Beatport’s Sale: Playin’ with the Numbers

Ever since Beatport’s sale was announced a few weeks ago, I’ve wanted to dig into the numbers a bit. I’m always curious about what could be found in these kinds of deals. So, please come with me on a quick journey of over analyzing.

Since 2004 Beatport has dominated the sale of EDM in digital form. It literally has been the iTunes of EDM. Though many competitors exist, not one can put a dent in the name recognition or the market share. The perception of how big Beatport really is truly ingrained in our EDM culture and somehow that happened without any (or at least many) of us having seen sales estimates or financial reports. Much like AOL’s purchase of Time Warner in the late 90’s, we don’t have any real evidence that Beatport is as big as we think it is. Despite that all that, SFX Entertainment purchased Beatport for some amount around $50,000,000. And now, we start to see some numbers.

Perception vs Reality

In some ways, numbers are meaningless. As I mentioned, AOL purchased Time Warner in the late 90’s. How? Based on the perception of what it was worth. What was it really worth? Nowhere near enough to actually purchase Time Warner. I remember back when it happened that I couldn’t find anyone under the age of 45 who was still subscribing to AOL and I couldn’t find anyone anywhere who wasn’t using the free AOL sign-up CD that came in the mail each week as anything other than a coaster. To me, that was all the evidence in the world needed to say the AOL buyout of Time Warner would be a mistake.

In that case, you had two competing perceptions of the company.  On one hand you had AOL showing subscriber numbers and on the other you had the people who should be subscribing based on their marketing efforts wondering how they were still in business.

To be fair, I don’t know if that’s the case with Beatport. Everything I’m writing here is speculation to some degree or another. Take everything I write here as a grain of salt. Do your own research. Comment below on what you find if you like.

OK, Let’s Go Play with Some Numbers.

Five significant numbers have been revealed with the buyout. First, Beatport sold for around $50 million. For the sake of easy math, we’ll use $50,000,000. Second, Beatport has about 40 million users. Third, the average user spends $17 per sale. Fourth, the average customer spends an hour per session searching their catalog. And lastly, Beatport’s quarterly traffic over the last year (after their redesign) has grown by 31 percent to roughly 5 million visitors a month.  (Digital Music News and NY Times)

The first thing that I notice is that on the surface Beatport was sold at a very low price. If Beatport was sold for $50 million and there are only 40 million users, basic math tells us that it only $1.25 per user. That’s less than the average price of a track on Beatport. To me, that seems a bit low. Factoring in the 5 million visitors a month and the assuming that 80% of them actually make a purchase, you’re looking at an average of $68 million in sales a month.

Now, keep in mind that that $68 million is in sales and not what Beatport actually keeps. It still has to pay its distributors, labels and artists. I’m not completely sure about what Beatport keeps as its cut, but it seems to be around 30% based on what I see as a label owner. That puts its monthly cut between $13.6-20 million from sales alone. So assuming that they’re not in too much debt as a company, the $50 million buyout could become fully profitable in a year or less as Beatport’s annual cut would be between $163-240 million.

Why the Buyout

There are multiple reasons why Beatport’s owners might sellout to SFX at such a low price. Let’s just take things at face value though. It’s all about events and event promotion.

I’m watching Ultra’s stream right now. No, I’m not there. I’m broke, lame and on a deadline for the day job. Back to this the argument though. I’m currently watching an amazing set by Fatboy Slim on the Ultra stream. There are several thousand people now at Carl Cox’s stage, but on the stream 47,357 people are watching. Last year, over 165,000 people attended the fest. 150,000 attended in 2011 and 100,000 in 2010.

Ultra isn’t the only festival showing massive growth. After years of lower attendance, DEMF is starting to make a comeback. Looking beyond that, EDM is becoming more and more integrated with existing multi-genre music and arts festivals. Coachella is just one example.

On the surface at least, the case can be made that SFX is serious about using Beatport to promote events. In many ways, it will be the hub for all news and information about the events SFX will be pushing through its other acquisition like Disco Donnie Presents, Life in Color and ID&T.

Yeah… but What’s in It for Beatport?

The only question I’m not answering here is how Beatport would benefit from the buyout. Obviously, they would become more capable of moving into the event arena themselves. You have to remember that one of the founders of Beatport is Brad Roulier who was a promoter prior to starting Beatport. Despite stating in a 2011 interview that  he doesn’t want to be a promoter again, I’m pretty sure it was a joke and  that with the acquisition of Beatport, promoting is back on the table again to some degree.

It’s too early to truly decide whether the buyout is a good thing for EDM or not. Clear Channel is involved, but only because they own SFX and yes, there is reason to be concerned about that. I’m not worried about it ruining the underground side of EDM, but most certainly there will be some control of the major festivals. Of course, most of us naively (and happily) assume that type of control doesn’t exist already.

Things are shifting within the industry right now. Unless Beatport and SFX royally screw things up, I don’t see any of the smaller stores taken a larger share of the market. The worst case scenario though is that Beatport, SFX and Clear Channel leverage all of their power and further lock out the competition. If that does happen, just like today’s average music consumer, the average clubber won’t even know that it happened.