CNBC Business | Live and kicking

Live and kicking

While the music industry fumbles with new business models, rock concerts are smashing records. Boyd Farrow reports

The top tickets to see Madonna’s first ever concert in Bulgaria next month — part of the artist’s Sticky & Sweet world tour — cost 200 leva (€100), more than a third of the country’s average monthly wage. The singer’s first concert in Helsinki a few days earlier will be at a vast container storage area in the West Harbour: no stadium in Finland can hold 80,000 fans. While the recorded music industry struggles to pull free from its exhaustingly chronicled sticky patch, life in the touring lane — unbothered by devious geeks or financial analysts — is sweet indeed.

According to Billboard, rock concert ticket sales jumped 13% last year, totalling just under $4bn (€2.8bn) worldwide – around 30% of the amount grossed at cinemas. Ticket prices for the top 100 tours averaged $67 (€47), more than double the 1998 average – far outstripping the overall rate of inflation. Appropriately, the Material Girl was the biggest draw, raking in $230m (€160m) although, industry insiders estimate the lavish production costs might have gobbled up 40% of that. This will be recouped by the 25 supplementary shows this summer. “Goood evening Sofia!” indeed. 

Billboard ranked Madonna the industry’s top earner in 2008 – even though Hard Candy was only the 50th bestselling album in the US and the 14th digital seller. The next three top earners – Bon Jovi, Bruce Springsteen and The Police – also amassed almost their entire booty on the road. Even the pioneers of music sales transactions enjoyed a live windfall: the publicity surrounding Radiohead’s album In Rainbows – which sold three million copies, including downloads from the band’s website, where purchasers could choose how much they wished to pay – helped shift 1.2 million concert tickets in 2008. In fact, Radiohead’s tour has been extended, lassoing Poland and the Czech Republic this summer and culminating at the UK’s Reading Festival, for which a weekend ticket costs £175 (€200). 

Although trade body BPI reports that a record 9.5% of the British public bought digital music in 2008, Will Page, chief economist of the Performing Rights Society, notes that live performances in the UK out-earned recorded music for the first time – £904m (€1.04bn) versus £896m (€1.05bn). Harvey Goldsmith, the promoter who staged Live Aid, told CNBC European Business: “There is no reason live music will not grow more over the next few years. It is not hostage to the recession, it is respite from the recession.” 

This summer could be another record-breaker, with 225 festivals in Europe alone, crammed between Denmark’s Skive Beach Party (3–6 June) and Reading (29–30 August). A staggering 6,700 events in 35 countries – including 19 festivals in seven countries – are being produced by Live Nation, the world’s biggest live music company, spun off from media behemoth Clear Channel in 2005. Apart from Madonna, Live Nation acts enlivening stadia include Beyoncé, Coldplay, The Killers, and, probably 2009’s biggest grosser, U2, who are touring for the first time in four years, showcasing their 12th studio album No Line on the Horizon.  

Having kicked off on 30 June in Barcelona, U2’s 360° Tour – the production “affords the audience an unobstructed view” – will visit 13 other European cities, before the US leg begins in Chicago on 12 September. More than 2.5 million tickets sold out within hours. But naming the two-year, all-stadium trek the “360° Tour” is both the music’s industry’s biggest inside joke and a manifestation of the disruption to its traditional business models.  

In the last few years Live Nation has been striking what it calls “360 deals” with performers, writing large advance cheques in return for a sizeable chunk of revenue from nearly every aspect of their career, including recorded-music sales, tours, merchandise, websites, endorsements and even some business ventures. The company is believed to be paying Madonna $17.5m (€12.3) for the right to distribute three future albums and $50m (€35m) to promote tours for 10 years. It also takes a 30% cut of Madonna’s merchandising – an estimated $20m (€14m) worth of babydoll T-shirts and boy beater vests were sold in the first leg of the Sticky & Sweet tour – and 50% of revenues from licencing and endorsements, such as perfumes or jewellery. Madonna’s deal with Live Nation ended her 25-year relationship with Warner Music Group. Rapper Jay-Z reportedly negotiated a similar deal and U2 has a 12-year deal to handle the band’s merchandising, digital and branding rights. 

As well as accelerating the trend towards consolidated rights management for musicians, Live Nation chief executive Michael Rapino – who as a marketing tyro staged concerts to promote Labatt beer – has in effect promoted the promoter from an intermediary who takes a small cut of the box-office take into a real business partner. “For big artists who can sell tickets, we are the best business partners they can find” he told the Goldman Sachs Communacopia Conference in New York last September. “Artists love us! We are giving out $1.5bn to 1,300 artists a year. Artists get paid ‘with a bag of money’ every night after their show. There’s no debate about accounting – unlike music sales, where dollars can take years to flow in, if ever.” 

Live Nation maintains that long contracts with artists let it negotiate further in advance with the companies that underwrite their tours – Research In Motion’s Blackberry is the sponsor of U2’s current circuit – but with so many other parts of the artists’ business in play, recording rights quickly became a natural extension. In a colourful piece in The Wall Street Journal magazine last year, which gasped at Rapino’s champagne-marinated lifestyle, he boasted that he could get artists to the table because they received their biggest pay cheques from concert promoters, rather than record labels. 

Some industry observers however pooh-pooh the logic of Live Nation, despite its constant claims that it is “the future of the music business.” Greg Kot, the rock critic of the Chicago Tribune since 1990 and author of Ripped: How the Wired Generation Revolutionised Music, says it “has overpaid for a handful of artists who are way past their commercial primes”. Kot points out that Warner owns in perpetuity the rights to 25 years of Madonna’s previous hits, while Universal Music Group retains Jay-Z’s catalogue music for several years. “In theory the record companies will make money selling the old hits, when the artists tour.” Nevertheless, as Rapino pointed out at the Goldman Sachs event, the 75–25 splits are significantly more than promotors used to command.  

And no-one can deny that Live Nation has been successful at aggressively selling €25 concert programmes, premium parking passes and VIP packages, which have nudged the event prices into the realm lorded over by ticket scalpers. The company is also selling MP3s at the Live Nation Superstore, although Kot suggests a more viable business model will be to bundle downloads with ticket purchases. One Live Nation act, No Doubt, fronted by Gwen Stefani, is offering a digital download of its entire catalogue with the purchase of premium tickets for this summer’s tour. In January, Live Nation even started to sell tickets directly at shows in venues it controls, a challenge to Ticketmaster Entertainment Inc, the global giant that enjoys a 23% cash-flow margin because of wildly unpopular service fees it charges to those who buy tickets from its websites.  

But the economic model may shift even more dramatically following Live Nation  and Ticketmaster’s announcement in February this year that they had agreed to a merger, designed to create a music company with about $6bn (€4.2bn) in annual sales. Or as what Billboard is calling the most “powerful and influential entity the music business has ever known”. 

Live Nation may represent major artists and have many revenue streams, but Ticketmaster has been no slouch either. It recently partnered with management agency Front Line, whose acts – including Christina Aguilera, The Eagles and Guns N’ Roses – play many of the stadiums booked by Live Nation. The new entity, Live Nation Entertainment, will, in effect, operate most major concert venues, sell the tickets to those venues, and manage many of the artists who play there. 

In his testimony before a Senate antitrust committee in February, Rapino said: “We will develop an easy-access, one-stop platform that can deliver music, videos, merchandise, tickets – as well as information about artists and upcoming shows. Artists would be able to communicate directly with fans, and have the flexiblity to experiment with new approaches  to deliver music.” He said the company would also innovate “with paperless ticketing, all-inclusive prices, bundled live  performance options and interactive seating” and that “tickets could be sold wherever the artist wants them to be”.  

Ticketmaster CEO Irving Azoff told the All Things Digital conference in California, in May, that recorded music is “down to less than 6%” of major acts’ revenues. Artists walk in to his office, “who used to make $300,000 to $500,000 a year in [record] royalties. Now that’s less than $50,000.” Azoff insists that greater efficiencies in the business can only benefit artists and therefore ticket buyers.  

Not everyone is reassured by Rapino and Azoff. New Jersey congressman Bill Pascrell is one of several officials calling for investigations into the merger. Pascrell recently lambasted Ticketmaster for diverting fans seeking to buy Bruce Springsteen tickets to TicketsNow.com, a site owned by Ticketmaster that sells tickets significantly above face value.  

Springsteen was even angrier. Citing “a pure conflict of interest”, The Boss, in an open letter, fumed: “The one thing that would make the current ticket situation even worse for the fan ... would be Ticketmaster and Live Nation coming up with a single system, thereby returning us to a near monopoly situation.”  

Live Nation declined several requests to discuss its evolving strategy. Company spokesperson John Vlautin wrote in an email: “With the merger in process and us being right in the middle of our summer season, it’s just not the best time for us to participate in this story.”  

Unsurprisingly, the scepticism is denser than dry ice. Kot concedes new ticketing models could mean fans won’t be thwarted by jammed websites but this may not compensate for higher prices triggered by an auction-based system. As for the reviled service fees: “Who knows if they will continue or just be folded into the ticket price?” wonders Kot. 

In June Live Nation did launch ‘No Service Fee Wednesday’ in the US and a website offering discounted tickets to some shows throughout Central Europe as a recession-busting gesture but this is unlikely to silence legislators or internet chat-rooms for long.  

Ticketmaster is not the only outfit painted as a villain though. For Michael Jackson’s concerts that were due to take place in London this summer before his untimely death, the promoter AEG Live struck a deal with secondary ticket agency Viagogo to sell “premium tickets” for £500 (€580), compared to standard tickets priced at £50–£75 (€57–€85). 

Harvey Goldsmith says: “The profits are at the wrong place because promoters have become the banks and have to make money in other areas.” He believes a merger between Live Nation and Ticketmaster would be bad for fans as control would be too concentrated. “Ticketing is now unfriendly to the customers, in fact it’s all about fleecing them. There is no transparency. Plus, the large volume of shows means promoters don’t take care.”  

Indeed, the whole live music business “needs a rethink because we’re in danger of blowing it,” says Goldsmith. “You have to care for the customer as well as for the artist. Live Nation is a good promoter and has an interesting business model. It’s creaking a bit because its overpaying its artists so it has to make up the difference. Ticketmaster is basically the treasury.” 

Ultimately, Kot believes that live events will be the saviour of the music industry but it will not be the corporate giants that will be the big winners. “Overheads are too high, the big names too few, the add-on charges split between too many parties. You can actually make more money by playing smaller venues. We’ll see a sort of the 15th-century travelling minstrel playing to wider audiences and self-selling more merchandise as there is far more awareness because of the internet.  

“We will see the death of recorded music and a renaissance of music fans-helped music. Bands and their audiences will be more like co-conspiratators. Fans will have a personal investment in the band and in the brand.” 