There have been a couple of relevant pieces published in the last few days about Beatport, by knowledgeable people who have some skin in the game regarding the fate of dance music’s largest download shop.

The first – a bizarrely anodyne Q&A with Beatport’s senior vice president of marketing and analytics, Terry Weerasinghe by Resident Advisor – promised clear skies and a future where it’s always 72 degrees in your head when the company finally learns who its next owner will be.

The second – and far more meaty – think piece comes in the form of an open letter from Jonas Tempel, former CEO and founding partner of Beatport who left the company in somewhat acrimonious circumstances in 2010.

It’s far more interesting for what Tempel seems to go out of his way not to mention in the piece, and what all of these pieces seem to tap dance on a thin thread of nuance and evasion to avoid discussing: that Beatport, even in its glory days as a privately held company that was modernizing and revolutionizing and all sorts of other -izings of your dance music scene, has probably never made money:

With digital retailing, for the first time ever, these artists and labels could create a global footprint and share their sounds with the world. And so began the rise of dance music culture. Week after week. From 2004 until my exit in 2010, there was never a period where sales did not continue to grow.

Notice the language: there “was never a period where sales did not continue to grow.” It’s a strangely constructed sentence which means something entirely different than “There was never a period where profits did not increase.” Which probably explains why the investors wanted out so badly. Former CEO Matthew Adell fills in the rest of the picture in an interview with Jim DeRogatis two years ago:

By the time I became the CEO, which was about a year after I started, the directive from the board was to find a buyer. And I spent a lot of my time building a company and a process to make that happen. The company had already taken venture capital money a few years before I got there, so by the time I got there, it was very close to time for any venture capitalist to say, “Hey, where’s my money?”

We know from SFX’s somewhat opaque 10-k filings from its time as a publicly traded company that their Beatport unit was (allowing for a blanket of depreciation thrown on top of the spreadsheet) fairly unprofitable while they owned it. Pre-SFX numbers have never been leaked but rumors at the time of SFX’s purchase of Beatport suggested the company was holding tens of millions in debt.

In other words: Beatport’s glory days were not exactly glorious for everyone. Even with “week over week” sales growth, the company perhaps always paid out more than it was pulling in.

This is Beatport’s fundamental problem, from which all other problems stem. Beatport doesn’t need to “refocus on DJs” to save its business; it needs to find a profitable model to attract investment in the first place.

 

Hedge Funds vs. Househeads

In Beatport’s meandering search for a new owner, it’s important to realize that Beatport is the essence of an “aging” internet property (much like Yahoo, which is similarly up for sale at the moment.)

These are typically not the sort of companies that attract entrepreneurial buyers who are seeking to pour money in rather than draw money out of their purchase.

Nobody in 2016, operating from a blank slate, would start a business like Beatport today. Tempel is dead-on in that the entire Beatport experience hearkens back to the days of a static internet, but it’s more than that. Investors want growth, and selling MP3s is not seen as a growth industry. Each and every year moving forward, we can probably look toward fewer MP3s being bought and sold on an industry-wide basis. By selling MP3s, Beatport holds an infinite inventory of digital products but the value of that inventory has been trending – probably irrevocably – toward $0.

If the company focuses on nothing other than downloads, a new Beatport owner will probably look more like a hedge fund than a househead – the type of owner more interested in cutting to the bone and milking a business on the way down, rather than investing in sustained losses for a company that has had year after year of losses.

 

Beatport Can Only “Grow” By Losing Even More Money

This is the paradox of Beatport: Having “revolutionized” (and all of the other -izes it’s performed upon) the music industry, it completely missed out on the business’ two most dynamic trends: streaming and the vinyl boom. The latter is regrettable; while Bandcamp capitalized on it by acting as a quiet intermediary linking fans and bands and allowing the latter to ship directly to whoever ordered, Beatport’s insistence on maintaining a brick wall between labels and their customers gave them no chance to facilitate and ultimately capitalize upon what’s become the music industry’s most profitable growth area.

But Beatport having flubbed Beatport Streaming so badly – for reasons that both Tempel and I agree on – is far more alarming. Streaming in dance music could work, but Beatport did it completely wrong by eliminating the DJ from the equation. Every music site out there (even Bandcamp!) has a streaming component now, and talks it up, because that’s where the growth is and the market likes green arrows pointing upward rather than red ones pointing down.

Yet streaming loses even more money than selling downloads.

This is the reality of the situation, which is still unaddressed. Beatport has to figure out how to make money, yet Beatport has somehow maneuvered itself into a position where the only thing it can do to attract investment is to become even less profitable, while finding someone to absorb the losses in a business that few people really seem enthusiastic about.

It’s one hell of a dilemma, and it’s not a given that Beatport’s next owner is even interested in trying to solve it.