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Company Town | The Biz Q&A

A Concerted Effort to Do Business Differently

June 18, 1998|MARLA MATZER

To the delight of Wall Street and the chagrin of many music managers and agents, Robert F.X. Sillerman is fundamentally restructuring the live entertainment business.

After recently agreeing to sell radio group SFX Broadcasting to Dallas-based investment firm Hicks, Muse, Tate & Furst for $2.1 billion, Sillerman has turned his attention to consolidating the fractured live business through his newly spun-off firm, SFX Entertainment.

So far, SFX has spent roughly three-quarters of a billion dollars to acquire such concert promoters as San Francisco-based Bill Graham Presents and Los Angeles-based Avalon Attractions--bringing SFX control of such venues as the Irvine Meadows Amphitheater. Last month, SFX expanded its scope by announcing the purchase of Falk Associates Management Enterprises, the Washington-based sports agency that represents Michael Jordan.

But can Sillerman, as chairman of SFX, profitably operate a group of businesses, many of which have struggled individually?

Sillerman believes he can, and views live entertainment as a potentially advertiser-supported business, as is radio. He also wants to extract better deals with industry powerhouse Ticketmaster--or perhaps by becoming a competitor to Ticketmaster.

Marketing is something Sillerman, 50, understands, having founded and run his own youth marketing consultancy while still attending Brandeis University.

Sillerman discussed his business strategy and vision for SFX during a rare interview in his stark Madison Avenue offices in New York last week.

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Q: Since you're new to live entertainment, how do you convince investors that you know what you're doing?

A: The consolidation opportunity that's available in music and live entertainment is based on marketing skills, judgment, taste and interpersonal skills. Those are the things that made us good in the radio business.

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Q: You're keeping management in place at the companies you buy?

A: There were examples with radio where we bought companies and didn't think management was important. . . . That has not been the case with the entertainment business. The only businesses we've been interested in buying were those where we were highly comfortable that the people associated with them [viewed] the transaction with us as the beginning, [rather than] the end.

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Q: Are there economies of scale in putting these companies together?

A: That's not where the opportunity is. The live entertainment business has existed for a long time, based on positive tension between different people in the industry. An artist attracts a producer, who negotiates with a promoter, who negotiates with a venue for the presentation. If at any point along the way there was somebody's perception that they weren't going to be able to profit significantly, then a performance wasn't presented.

We're no longer going to have to look to one individual, isolated source of revenue. If you roll up the different revenue streams, it becomes less important to make money on each isolated one. We think consolidation will mean more presentations, which means you'll see everybody making more money. Artists, managers, agents, buildings, promoters.

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Q: You've acquired a sports agency. Would you like to acquire an agency that handles entertainment talent?

A: We have announced that we've made an offer for the Marquee Group, which is a company I was involved in prior to SFX Entertainment. They represent, through one of their subsidiaries, some entertainment people. It's unclear to me that it would make any sense for us to expand that. It's also not completely clear to me that it's not something that we shouldn't expand dramatically.

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Q: Some managers and agents have said you're basically trying to cut them out of the action.

A: It would seem to me that if we're able to create more presentations and enlarge the industry that everyone will make more money. A natural reaction from some agents has been that what we're doing is threatening the method that the music business has operated under for a number of years. But what we've said from Day One is that we've never found it productive to try to profit by taking money away from people. The way we have always been successful is by making everybody make more money.

I can't tell you how we're going to operate the business in 1999, because I don't know. But I can tell you that our emphasis is going to be to make it a bigger business, a more professional business, and a more fun and lucrative business for everybody. We have some very specific ideas on how to do that, and if we're right, [everyone] will benefit.

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Q: The majority of your big venues are outdoors. Do you worry about indoor competition?

A: Of course. While we represent a majority position of the outdoor venues, that's a very small segment of the live entertainment business.

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