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Aging acts account for most of the music industry’s live performance revenue. What happens when these acts are gone?
Aging acts account for most of the music industry’s live performance revenue. What happens when these acts are gone?
You can’t steal a concert. You can’t download the band—or the sweaty fans in the front row, or the merch guy, or the sound tech—to your laptop to take with you. Concerts are not like albums—easy to burn, copy, and give to your friends. If you want to share the concert-going experience, you and your friends all have to buy tickets. For this reason, many in the ailing music industry see concerts as the next great hope to revive their business.
At a November touring-industry conference, promoter Charlie Jones, a partner in the Austin, Texas, company that produces Lollapalooza and other American music festivals, told his colleagues a story. The night before, Jones had been reminiscing with a friend about his most memorable concert experience. The show had been held in an ancient amphitheater on an island off the coast of Italy. Jones’s buddy pointed out that concerts, whatever their trappings, have a long, long history. “He said, ‘You were attending a show at a venue that’s been around for 3,000 years,’” Jones recalled.
“It’s a testament that the live entertainment industry has been around for 3,000 years,” he told the crowd. “It’s not going anywhere. Recorded music has been around for [much] less…. In the big picture, it’s going to be a blip on the radar.”
It’s a blip that already is fading, to the dismay of the major record labels. CD sales have dropped 25 percent since 2000 and digital downloads haven’t picked up the slack. As layoffs swept the major labels this winter, many industry veterans turned their attention to the concert business, pinning their hopes on live performances as a way to bolster their bottom line.
CD sales have dropped 25 percent since 2000 and digital downloads haven’t picked up the slack. Industry veterans are pinning their hopes on live performances.
Concerts might be a short-term fix. As one national concert promoter says, “The road is where the money is.” But in the long run, the music business can’t depend on concert tours for a simple, biological reason: the huge tour profits that have been generated in the last few decades have come from performers who are in their 40s, 50s, and 60s. As these artists get older, they’re unlikely to be replaced, because the industry isn’t investing in new talent development.
When business was good—as it was when CD sales grew through much of the 1990s—music labels saw concert tours primarily as marketing vehicles for albums. Now, they’re seizing on the reverse model. Tours have become a way to market the artist as a brand, with the fan clubs, limited-edition doodads, and other profitable products and services that come with the territory.
“Overall, it’s not a pretty picture for some parts of the industry,” JupiterResearch analyst David Card wrote in November when he released a report on digital music sales. “Labels must act more like management companies, and tap into the broadest collection of revenue streams and licensing as possible,” he said. “Advertising and creative packaging and bundling will have to play a bigger role than they have. And the $3 billion-plus touring business is not exactly up for grabs—it’s already competitive and not very profitable. Music companies of all types need to use the Internet for more cost-effective marketing, and A&R [artist development] risk has to be spread more fairly.”
The ‘Heritage Act’ Dilemma
Even so, belief in the touring business was so strong last fall that Madonna signed over her next ten years to touring company Live Nation—the folks who put on megatours for The Rolling Stones, The Police, and other big headliners—in a deal reportedly worth more than $120 million. The Material Girl’s arrangement with Live Nation is known in the industry as a 360-degree deal. Such deals may give artists a big upfront payout in exchange for allowing record labels or, in Madonna’s case, tour producers to profit from all aspects of their business, including touring, merchandise, sponsorships, and more.
While 360 deals may work for big stars, insiders warn that they’re not a magic bullet that will save record labels from their foundering, top-heavy business model. Some artists have done well by 360 contracts, including alt-metal act Korn and British pop sensation Robbie Williams. With these successes in mind, some tout the deals as a way for labels to recoup money they’re losing from downloads and illegal file sharing. But the artists who are offered megamillions for a piece of their brand already have built it through years of album releases, heavy touring, and careful fan-base development.
In 2007, North American gross concert dollars dropped more than 10 percent, according to Billboard statistics. Concert attendance fell by more than 19 percent.
Not all these deals are good ones, says Bob McLynn, who manages pop-punk act Fall Out Boy and other young artists through his agency, Crush Management. Labels still have a lot to offer, he says. They pay for recording sessions, distribute CDs, market a band’s music, and put up money for touring, music-video production, and other expenses. But in exchange, music companies now want to profit from more than a band’s albums and recording masters. “The artist owns the brand, and now the labels—because they can’t sell as many albums—are trying to get in on the brand,” McLynn says. “To be honest, if an artist these days is looking for a traditional major-label deal for several hundred thousand dollars, they will have to be willing to give up some of that brand.
”For a young act, such offers may be enticing, but McLynn urges caution. “If they’re not going to give you a lot of money for it, it’s a mistake,” says the manager, who helped build Fall Out Boy’s huge teen fan base through constant touring and Internet marketing, only later signing the band to a big label. “I had someone from a major label ask me recently, ‘Hey, I have this new artist; can we convert the deal to a 360 deal?’” McLynn recalls. “I told him [it would cost] $2 million to consider it. He thought I was crazy; but I’m just saying, how is that crazy? If you want all these extra rights and if this artist does blow up, then that’s the best deal in the world for you. If you’re not taking a risk, why am I going to give you this? And if it’s not a lot of money, you’re not taking a risk.”
A concert-tour company’s margin is about 4 percent, Live Nation CEO Michael Rapino has said, while the take on income from concessions, T-shirts, and other merchandise sold at shows can be much higher. The business had a record-setting year in 2006, which saw The Rolling Stones, Madonna, U2, Barbra Streisand, and other popular, high-priced tours on the road. But in 2007, North American gross concert dollars dropped more than 10 percent to $2.6 billion, according to Billboard statistics. Concert attendance fell by more than 19 percent to 51 million. Fewer people in the stands means less merchandise sold and concession-stand food eaten.
Now add this wrinkle: if you pour tens of millions of dollars into a 360 deal, as major labels and Live Nation have done with their big-name stars, you will need the act to tour for a long time to recoup your investment. “For decades we’ve been fueled by acts from the ’60s,” says Gary Bongiovanni, editor of the touring-industry trade magazine Pollstar. Three decades ago, no one would have predicted that Billy Joel or Rod Stewart would still be touring today, Bongiovanni notes, yet the industry has come to depend on artists such as these, known as “heritage acts.” “They’re the ones that draw the highest ticket prices and biggest crowds for our year-end charts,” he says. Consider the top-grossing tours of 2006 and 2007: veterans such as The Rolling Stones, Rod Stewart, Barbra Streisand, and Roger Waters were joined by comparative youngsters Madonna, U2, and Bon Jovi. Only two of the 20 acts—former Mouseketeers Justin Timberlake and Christina Aguilera—were younger than 30.
These young stars, the ones who are prone to taking what industry observer Bob Lefsetz calls “media shortcuts,” such as appearing on MTV, may have less chance of developing real staying power. Lefsetz, formerly an entertainment lawyer and consultant to major labels, has for 20 years published an industry newsletter (now a blog) called the Lefsetz Letter. “Whatever a future [superstar] act will be, it won’t be as ubiquitous as the acts from the ’60s because we were all listening to Top 40 radio,” he says.
From the 1960s to the 1980s, music fans discovered new music primarily on the radio and purchased albums in record stores. The stations young people listened to might have played rock, country, or soul; but whatever the genre, DJs introduced listeners to the hits of tomorrow and guided them toward retail stores and concert halls.
For some, it was an organic experience. “They became part of your entire life cycle,” says John Scher, a New York–based concert promoter and 30-year veteran of the music business. “They helped you discover new music or music from somebody you already liked, but wouldn’t know the fourth or fifth track on their records.”
The industry has come to depend on ‘heritage acts’—aging stars in their 40s, 50s, and 60s—to draw high ticket prices and packed houses.
Today, music is available in so many genres and subgenres, via so many distribution streams—including cell phones, social networking sites, iTunes, Pure Volume, and Limewire—that common ground rarely exists for post–Baby Boom fans. This in turn makes it harder for tour promoters to corral the tens of thousands of ticket holders they need to fill an arena. “More people can make music than ever before. They can get it heard, but it’s such a cacophony of noise that it will be harder to get any notice,” says Lefsetz.
Indeed, with millions of kids on MySpace, word of mouth has taken on a different meaning. “In ten minutes I can learn everything I need to know about a band,” says Kevin Lyman, an industry consultant and organizer of the annual Vans Warped Tour punk music festival. “I can listen to their music, I can get their touring history, I can figure out where they’re at.”
In this new environment, the potential for an artist to have a long career may be diminished, Lyman says. With the instant-gratification mode of music discovery, buying an album or going to a concert becomes a big commitment, especially for young people who are unwilling to pay hundreds of dollars for a ticket. Instead, they’ll opt to go out a few nights a week and see an emerging band play a club for a $15 cover charge.
Praying for ‘A River of Nickels’
When the fall semester starts at Middle Tennessee State University, about 40 minutes southeast of Nashville, professor Rich Barnet always asks students in his recording-industry classes, “How many of you listen to traditional radio?” Usually, one or two hands out of 35 go up—but sometimes none—says Barnet, coauthor of the book This Business of Concert Promotion and Touring.
If the big dog in the touring pack won’t nuture new talent and the labels have less capital to invest in artist development, where will the future headliners come from?
Most major promoters don’t know how to capture young people’s interest and translate it into ticket sales, he says. It’s not that his students don’t listen to music, but that they seek to discover it online, from friends, or via virtual buzz. They’ll go out to clubs and hear bands, but they rarely attend big arena concerts. Promoters typically spend 40 percent to 50 percent of their promotional budgets on radio and newspaper advertising, Barnet says. “High school and college students—what percentage of tickets do they buy? And you’re spending most of your advertising dollars on media that don’t even focus on those demographics.” Conversely, the readers and listeners of traditional media are perfect for high-grossing heritage tours. As long as tickets sell for those events, promoters won’t have to change their approach, Barnet says. Heritage acts also tend to sell more CDs, says Pollstar’s Bongiovanni. “Your average Rod Stewart fan is more likely to walk into a record store, if they can find one, than your average Fall Out Boy fan.”
Yet in the current climate, managers like Fall Out Boy’s McLynn know not to depend on old delivery systems. “You have to look at radio and MTV as gravy,” he says. “It can take you to the next level, but a lot of bands can have good careers without going there. These days, with the lack of record sales, it’s the bands that do tour and have that fan base that are the ones that are going to last as artists. Everyone else is going to have to get jobs.”
To its credit, Live Nation and its nearest competitor, AEG Live, have recognized potential in the market for more intimate concerts. In recent years both have snapped up small and middle-sized halls to go along with their huge arenas. Live Nation has the House of Blues and Fillmore chains nationwide, while AEG owns the 700-seat El Rey Theater in Los Angeles and recently opened the 2,000-seat Nokia Theater in Times Square, among other venues. Even as they tout the health of the megatour market, these companies are hedging their bets that the live-music arena of the future won’t be a 20,000-seat venue, but rather a collection of 2,000-to-5,000-seat clubs and theater-sized houses.
Whether that bet will pay off is another story. When Live Nation announced its plans to branch out into the smaller venues, Goldman Sachs analyst Mark Wienkes called the approach “a river of nickels” that could fill the company’s coffers. Yet one flaw, says Lyman, is that emerging acts have developed a habit of touring the same nightclubs too often, depressing the demand for tickets to their shows. And without development dollars from a label, by the time they reach their 30s, many musicians may retire.
No Business Like Show Business
At the November concert-industry conference, Live Nation’s chairman of global music and global touring, Arthur Fogel, gave a rare public address. In his standing-room-only keynote speech, Fogel—a soft-spoken Canadian who has orchestrated ten of the 15 top-grossing concerts of all time—explained the commonalities that transform top-selling artists into megatour stars. The Rolling Stones, U2, and Madonna have a certain professionalism they bring to their craft, along with a desire to deliver something new to their audiences, he said. They’ve honed their live performances so skillfully that they create a need for fans to see them again and again.
Performers are trying new sales approaches. Paul McCartney released his latest record through Starbucks. Prince gave away his newest CD to London concertgoers.
Fogel likes to tell about the time he saw Frank Sinatra perform on one of the tours he managed. Sinatra was in his 80s at the time, but age didn’t matter to fans, Fogel said. When Madonna’s 360 deal was announced, Fogel and the other deal brokers—Rapino and Michael Cohl, who is chairman and CEO of Artist Nation, the Live Nation division that will manage Madonna’s deal—quickly dismissed concerns about Madonna’s touring longevity. And when the news broke about Madonna’s deal, Fogel said, “it was an avalanche. An avalanche of artists, of managers, of lawyers, of business managers, coming to us and saying this is exactly what needs to happen in the business: a reengineering that creates a partnership with artists in terms of everything they’ve developed with their music and gives the executional platform that they no longer can get through the segmenting of our business reality.”
Yet Fogel didn’t explain how, within this heralded reorganization, Live Nation and others plan to nurture a new crop of touring powerhouses. Artist development will be a huge issue going forward, Fogel said, but he had no clear response during the keynote when a listener pointed out that most stadium-filling acts have been on the road for decades and asked for his thoughts on where the next generation of headliners might be found.
Personally, Fogel said, he’d been disappointed in the young bands he’d seen open for the headliners on Live Nation’s big tours. Live performance requires a different skill set from recorded tracks. It’s the difference between playing music and putting on a show, he said. “More often than not, I find young bands get up and play their music but are not investing enough time or energy into creating that show.” It’s incumbent on the industry to find bands that can rise to the next level, he added. “We aren’t seeing that development that’s creating the next generation of stadium headliners. Hopefully that will change.”
Live Nation doesn’t see itself spearheading such a change, though. In an earlier interview with Billboard magazine, Rapino took a dig at record labels’ model of bankrolling ten bands in the hope that one would become a success. “We don’t want to be in the business of pouring tens of millions of dollars into unknown acts, throwing it against the wall and then hoping that enough sticks that we only lose some of our money,” he said. “It’s not part of our business plan to be out there signing 50 or 60 young acts every year.”
And therein lies the rub. If the big dog in the touring pack won’t take responsibility for nurturing new talent and the labels have less capital to invest in artist development, where will the future megatour headliners come from?
Opportunity for Entrepreneurs
Industry observers suspect fewer major labels will survive the transition of the coming years, but more entrepreneurs may capitalize on the ineffable power of a few chords, a melody, and a microphone. “My biggest thing is, I talk to kids and I say ‘You’ve got to think of your business,’” says Warped Tour’s Lyman. He encourages young groups to strategize this way: “If we play a backyard party and we’re paid $100 for the backyard party, how are we going to sell $200 in T-shirts and how are we going to sell $100 of our music at that show?” If they understand all of the revenue streams available to them, including merchandise and sponsorships, Lyman says young groups have a better shot at making a long-term living in the music business. “It’s got to start from there,” he says. “It’s going to be all these cottage industries.”
Indeed, despite its all-encompassing moniker, the 360 deal isn’t the only option for musicians, nor should it be. Some artists may find they need the distribution reach and bankroll that a traditional big-label deal provides. Others might negotiate with independent labels for profit sharing or licensing arrangements in which they’ll retain more control of their master recordings. Many will earn the bulk of their income from licensing their songs for use on TV shows, movie soundtracks, and video games. Some may take an entirely do-it-yourself approach, in which they’ll write, produce, perform, and distribute all of their own music—and keep any of the profits they make.
According to Billboard statistics, only one of the top ten box-office draws in the last decade is an act that hit it big after the 1970s.
There are growing signs of this transition. The Eagles recently partnered with Wal-Mart to give the discount chain exclusive retail-distribution rights to the band’s latest album. Paul McCartney chose to release his most recent record through Starbucks, and last summer Prince gave away his newest CD to London concertgoers and to readers of a British tabloid. And in a move that earned nearly as much ink as Madonna’s 360 deal, rock act Radiohead let fans download its new release directly from the band’s website for whatever price listeners were willing to pay. Though the numbers are debated, one source, ComScore, reported that in the first month 1.2 million people downloaded the album. About 40 percent paid for it, at an average of about $6 each—well above the usual cut an artist would get in royalties. The band also self-released the album in an $80 limited-edition package and, months later, as a CD with traditional label distribution. Such a move wouldn’t work for just any artist. Radiohead had the luxury of a fan base that it developed over more than a dozen years with a major label. But the band’s experiment showed creativity and adaptability.
Even as opportunities abound, new artists who haven’t solidified their audience need to be smart about building their brands through live performances, savvy merchandising, and licensing of their recorded music. “In the next 11 or 12 months it’s really going to shake out,” Lyman says. “I think we’ll see more major record labels closing. There’s going to be more young entrepreneurs out there everywhere.”
As for those who will take the business-as-usual approach, Scher says they’re in denial. “The handwriting is on the wall. Rome is burning. You can name any cliché you want. One of two things is going to happen: either, as an industry, everybody is going to pull together and try to correct some of the clear, obvious, major flaws in the business model of entertainment…or, like your friend who’s addicted to coke, you can’t help him till he hits bottom. Being close to bottom is not hitting bottom. It would be an unbelievable crime if literally sections of the entertainment business went out of business.”
Born to Run?
The music industry still has hope that talent will win out, and that the public will buy what it has to sell. Industry leaders know that, ultimately, it’s not about the package a song comes in—whether it’s vinyl, magnetic tape, plastic disc, data on a hard drive, or experienced live from the tenth row—it’s about the emotions a song invokes, and the communion it creates between a listener, the artist, and other fans. They just haven’t figured out how to sustain profits from that communion as the packaging continues to change.
“Music is so accessible now. We’re constantly turning over new bands. It’s exciting but can be overwhelming,” a young label employee says after Fogel’s speech. She is spooked by a reporter’s notebook, and afraid to give her name without corporate permission. Labels are coming around, she says. They’ve recognized that they responded too slowly to the Internet as a distribution channel. “They’re jumping on it fast enough that it’s not going to fall apart.”
Her companion, Brock Pollock, is a student at Boston’s Berklee College of Music. He can’t wait to be part of the industry. What its new business model will be, he has no idea. “I’m grooming myself to be a Renaissance man,” he says. “At 19, I’m one of the luckiest people in this room,” because the industry now knows it has to change and he feels he can help shape its future.
Pollock and his friend chat with each other for a few more minutes, their conversation ranging from 360 deals to tween-pop sensation Hannah Montana. Before long, they’re discussing recent concerts they’ve attended. Neither mentions an arena act. Both prefer the intimacy of a club or theater-sized concert venue to a stadium show. “I love The Rolling Stones, but they’re getting old,” Pollock says. “They’re not going to be touring much longer. I don’t see how the industry could depend on old acts like that to continue.”
Historically, the era of the megatour is an anomaly. Baby Boomers have come to expect that their rock heroes will put on massive concert events, yet ten or 20 years from now, few heritage acts may have the stamina to stay on the road. According to Billboard statistics, only one of the top ten box-office draws in the last decade is an act that hit it big after the 1970s. The Dave Matthews Band has grossed more than $500 million in its career and may have the consistent fan base necessary for long-term touring success. But even if the band tours regularly for the next two decades, it won’t be able to sustain the megatour cycle on its own, and the Justin Timberlakes and Christina Aguileras of the pop world have yet to establish their long-term appeal.
Record labels may be able to survive on the rights they own to musicians’ back catalogs of recorded music, but if labels don’t bankroll new artist development, megatours may go the way of sock hops. It’s now rare for a label to fund a band’s second album if its debut isn’t a success, says Scher. “They drop acts like widgets, so acts don’t have the opportunity to develop as artists. There are hundreds or thousands of talented artists and songwriters who got dropped and we’ll never know what they could have done if record labels had supported them through their second or third records.”
In fact, some of the biggest acts from the past weren’t chart-toppers out of the gate. Bruce Springsteen had two albums on Columbia Records before “Born to Run” made him a superstar. Genesis failed to chart with four late-60s and early-70s records until its live performances turned the band into a legend in England. The slow build allowed artists like James Taylor to maintain a concert-going fan base without producing new albums, says Pollstar’s Bongiovanni. “Will John Mayer be able to do the same in the future?” he asks. “We’ll have to wait and see.”
Jillian Cohan, who last wrote for THE AMERICAN about private luxury jets, is an editor at The Wichita Eagle. She currently moonlights as an entertainment blogger for b5media.
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