ANALYSIS: The sale of Pioneer DJ and what it means, and doesn't mean
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ANALYSIS: The sale of Pioneer DJ and what it means, and doesn’t mean

INTRODUCTION

We’re a couple of days late on this, but our industry insider Ken Uston offers a deeper expert view on the news that Pioneer DJ is for sale. He offers clarity on what the news actual is and isn’t, as well as what it means, and importantly doesn’t. 

A couple of days back, a story about “Pioneer exiting the DJ business” appeared in the social channels. This started a chain reaction, where a number of good outlets published completely incorrect stories, repeating this information in an effort to be first to the starting line. While Mixmag was apparently embarrassed enough that they completely wiped their story from their site and others, such as (the typically on the ball) Resident Advisor changed their posts to reflect the facts, the damage has been done. Social media has been on fire, rumors have been flying, and all in all things were just a mess.

Let’s break things down why the story is wrong, what is (probably) happening, and other interesting facts:

1. Pioneer DJ is most likely staying in the DJ business.

This should be a given but let’s examine the facts. Firstly, it’s important to clarify the difference between Pioneer and Pioneer DJ. Pioneer is the Pioneer Corporation — the umbrella for the assorted Pioneer branded companies across many different industries. Pioneer DJ is the brand that VC company KKR took an 85% stake in, leaving 15% with Pioneer.

This announcement is about Pioneer selling their 15% stake of Pioneer DJ, and at the same time KKR is looking for a buyer for their 85% stake too. So the various stories floating around should more accurately state that Pioneer DJ actually IS for sale, which is the real talking point. Now we have that sorted…

Pioneer owns about 60% of the DJ market. Name a category; they have their hands in it. While Pioneer DJ has some value outside of its immediate product line (patents, employees, potentially real estate), the value of these holdings is not worth anywhere near the reportedly 60-70b yen ($550-650 million USD) asking price. The fact is that, while we all would love to believe that the DJ industry is huge, the only value in Pioneer is their current business of DJ product, not their IP or even their brand name. While it isn’t unheard of for a company to be bought to take a player off the board, the asking price is far too expensive for this to even be a remote possibility. Pioneer DJ is very good at making money and their only value is in continuing to be a successful DJ equipment company.

For what it is worth, Pioneer actually exited the DJ industry five years ago. Pioneer Corporation spun out Pioneer DJ five years ago and is only selling their last remaining 15% stake. This was always in the cards and right now they need the capitol more than they need a stake in a company that only shares a brand name.

2. This happened almost EXACTLY when we would have expected.

Take Pioneer Corp. (the old parent company) out of the equation for a moment, as while they are also selling their stake, their business decisions/need for capitol are not the main trigger. They could have done this a year ago or ten years from now and it wouldn’t effect how much of a stake KKR would keep.

Private equity firms, when managed properly, have incredibly predictable ownership numbers. They calculate value (typically 5x earnings before taxes, depreciation of assets, etc), buy a stake, sit on it for 3-5 years, and depending on the company, make anywhere between 8-25% return on their investment. The current exchange rate of the yen is almost exactly what it was 5 years ago and if sold for 70b yen, would yield a return of 18% (covering Pioneer Corp’s stake and making a profit). 

It may be easy to ask why they don’t just sit on the company for longer but here is the thing: private equity firms are not banks. Like any other company, they borrow money to fund their acquisitions. Often times, when taking out these loans, the interest rate can change pending certain year milestones. If they don’t pay back their loans by their predicted date, the financial terms can be brutal.

The best recent example in our industry is Guitar Center. While they have been making money fairly consistently over the years, due to their buyout in 2007 crossing over with the financial crash of 2008, Bain sat on their investment for over ten years. This lead to huge losses that were the result of incredibly large balloon interest payments and couldn’t possibly be covered by anything but impossible sales growth. Point being, Pioneer DJ being sold at the five year mark basically means that, at the very least, KKR did their job with minimal losses and likely a profit.

3. The next buyer will (most likely) not be in the DJ industry.

I can hear the peanut gallery now saying that the buyer will be inMusic, Music Group, or one of the other usual suspects. The trouble is, however, that it would make very little fiscal sense. Much like when you go to the bank for a home loan, the bank wants to know both that what you are purchasing will be a sound investment and should you default, they can get back their money by going after your current assets. The music equipment industry is quite volatile and neither company would have the assets or sales to cover a default. Should there be another market crash or major shift in consumer taste, a default could easily happen. Neither most banks nor MI companies would likely want to take such a risk. One only has to look at Gibson’s recent woes as a perfect example, having overly leveraged themselves in large consumer electronics company purchases that didn’t pan out, resulting in bankruptcy (being purchased by KKR in the process.)

Companies like inMusic and Music Group make purchases based on a low price/high value assessment. Rane, Denon, TC Electronic, etc, these were troubled companies with a good name and market penetration in areas where they wanted to go. Neither company has ever made a purchase anywhere near this value, nor will they likely ever.

If I were running Vegas odds, the next owner will likely be another private equity firm, with long odds on a company like Samsung looking to build their portfolio around other audio holdings (Harman in this case). Which leads to the next point…

4. Everything is going to be OK.

While many company purchases have led to consumer trust being damaged (warranty, support, etc), the next buyer is very likely to be hands off. The proprietary and highly specific tech that Pioneer uses, the current success of the company, and current management are factors that mean Pioneer DJ will likely remain relatively untouched. If you buy an XDJ-1000mk2 or DDJ-800 tomorrow your warranty will be honored and the tech support person you speak to will likely be the same in six months. 

FACTS ARE IMPORTANT

This is the most infuriating aspect of this whole story: the alarmist clickbait that sounds great as a headline but is so far from the truth that it might as well be a story from The Sun or Breitbart. It is the definition of fake news, with a minimal amount of fact checking needed to have come to the right conclusion. Digital DJ Tips and DJ TechTools actually did the legwork and should be commended for it.

DJ journalism isn’t rocket surgery but it is important. To the average DJ, it does mean something. So, dear reader, make sure to ask more from your favorite sites and keep a level head when the current fake news industry bleeds over to our little corner of the web. All we have is the truth and that is what we all owe you.

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Ken Uston
DJ for over 20 years, decent for at least two of them, Ken loves three things in this world: DJing, blackjack and Pac-Man. Thrown out of the best casinos in Vegas for the crime of being too good, Ken has changed his focus from blackjack to the world of DJ equipment reviews. Expect a book on "Million Dollar DJ Reviews" to be published in the near future.”
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17 Comments

  1. I’ve been through 5 company takeovers, some of them different kinds of hostile, some of them not. Companies always say “We’re not going to raise prices. We’re not going to shed staff. We’re not going to change anything.” That lasts for 6 months to a year. I work in Internet/Telco, so the purchasing company is always careful not to change anything too fast, in order to get past the FCC and PUC.

    The lines about prices, staff, and changes are always lies. It’s actually sort of insulting. When you buy a company, you have a big red mark for x million $. There’s only a limited number of tools to get back in the black: raise prices, cut costs, or offset the cost onto some other sucker investor. Sure, they wait a while for the market to settle post-sale, but it’s as predictable as sunrise.

  2. This would explain Pioneer’s lack of response to Denon Prime.

    It would be unwise to imagine that Pioneer DJ hasn’t been working on something. But the process of preparing a huge company for sale is long, and will have been in the works for some time. And I would imagine that work that will definitely have been going into Nexus3 or whatever the new CDJ/CDJ/DJMs will be called, they’ll have been finalised and will be used as a jewel in the crown of the sale.

    Pioneer DJ already sells incredibly well without responding to Denon Prime. But having the next wave of industry standard booth dominating gear ready to go will take the deal incredibly attractive, and more or less guarantees profit for the new buyer.

    1. I have to disagree with you on that Mark. My background is finance. The Venture Capital (VC) industry is strictly a numbers game as outlined correctly above. Crown jewels are no factor here. Sales numbers, market share and profitability are. combined with liquidity and tradability of the shares. Most likely Pioneer corp is due for a big refinance round and simply needs to generate cash where it can, and their 15% stake in Pioneer DJ is exactly that, breaking the piggy bank sort to speak. The most likely buyer will be KKR who already has a majority stake and would in that case become sole owner of Pioneer DJ (if the data I read is correct).
      Pioneer Corp’s going public with this “for sale” news is normal procedure to stir up the price.

      “No reaction to Prime” I love my SC5000 players which I’ve bought at full price. Talk about price inflation, my Nexus2 rig is still worth at leatst 80% of it’s original investment. Over the past two years that the Prime hardware has been on the market Denon DJ made sure their software disrupted the potential. The apps I’ve developed to fill this void might be on the geeky site of the spectrum but at least they deliver what Denon DJ promised at introduction.
      Maybe things will change with the all new all mysterious end to all troubles Engine Prime 1.3.1 (or whatever the final release number will be) but for now Denon DJ, from an ecosystem point of view, is no treat to Pioneer DJ at all. And even if they would be able to tick all the boxes they promise there is still Pioneer’s installed base, the power of market dominance and the fact Denon DJ did not always deliver feature wise and time wise what they promised (=credibility at stake).
      I’ve heard all excuses “Rekordbox was bad at its introduction” etc. But Pioneer DJ had the luxury to be the first to market with a DJ booth ecosystem concept hence did not have to battle an established brand when they released Rekordbox. It’s all about management of expectations and living up to your promises.

      I’m sure Pioneer DJ has something brewing. And if their past product announcements are anything to go by at least I can guarantee that this new product will be in the end users hand a maximum of 4 weeks after introduction. Keeping the momentum off any hype of the introduction alive and rounding up by delivering upon it.

      I think the stand alone player battle has been won by Pioneer DJ hands down. No matter how good the Prime 4 may or may not be (I’ve played with it at NAMM and like it a lot) the time of stand alone players/controllers has passed. The next wave of DJ equipment will most likely be based around streaming services. So whoever gets a major service (Spotify and or Apple Music) fully integrated in it’s ecosystem complimented by a specialized service such as Beatport will be the next winner. I do appreciate the Soundcloud/MixCloud/Tidal initiatives, but it’s not what the market needs/requires. Spotify or Apple Music are going to be the queens to be conquered in the next battle for the DJ booth.

      2 cents and change

      1. As the post says — KKR is also looking to sell their stake too. Do you believe that they’ll just snap up the 15% from Pioneer and go for sole ownership and ride the wave of whatever Pioneer DJ obviously has in store?

        Time for me to disagree with you about standalone. My gut says that it’s inevitable that streaming will be introduced to standalone controllers, but I’m convinced that DJs will want to retain control of their collection. And while the option of streaming is very attractive, the thought that your music could disappear at any point will put DJs off from a wholesale move to streaming. My feeling is that streaming and standalone will happily coexist on the same machine. DJs will have the option to use either, or most likely both, right up until the first time that track they want to play has been removed by the artist.

        Crazy idea — Apple buys Pioneer DJ and implements Apple Music right into the ecosystem of rekordbox. So right yet so wrong at the same time.

        1. Looks like we’re closing in on agreement after all.

          Business rule #1 : if you want something really bad, publicly shout you don’t, and even state it’s for sale.
          in the VC game everything is for sale at the right price.
          Pioneer Corp going public with the news their 15% stake in Pioneer DJ is for sale is driving up the price: all interested can step forward, the more step forward the higher the price. (=high demand/high price)
          KKR’s statement their stake in Pioneer DJ is for sale puts a cap on the price rise. It makes it less interesting for other parties to buy Pioneer Corp’s 15% because they don’t know what’s happening to the remaining 85%. (=high supply / lowering price).
          KKR is souring the deal for the prospective buyers of Pioneer’s Corp’s 15% stake in Pioneer DJ.

          Now for the Apple Pioneer DJ takeover. Google the following terms: KKR & Apple and Kirk Kekorian (KKR’s name giver and founder) and you’ll find some very interesting articles. These companies are no strangers when it comes to mutual takeovers and other business intertwining. Keep in Mind that Apple is an “all or nothing take over company” they want complete ownership/control of the company they want to acquire.

          still my guts: KKR is aiming for 100% of Pioneer DJ
          Mark’s insight: and selling it as a whole to Apple for integration with Apple Music, maybe buying Beatport in the process as well

          On the streaming subject. Yes the idea of having my collection on some Amazon WebServices server or anywhere else in the cloud is 100% horror to me as a DJ. My point is that the company that can hammer out a deal with one of the 2 major streaming services will be the one that will become dominant in the DJ booth. I’m not saying local stored and streaming collections can’t co-exist. I simply state the company that got either Apple Music or Spotify on board will be the horse I put my money on to win the race.

        2. This IS a crazy idea. Wouldn’t have the impact you are picturing it would though.

          To be straight Pioneer = Spotify. If anything InMusic = Apple Music. Even if Apple were to buy Pioneer they are smart enough to know the proper path to follow unless you feel Pioneer and/or Apple are not pro’s at catering to the masses? Rough around the edges and often missing some seemingly obvious details YES but the main bread and butter items are always checked off the list.

    2. Pioneer’s lack of response to Demon Prime likey had nothing to do with this. It’s more likely that they see they have no reason to “respond” to Denon DJ as, like usual, they make a bunch of noise on industry blogs/comments but ultimately don’t move the needle when they come to sales. Out of the hundreds of DJs in my, let’s call it a DJ union, group of working DJs only a couple were interested in the new PRIME players and that was really only because they are Laidback Luke Stans. Ultimately even they didn’t buy them, and stuck with thier Nexus setups and Pionner controllers.

      I’m sure they’re keeping thier eyes on Denon and the market as a whole, but are not concerning themselves with answering back every time the competition puts something out.

    3. Response to what? You feel they are threatened by all 15 DJ’s who actually went for them. They are amazing units no doubt but the true magic lies in support and being dependable for the long haul as in “will you still be there for me five years from now even though you couldn’t sell a life preserver to a drowning man if you tried?”

      The entire Prime concept was and will remain a pebble rolling down Pioneer mountain and once more I am VERY surprised it wen this way.

    1. Uli would need to break open more piggy banks than he has to pull that off. And I think his adventures in DJ land are over now — he’s too busy swimming in the production pool, and putting out cost effective versions of classic synths and drum machines.

  4. Thanks Mark and team for *not* producing a knee-jerk piece and actually putting the work in to give us both the facts as well as the insight. I saw the ‘clickbait’ articles in my news feed earlier this week and scrolled on by (mostly based on the source).

    I tend to agree with the article’s sentiment… Pioneer DJ ain’t going nowhere in a hurry. My personal hope is that they get picked by a VC with ties to engineering and IT to bolster their existing skills and resources.

  5. Pioneer trying to sell their 15% stake in Pioneer DJ is one thing. Now KKR trying to sell their 85% majority stake at the same time as Pioneer DJ, is another thing. Fair to say, it raises a MAJOR red flag for investors. How can it be business as usual when all owners want to sell?!

    Denon DJ have released extremely competitive products at a fair price to compete with Pioneer DJ, and Pioneer DJ have not responded well. It the past, Pioneer DJ could easily release a new CDJ player or DJM mixer and charged $2000. Even 3 years ago prior to Denon DJ’s Engine Prime line, this was still possible. But those days are gone and so are the huge profits. For that reason, Pioneer DJ may not be view as a good investment. Not to say they are going bankrupt, but it would be fair to say their profitability has taken a big hit. How can Pioneer DJ have market dominance and then don’t respond to Denon DJ – not even adjust their pricing?

    And now with the Denon DJ Prime 4 coming out for $1699 this month. How does Pioneer DJ respond…?! By KKR and Pioneer DJ wanting to sell?!

    1. Mmmmmm… maybe is the whole djing market stagnated?
      I see your POV but Pioneer is maybe the most stable brand in the Dj industry ATM… being even Rekordbox a success, shy maybe but successful for sure.

      When I look at the whole picture and how it could go in the next years… let’s take apart AI and Big Data for a moment… just for the usual product management in our field I see NI struggling with Stems and releasing a motorized jog controller, Serato/Rekordbox fighting for the same piece of cake, Denon releasing new gear as you pointed (and so-so software too), copyright going harder in Europe, EEUU/China economic war (which could affect manufacturing, maybe?)…

      Maybe is the whole world stagnating?

      IDK but I feel thirsty and empty of illusion towards djing (alongside other personal things). It’s like we are living in the hurrican eye and something is flying over our heads?

      Probably is just Monday feeling…

  6. I hope Gemini would buy Pioneer. Then will be fun to watch some of these douchebag dj’s struggling…trying to explain to everyone how their CDJ’s are actually Pioneer with just a Gemini logo.

  7. New, more powerful hardware in the works?
    > Early technology adapters such as Pioneer DJ Corporation, a leader in the DJ/club and professional audio equipment market, have already started to implement the RZ/G2M, recognizing the MPU’s high performance and graphic functions.