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Premier global communications company WPP plc (WPPGY - Analyst Report) recently made a strategic investment of around $10 million in SFX Entertainment, Inc., a digital media company, to tap the fast-growing electronic dance music (EDM) markets.

In addition to increased focus on sponsorship and branded entertainment opportunities, the move reinforces WPP’s strategy to extend digital media beyond traditional advertising space to connect more with the demographic segment of 16-34 years old.  

Since its inception in 2011, the NYC-based SFX has created a global platform to promote dance music by leveraging vast industry experience (averaging over 30 years) of its CEO and senior management team. SFX has tied up with various leading festivals, events, clubs and online brands to garner a collective audience of over 100 million that are connected through music.

The company has also made a number of acquisitions to strengthen its presence in the industry, namely Beatport, ID&T North America (Sensation and Mysteryland), Life In Color, Disco Donnie Presents and Miami Marketing Group, home of LIV, Story and Arkadia.

With such complimentary business associations, SFX brings on board a huge database for the youth consumer segment and enables WPP to develop useful content and targeted advertisements to augment its revenues and drive traffic for its clients. Dance music is reportedly worth $4 billion a year and DJ event is one of the fastest growing segment in live entertainment with a 45% year-over-year growth since 2007.   

An investment in SFX will also assist WPP to cement its footprints in the faster-growing sectors like digital, data, and application of technology. Over the next 5-year period, WPP expects digital revenues to account for 35%-40% of its total revenue. In 2013, the company expects its digital revenues to exceed $6 billion, representing over 33% of its total revenue.

Through its operating companies, WPP offers a host of advertising and marketing services including advertising & media investment management; consumer insight; public relations and public affairs; direct and digital promotion and relationship marketing.

In 2013, the company anticipates a like-for-like revenue and gross margin growth of around 3% and operating margin improvement of 0.5 margin points, with a primary focus on revenue and gross margin growth at a faster rate than the industry average. The company expects to achieve it by its market-leading position in the new markets, in new media, and in consumer insight.

At the same time, WPP should also remain wary of tough competition from other players in the market such as Clear Channel Outdoor Holdings Inc. (CCO - Snapshot Report), Publicis Groupe SA (PUBGY) and AirMedia Group Inc. (AMCN). WPP currently has a Zacks Rank #3 (Hold).

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