Concerts sell experiences, not only music. “People go to a concert for the experience, with friends, to have a drink and have fun,” the billionaire businessman Mark Cuban recently told the annual Pollstar Live! conference.2 He likened selling concert tickets to the way he sells Dallas Mavericks basketball tickets—sell the experience. “There’s not much in entertainment that provides an experience like live music,” says Q Prime’s Cliff Burnstein.3 There is some kind of a “magical thinking quality to music,” he said, that creates a unique connection between the performers and the audience. In his view, only a great novel comes close. Jeannie Wilkinson, the former head of research for Live Nation, said that fans attend live performances “to lose themselves in the artist’s music and performance, and to connect with other fans in this experience. For many, it would be likened to a euphoric, religious experience.”
As recorded music is becoming more widely available than water, people are flocking to concerts and music festivals in record numbers. In a typical summer week, about three million people attend a live show in North America.4 And top performers like Bono know how to give the fans what they’re looking for. Emotional experiences are the stock in trade of live entertainment. Supply, demand, and all that jazz are all on vivid display in the concert market. Performers want sellouts, but they don’t want to be viewed as being sellouts. Fans want to feel good about participating in an exclusive, one-of-a-kind, communal experience. When emotions and markets collide, the result is often an uneasy harmony.
Live Entertainment 101
“The ticket price is not up to us, man,” David Crosby told the Dallas Morning News when he was asked why Crosby, Stills, Nash and Young tickets were so expensive.5 He elaborated: “The way all big tours go down now is one company buys the entire tour, and they give you an enormous amount of money, and then they control everything.” I love David Crosby’s harmonies, but his description of the concert business strums over some important details.
Musicians do have a say over ticket prices for their tours. In fact, I have had several bands’ managers tell me they wish I could convince their artists to charge more. Ticket prices are a major component of the negotiation that takes place between a band’s agent and the concert promoter, and the band has to sign off on box office prices and other terms of the contract for the deal to be completed. The show won’t go on if the band objects to the ticket prices specified in the contract.
The band’s manager (or management company) plays a central role in the band’s development and business decisions. The manager negotiates on behalf of the band and advises the band. Arrangements vary depending on the bargaining power of the respective parties, but a typical agreement pays the manager a commission of 15 percent of the band’s net touring revenue and other income for his or her services.6 Terms may differ. Sometimes the manager may take a 20 percent commission, and sometimes the commission may be based on gross revenue instead of net revenue. In any of these cases, the manager’s take can approach or even exceed the average band member’s. Suppose, for example, a concert grosses $1 million in revenue. It is not unusual for travel and other expenses to equal 60 percent or more of revenue. So if the band’s net revenue is $400,000 and there are five members in the band, and the manager’s share is 15 percent of net revenue, the manager’s commission from the show is $60,000. That leaves $340,000 for the band to split, or $68,000 for each member if they divide it equally. If the manager’s commission is based on gross revenue, or if the commission rate is higher than 15 percent, he or she would make more money than the average band member.
A top band is also assisted by a cadre of other professionals: a lawyer (who reviews contracts and structures deals), an agent (who books appearances), a tour accountant (who counts the money), and a business manager (who invests the money). They are all important, but no one is more important than the band’s manager, who handles tasks big and small. The manager negotiates with record labels, merchandisers, and—most important—concert promoters for major tours. On the aesthetic front, Paul McCartney credits the Beatles’ first manager, Brian Epstein, with raising the band’s level by hiring a tailor to make the Fab Four’s matching suits.7
In a typical business arrangement for a concert, a band’s manager or agent negotiates with a concert promoter on behalf of the band. The promoter could be interested in signing the band to perform one show in a single venue or, increasingly often, signing the band to perform several shows in different venues across the country or on several continents. The concert promoter’s role is to organize a show by booking the musicians, securing a venue, and marketing the event. The promoter typically needs to rent the venue and contract with a ticketing company (e.g., Ticketmaster) to sell and distribute the tickets (if the venue doesn’t already have an exclusive deal with a ticketing company).
Burnstein’s dictum that “everything is negotiable” notwithstanding, a common arrangement between the promoter and band resembles a book contract, with an initial advance against future ticket sales and then royalties if sales exceed a certain level. Consider a typical agreement covering a single concert, which a manager provided to me. According to the agreement, the band receives a “guaranteed advance” equal to the first $100,000 of ticket sales. Then, before additional revenue is distributed, the promoter recovers expenses and sometimes a “minimum profit”—say, $50,000 for expenses and $22,500 for profit. The expenses could include advertising, rent for the venue, costs of unloading equipment, security, and so on. The band also has expenses (e.g., travel, crew, security, extra lights, video, sound engineer, choreographer, pyrotechnics), which it pays for out of its income. The promoter and the band split any ticket revenue above the guarantee plus expenses and minimum profit (above $172,500 in this case), usually with the band receiving 85 percent and the promoter receiving 15 percent of these revenues. The band’s guaranteed advance and percentage of revenue after expenses is higher for bands with greater bargaining power. A superstar, for example, could command a seven-figure guaranteed advance and a 90 percent or higher split on revenues beyond a certain point.
Concert promoters used to be local monopolies, operating in their regions with little competition. Bill Graham Presents controlled San Francisco. Jam Productions was dominant in Chicago. And Ron Delsener held sway in New York for fifty years. These promoters played a critical role in boosting the careers of the Grateful Dead, Bob Dylan, Frank Zappa, Rod Stewart, and many other household names. Then in 1996, the media entrepreneur Robert Sillerman formed SFX Entertainment and began acquiring and consolidating local promoters to form a national company. In 2000, Sillerman sold SFX to Clear Channel Communications, a conglomerate of radio and television stations, amphitheaters, and billboard businesses, for $4.4 billion. In 2005, Clear Channel spun off its concert promotion business into a new company called Live Nation. Live Nation continued to grow and merged with Ticketmaster, the giant ticketing company, in 2010, forming Live Nation Entertainment.
Live Nation Entertainment’s biggest competitor is AEG. In addition to promotion activities, AEG owns and operates several venues in the United States and around the world, such as the Staples Center in Los Angeles and the Manchester Arena in England. So the largest promoters have horizontal as well as vertical monopoly power.
At a national level, the concert promotion business has become much more concentrated in recent decades, following the trend in many other U.S. industries. In 1995, for example, the four largest promoters booked 22 percent of concert business nationwide. But in 2017, based on my calculations from the Pollstar data, the four largest concert promoters were responsible for 67 percent of concert revenue in the United States.
At the city level, however, there was not much competition before 2000. The local monopolies that have survived and remained independent now have to compete with Live Nation and AEG. As a result, margins are tight for concert promoters. Profit margins for concerts are so thin that they have been
dubbed the “river of nickels.”8
Consolidation of the concert industry has facilitated national and international tours, and promoters are willing to pay a premium to sign a major act to an exclusive tour. Live Nation CEO Michael Rapino said that bundling tours “is the best way for an artist to get the best deal.”9 He acknowledged that Live Nation pays a premium for the right to promote an exclusive run of concerts for a band. In economic terms, this is a case of bilateral monopoly, where a large buyer (the promoter) is negotiating with a seller of a unique product (the band). In such a situation, each party tries to leverage its strategic assets and reach the best bargain for its side. For example, Live Nation’s connection with Ticketmaster provides vertical reach and greater profit opportunities, especially in the United States, where Ticketmaster has a larger share of ticket distribution than in Europe.10 AEG, on the other hand, has tried to lock artists into performing in its venues around the world, a practice called block booking.11 If a promoter holds a show in a venue that it owns, it receives income from food and beer sales as well as parking. These complementary revenue streams give promoters an incentive to prioritize their own venues. As a result, it is not unusual to see a tour wend its way through O2 in London and the Staples Center in Los Angeles, because AEG owns both venues. Azoff MSG Entertainment likewise reportedly tries to block-book its venues, Madison Square Garden and the Forum in Los Angeles.12
In principle, leveraging complementary assets in this way can maximize the joint surplus for the parties to split, although there is also a risk that a promoter could monopolize a segment of the industry and suppress competition, to the detriment of fans and performers. Sharon Osbourne, Ozzy Osbourne’s wife and manager, raised exactly this concern when AEG tried to use its muscle to require Ozzy to give a concert at the Staples Center in exchange for performing in London’s O2 stadium. “There’s enough for everyone without you trying to monopolize the world of entertainment,” she wrote.13 (Osbourne dropped a lawsuit against AEG after the company announced it would drop block booking in September 2018.)
As the concert industry became more consolidated, several managers have told me that it also became more professional. Although tour accountants still find reasons to challenge promoters’ receipts and revenues—and there still are notable scams, such as the Fyre Festival fraud in 2017—the fact that Live Nation is a publicly traded company, for example, legally obligates it to accurately report financial information. Michael Lorick, a tour accountant who began his career with Hootie and the Blowfish at the Jones Beach Theater in 1995, said the industry has come a long way since then.14 Lorick discovered at the time that some tickets never went on general sale. In 1998 a box office employee of the theater pled guilty to grand larceny for skimming tickets from the first ten rows of the theater at Hootie’s and others’ concerts and reselling them to ticket brokers for a profit.15 This practice is much less common today because there is an electronic paper trail, he said. But digitization has enabled bots controlled by ticket brokers to swoop up premium tickets to many shows ahead of ordinary fans.
How do these developments affect fans and performers? The fact that promotion is a low-margin business suggests that competition exists among promoters despite the high degree of concentration on a national level. Live Nation’s profit margins are only 4 to 5 percent.16 Promoters are pressed by higher advances for performers and by increased concert costs. In view of these low profit margins, Michael Rapino has pointed out that Live Nation is always looking for ways to monetize concerts outside of the gate. “As important as ticketing is for Live Nation,” he said, the “sponsorship arm,” which brings in money from Anheuser Busch and other companies, “is just as important.” For the long run, he advises promoters to obsess about the art of the show—the quality and artistry of the production—and not just the art of the deal.
Pricing and Distribution
In the hit Estelle song “American Boy,” the featured rapper Kanye West grumbles, “Tell the promoter we need more floor seats. We just sold out all the floor seats.” This is actually a common problem. To an economist, the lyric should be: “Ask the promoter why we didn’t charge more for the floor seats. We just sold out all the floor seats.”
Historically, concert tickets were underpriced compared to what supply and demand would bear. Tickets to see the Beatles play at Shea Stadium in 1965 cost between $4.50 and $5.65 (or $32 to $40 in today’s dollars). A ticket for Billy Joel at the Forum in Los Angeles in 1978 was just $9.75 (or $34 in today’s dollars). “We’re still coming out of the age of rock and roll socialism,” according to William Morris’s top agent Marc Geiger.17 The data bear him out. Figure 6.1 shows that the average price of concert tickets has soared in recent years. The average list price of a concert ticket purchased in the United States rose from $12 in 1981 to $69 in 2017. If prices had grown with overall inflation, the average concert price would have been just $32 in 2018.
Figure 6.1: Average Price per Ticket and Overall Inflation Rate, 1981–2018
Source: Author’s calculations based on the Pollstar Boxoffice Database for concerts held in the U.S. from 1981 to 2018. The figures shown each year are total box office revenue divided by total tickets sold. The price for 2018 is estimated based on a regression of the percentage change in the average price for all tours on the percentage change in the average price of the top 100 North American tours from 1996 to 2017, and the percentage change in the price of the top 100 tours in the first half of 2018. Inflation is measured by the CPI-RS, through the first half of 2018.
Concert prices have increased especially rapidly relative to inflation since the late 1990s. From 1996 to 2018, the average concert ticket price rose 190 percent, while overall consumer prices rose by 59 percent. To put the rapid growth of concert prices in perspective, the average concert price over this period grew faster than medical care inflation (113 percent) and almost as fast as college tuition and fees (204 percent), the two sectors of the economy with runaway price inflation.
Ticket prices have grown even more quickly for the best seats and for the hottest shows. If you rank all concerts by their average ticket price and weight the prices by the number of tickets sold for each show, from 1996 to 2017 the price of the 90th-percentile ticket (near the top) in the Pollstar data increased by 218 percent, that of the median ticket increased by 140 percent, and the price of the 10th-percentile ticket (near the bottom) rose by 108 percent. And for the most expensive seats at the biggest shows, prices have risen even faster: the highest ticket price in the house for concerts increased threefold from 1996 to 2017 (again weighted by tickets sold for each show). The cost of a ticket to one of the hottest shows is growing faster than college tuition.
In my research I have examined several hypotheses for the rapid rise in concert prices. Surprisingly, the consolidation of promoters discussed earlier in this chapter, which started shortly after concert prices began to accelerate, does not appear to account for the rise in prices, as ticket prices also rose in Canada, Europe, and regions of the United States that did not experience an increase in consolidation.
In part, the rise in concert prices reflects the general rising cost of attending entertainment events. The prices of tickets for sporting events, movies, and theatrical performances have all grown faster than overall price inflation, according to Bureau of Labor Statistics data. This most likely reflects the fact that consumer demand for leisure activities rises over time when countries become richer. Concert prices grew in lockstep with the price of other entertainment events until the late 1990s. But after 1999 the growth in concert prices was consistently stronger than the growth in other entertainment prices. Notably, 1999 was the year that Napster was founded.
Napster was a disruptive force in the music industry. As the rampant file sharing and piracy ushered in by Napster eroded record sales and artists’ royalties from recordings, musicians began to view concerts as more of a p
rofit center. In economics terms, musicians can be viewed as selling complementary products. In the pre-Napster days, it made more sense to keep concert prices low to gain popularity and sell more albums. In the post-Napster days, recorded music can be viewed as a way for artists to gain popularity, to increase demand for live performances.18 It is this progression that led David Bowie to advise fellow musicians to tour a lot.
The consequence of this development has been to turn the music industry into even more of a winner-take-all affair. And that has imperiled the livelihoods of middle-class musicians and workers in the music industry. As John Eastman, Paul McCartney’s lawyer and brother-in-law, explained to me:
The century-old music world beginning with Edison’s breakthrough (analog) technology spawned a business which happily supported numerous musicians and companies economically, much as the nation’s then broad industrial base did.
It was digital “disruptive technology” beginning with Napster which destroyed the industry’s century-old economic underpinnings, manufacturing and distribution, leaving just a handful of stars depending only on personal appearances who were the winners taking all…
My guess is this is broadly analogous to the digital revolution (again disruptive technology) in our post-industrial world which led to the nation’s dangerous winner-take-all economics with a cancerous income disparity so threatening to our democracy.19
One other aspect of the evolution of concert pricing bears attention. When live entertainment began, in many respects it operated more like a block party than like an impersonal commodity market. In a commodity market, price is just the result of balancing supply and demand. But in a block party, while it is appropriate to charge your guests for attending—perhaps enough to cover the cost of food and utensils—it is inappropriate to be viewed as charging them too much. The fact that everyone pitches in to make a block party work enhances the experience. No one wants to be seen as gouging their friends and neighbors.
Rockonomics Page 14