by : Business, July 2010

Friction in Live Music

Friction in Live Music

Over the last decade, there has been a shift in artists’ revenues. While recorded music sales have dropped substantially, artists are now making more money in live concerts[1]. Live Nation (NYSE: LYV), the publicly held company that now operates as a venue owner, concert promoter, artist manager, and ticketing company, has been a protagonist in the industry since 2005, when it spun-off from the media conglomerate Clear Channel Communications and became an independent company. Now, with the recent US Congress approval concerning the controversial merger with Ticketmaster, the company’s share in the concert business is now larger than ever.

Despite Live Nation’s dominance in the live music industry (see, for example, the Top Concert Promoters’ rankings of Billboard’s Boxscore ), the company’s financial standing appears to be quite fragile. By 2008, it had already acquired an outstanding debt of $926 million dollars[2], and the current financial situation is far from positive; during the first quarter of 2010, ending March 31st, Live Nation saw a significant revenue decline of $22 million dollars from concerts. According to disclosures by the company’s executives, this was driven by a considerable decrease in the number of events and attendance for amphitheaters, arenas and clubs. Jason Garner, CEO of Live Nation, mentioned in an interview that out of all concerts it promoted, four-fifths didn’t sell out; two-fifths of all tickets went unsold[3].

There are a number of factors that have to be taken into account when we analyze the problems that the live music industry is currently facing. One major contributor is the outrageous guarantees given to artists by promoters to procure their concert tours. Promoters really find themselves in between a rock and a hard place here because artists are always going to be looking for the highest payments for their services, and in order to book a live date, promoters must be willing to meet artists’ demands and exceed competitive offers. If they are unable to deliver, then they the show can be ‘stolen’ from them by a promoter with deeper pockets. Consequently, these guarantees have had a direct impact on the price of tickets, which have increased substantially during the course of the last few years. According to Pollstar, a weekly trade publication covering the worldwide concert industry, in 2008 the average ticket price reached a record high of $67[4].

Promoters have found that they can ‘scale the house’ – a term used in the industry for assigning a price to every seat in a venue – in such a way that people who buy the most expensive tickets are actually subsidizing the price of the least expensive tickets for a particular concert. In other words, many under-priced seats are compensated with the few over-priced seats. However, this creates a problem because often times the real fans and other attendees are demoralized as they can only afford to pay for the worst seats at a venue and the best seats are taken by the few people who can actually afford them.

Another factor that has had a significant impact on the rising prices of concert tickets is the secondary market. Neither artists nor promoters are willing to share their revenue with scalpers. For instance, if the promoter was to set tickets at a relatively low price for a concert in high demand, scalpers could easily earn 100 or 200 percent profits from each ticket. For the promoter, it is clear that if people are willing to buy tickets at outrageous prices from scalpers, then they will not be losing any business if they increase prices at the box office. That’s precisely why in some cases it is not uncommon to see people purchasing tickets at a face value of upwards of $1,000 dollars for mainstream acts.

There have been several attempts by ticketing companies, promoters and even artists to lower the threats of the secondary market but unfortunately, little progress has been made so far. Personalized ticketing experiments have been tested but failed largely because it takes too long to verify IDs of the many thousands entering a venue. Besides, it presents logistical complications to the attendees. Concerning this issue, Bob Lefsetz, a music industry consultant, challenges industry leaders to rethink the ticket-buying culture: “it’s not about beating the scalpers reaping the margin for the acts, so much as it is about getting the best tickets in the hands of fans for the cheapest price”[5].

As we see the music industry being transformed into a more fragmented, niche-oriented business, perhaps the live music industry will also evolve slowly towards a similar model with a focus on shows at smaller venues and/or massive music festivals. The latter option seems to be gaining considerable momentum. According to early post-festival tallies, Bonnaroo 2010 scored a near sellout crowd of between seventy-five and eighty thousand, the best turnout since 2007. These numbers suggest that music fans enjoy variety. This generation is one that downloads singles and shuffles thousands of songs from every imaginable artist. Therefore, it is conceivable that single-artist performances are simply becoming less attractive in comparison to larger festival-type shows[6].

It is very important to recognize the parallel between this specific sector of the music business and the recorded music industry. If album sales have decreased substantially throughout the last ten years and single sales have gone up, a downward trend in the concert industry is not surprising. With the mainstream market collapsing, it is likely that we will begin to see a palpable decrease in superstar concert attendance for large arena and stadium shows. In the meantime, hopefully promoters and artists will find a mutually satisfying way to conduct their business while keeping ticket prices down for the consumer.

By Ricardo Gomez

references

[1]”The Music Industry”. The Economist. Oct 15th 2008. http://www.economist.com/background/displayBackground.cfm?story_id=10498664
[2] Live Nation 2008 Annual Report. Item 1A. Risk Factors – Risks Associated with our leverage. Page 23.
[3] Digital Music News. “Live Nation: 80% of Shows Don’t Sell Out. 40% of All Tickets Go Unsold…” June 01, 2010.

http://digitalmusicnews.com/stories/060110live#tg_aa2FM32-bW-sTHTNXuQ

[4]“Recession? What Recession? Pollstar – The concert Hotwire. January 13, 2010.

http://www.pollstar.com/blogs/news/archive/2010/01/13/705050.aspx

[5] The Lefsetz Letter. “Soft Ticket Sales”, May 22nd, 2010. http://lefsetz.com/wordpress/index.php/archives/2010/05/page/5/
[6] Digital Music News. “First Coachella, Now Bonnaroo: Another Festival Scores Big” June 14, 2010. http://digitalmusicnews.com/stories/061410bonnaroo.>/i>

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