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.
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.
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.
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.
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.
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.”
Personally, [Live Nation’s chairman of global music and global touring, Arthur 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?
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.
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.