Every time you read about the "platform wars" it's a discussion about how the tech giants of the last two to three decades are battling to decide the future of consumer technology. So the usual names: Apple vs. Amazon vs. Microsoft vs. Google fighting to create the dominant operating system platforms and pre-eminent hardware.
Music is almost always a pawn in these wars -- but it is also always present, even if it comes across as a disposable consumer enticement that provides stickiness, enhanced experience and overall sexiness.
This is why it will be intriguing to watch two fledgling companies started by veterans of the music business, SFX chairman Bob Sillerman and former Live Nation chairman Irving Azoff.
Sillerman is pushing ahead with his EDM startup, which has rolled up some 15 EDM festival businesses in the last year. In the coming weeks he'll take the company on a roadshow to institutional investors to discuss the potential of SFX Entertainment and the wider youth-led EDM market ahead of an initial public offering that could value the company at up to $1 billion by some estimates.
Azoff has teamed with his good friend and artist client Jim Dolan, chairman of the Madison Square Garden (MSG) Co., to create a new joint venture called Azoff MSG Entertainment (AMSGE). It will operate in artist management, publishing, live entertainment branding and digital services, among others.
But here's what is most notable about these two veterans' latest moves. They're showing investors a different way to think about music business models in a digital world. They're indirectly making the argument that music, just like technology, should be a consumer-facing platform around which one builds a business rather than battling to own rights as a lower-margin music "supplier" like a label or publisher.
SFX is most explicit with its ambitions. It is pitching brands the opportunity to get in front of millions of elusive, young, disposable-income-rich and attention-poor consumers in a captive setting through its roster of major EDM events. Billboard has learned SFX is asking for as much as $50 million from marketers for one of several global branding opportunities. Whether or not SFX gets what it's asking for, what's important is that a music startup has shifted its value proposition from the usual fraught discussions around rights and music use to the music itself as a platform for the right partner.
Azoff is less explicit about his plans just a couple of weeks after announcing his joint venture. Cynical observers might wonder how a business that has yet to create anything is worth the $300 million valuation implied from the announcement. While the Dolan family's control of the MSG board might mean the due diligence might've been less intense, that doesn't mean this isn't a smart bet. Azoff's vision is to use music as a platform to leverage artist relationships more efficiently under one roof blending traditional artist management with live branding and digital media. You can expect AMSGE's combined clout to help it in reaching out to brand partners offering live artist sponsorship packages as just one example.
Interestingly, Sillerman and Azoff are both just a couple of degrees removed from today's Live Nation, which has been developing a music-as-a-platform concept for several years now. Its brand sponsorship business generated impressive operating profit margins of 70% on revenue of $248 million in 2012 compared with razor-thin margins in the concert and ticketing business. But a much smaller, nimbler startup like SFX or AMSGE, which doesn't have any of the legacy issues of a $4.5 billion company like Live Nation, could have a significant impact in rewriting the rules of the game. It would appear old dogs are teaching us all new tricks.
MSG, Azoff Unveil New Entertainment Venture
By Hannah KarpMadison Square Garden Co. MSG +0.31% said it is paying $125 million to create a new joint venture with music mogul Irving Azoff that will manage artists, own music-publishing rights and dabble in marketing and television production.
Under the terms of the deal, a subsidiary of MSG will pay Mr. Azoff $125 million for a 50% stake in the new firm, Azoff MSG Entertainment LLC, and will also provide $50 million of revolving credit.
Mr. Azoff, who has long managed acts including the Eagles, Van Halen, Christina Aguilera and Steely Dan and will continue to do so, said that the new company would function "almost like a venture capital fund," and create new opportunities for his business that he might not be able to see on his own.
"You've got to reach a bit of a critical mass to be taken seriously," said Mr. Azoff, who stepped down as chairman of Live Nation Entertainment Inc. in December, taking his superstar artist roster with him. The transaction announced Wednesday represented only the most recent of several occasions Mr. Azoff has sold a stake in his management company to a deep-pocketed backer, starting with the MCA entertainment conglomerate in the 1980s. MSG previously bought and sold a minority stake in Mr. Azoff's management business.
For MSG, which is spending about $100 million to renovate the historic Forum arena in Inglewood, Calif., the partnership will help it make the most of its roster of venues, which includes New York City's Radio City Music Hall and the Beacon Theatre, as well as its namesake arena.
Mr. Azoff said that the Forum "will get every one of my acts that can sell that many seats," though he added that this would be the case even if MSG didn't own the venue. Mr. Azoff described himself earlier this summer as the Forum's "head cheerleader."
MSG Chief Executive James Dolan, who plays guitar in a blues band managed by Mr. Azoff—J.D. and the Straight Shot—said he had been looking for a way to move from the bricks-and-mortar venue business into the entertainment-content business, and that the new venture could lead to anything from music festivals to television shows.
The company will also offer artists a new alternative to the two biggest publishing-rights societies: the American Society of Composers, Authors and Publishers, known as Ascap, and Broadcast Music Inc., known as BMI—which collect royalties for songwriters.
"We believe rights holders need to be represented a different way," said Mr. Azoff, noting that both Ascap and BMI are decades old.
The company's TV and live-event unit will be run by Lawrence Randall, the former head of programming and entertainment for the National Football League. In the works is an interactive, live music-discovery TV show that allows viewers to scout street talent and fund their favored contestants on the show.