Starr’s resignation from his position of CEO might as well have been the day that Beatport had finally broken.

If Beatport was broken, though, SFX was about to shatter into pieces. September of 2015 saw SFX’s stock value plummet even further, and because Sillerman had also failed in his attempts to take the company private again, SFX-owned promotional company ID&T was forced to cancel the inaugural edition of One Tribe, a festival which the company had eagerly anticipated as a means of kicking off their expansion into the West Coast market.

By the end of the month, though, everyone working for SFX Entertainment forgot all about One Tribe. The disaster that befell the 2015 edition of Atlanta, Georgia festival TomorrowWorld would elicit a deluge of public outcry heavier than the rainstorms which were supposed to have caused it.

TomorrowWorld’s organizers (also ID&T) cited rainstorms as the cause of not only massive and inconvenient mud puddles on the festival grounds, but also transportation breakdowns that endangered thousands of attendees by leaving them stranded near the venue overnight as well. When inconsistencies in their story began to surface, spokespeople for ID&T issued public statements littered with vague claims which they carefully worded to imply further that the organizers had been in no way responsible.

To this day, as they are all employees of SFX-owned companies, those who worked behind the scenes on TomorrowWorld 2015 nervously adhere to the vow of silence imposed upon them. Nonetheless, rumors began to permeate the veil of secrecy – like that SFX couldn’t pay one or more shuttle drivers, or that the page of the festival organizers’ contingency plan dedicated to the possibility of rain storms had been left blank leading up to the show.

While it may still take much longer for actual accounts of what transpired on the production side to reach to the public, either rumor would fit the track record for the irresponsible business practices that SFX has established for itself. Even without the truth reaching the surface, its reputation throughout the industry suffered to the point that it lost partnerships with Spotify and TMWRK in December, effectively bookending an abhorrent 2015 for Sillerman and his constituency.

As of the bankruptcy filing, it has come to light that Robert Sillerman will no longer serve as CEO of whatever form a restructured SFX Entertainment might take, and will serve as a chairman on the board of directors while they move to elect a new one. However, it’s safe to assume that had the decision been left up to those who run the various companies owned by SFX, Sillerman would be excommunicated from working professionally in the EDM industry altogether.

Anyone with a personal investment in electronic music must have recognized the potential for debasement of its culture as soon as Sillerman arrived on the scene. In his 2012 Billboard shoot, a handkerchief tucked in his pocket had the words “Fuck off” embroidered onto it, and in the accompanying interview it was a “universal statement” he wanted to make.

He elaborated:

I don’t know whether it’s directed at a specific individual, or a type of individual, or more as my interpretation of Albert Einstein’s fabulous quote: ‘No problem can ever be solved from the same level of consciousness that created it.’ And that’s what I’ve done my whole life. So what he said so eloquently, I say, ‘Fuck off.’

Looking back on the past four years, you have to give Sillerman credit for one thing: “Fuck off” perfectly sums up the way he’s run his company – and after the damage that’s ensued as a result, the sentiment is quite universal.

Under the circumstances, it would behoove the aging mogul to go back and reinterpret Einstein’s quote. SFX Entertainment has become EDM’s biggest problem, and his “level of consciousness” should be as absent as possible from the company’s operations moving forward.

Whether or not all companies presently owned by SFX will be sold or remain under its ownership as part of the restructuring agreement remains to be seen, but thankfully, most of them appear optimistic about their post-SFX future – even Beatport.

A post to the download platform’s website following the announcement of SFX’s bankruptcy filing assured its users that its company operations were “business as usual.” Beatport appears to be in the process of rolling out a version of its services tailored to the Dutch market, as well as a new file format for Native Instruments called Launched Stems, among other things.

When Starr stepped down as CEO of Beatport last year, his position was filled by former SFX COO Greg Consiglio. Consiglio’s transfer was initially met with skepticism from the company’s understandably jaded employees. Their previous experiences with SFX gave them reason to doubt that one of the floundering corporation’s former executives would be any better equipped to make decisions on the company’s behalf.

Unlike the previous SFX officials who played a role in the company’s business operations, however, Consiglio appears to have taken a more involved role in the outcome of Beatport. He’s known for taking the advice of the company’s employees, and because he served on SFX’s board of directors, SFX takes his advice – resulting in a period during which the online music marketplace’s employees have been able to reclaim their company and take the first steps towards restoring it to functionality. At this point it’s in Beatport’s best interest for another company to buy it from SFX Entertainment, and at the rate it’s going that’s likely to happen sooner than later.

Just how services like Beatport and the manifold streaming platforms used by music consumers have earned the market’s favor in a way that the big four record labels can’t control, it’s worth noting that the music itself also spreads in a way that is seemingly random. A fluid cultural phenomenon that resists the deliberations of opportunists seeking to profit from it financially, electronic music in all its iterations is the soundtrack to the information revolution. Whether or not the EDM bubble has or will burst, the music itself isn’t going anywhere.

As far as Roulier is concerned, even though he’s been out of the company for years he doesn’t anticipate Beatport going anywhere, either – even if he attributes much of the company’s success to it filling a niche that opened up fifteen years prior. “We made a product that the market wanted,” he said. “With the transformation from vinyl to digital music, there had to be a content provider that was really cool and had all the good stuff. It was just a time and a place.”

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