19 The Live Music Industry

Live Performance as Revenue Source

As discussed above, the record industry has largely recovered from the slump in sales as a result of MP3 piracy early in the 21st century. However, that recovery has not restored the industry to its former self. Rather, the industry has been transformed by the emergence of streaming audio from the internet in place of physical sales and paid downloads. As reported in December, 2019 by the RIAA in their 2019 Mid-Year Music Industry Revenue Report, revenue from streaming now accounts for 80% of total recording industry revenues, representing a 26% increase from the previous year.

However, despite the robust increase in industry earnings from streaming, we can see from looking at Billboard’s list of Highest Paid Musicians of 2018 (released July 19, 2019), that the bulk of the earnings of these top earners comes not from streaming revenue but rather from live performances. For example, Taylor Swift tops the list of highest-paid performers of 2018 and 91% of her $99.6 million in total annual earnings came from touring. Her streaming revenue contributed less than 6% of that revenue. No. 2 on the list was Bruce Springsteen, whose reliance on touring revenue was even more striking. In 2018, Springsteen earned 96% of his total revenue from touring and less than 2% from streaming. No. 3 on the list is Drake, who was the leading artist for streaming revenue for 2018. However, even for Drake, his industry-leading streaming revenue accounted for only a bit less than one-third of his total revenue, with the bulk of the remainder coming from touring.

The primary reason that streaming revenue makes up such a small percentage of performer’s revenues is that streaming payouts to artists are at a significantly lower rate than was the case for both physical sales and downloads. The reasons and numbers for this change will be discussed in a later chapter. In order to make up for the lower revenues earned through sales of recorded music, artists have had to increase their earnings from other revenue sources. As can be seen from the numbers cited above, live music has become, by far, the greatest source of revenue for artists. The live music industry has had to quickly expand in order to meet this new role as the primary driver of revenue for artists, and this transition has not been without growing pains.

One trend that has become clear is that large music festivals and mega-tours by the upper tier of artists and bands makes up the majority of earnings in this category. Older, so-called “heritage” acts such as Paul McCartney, U2, Guns and Roses who no longer record new music earn a disproportionate share of this revenue. Lesser known bands and artists who do not appear at the large festivals (and even some that do), must settle for a much smaller piece of this growing pie. Inequality among touring artists seems to be built into the live music industry as it now operates.

LiveNation and their Near-Monopoly over the Live Concert Industry

The global live concert promotion, production, and ticketing company Live Nation Entertainment now enjoys a dominant market share over the live concert industry, and has for over a decade. As the largest live entertainment company in the world, Live Nation Entertainment dominates its competition in the areas of concert promotion, ticketing services, concert sponsorships, and concert advertising. In terms of global ticket sales, Live Nation enjoys a market share of approximately 50%, with its nearest competitor, AEG Live, coming in at just under 20% market share. 

Live Nation Entertainment was created in 2010 out of the merger of Live Nation and the then-leading ticketing agency, TicketMaster. As in many other businesses, particularly those dominated by a single company, Live Nation built its commanding market share by purchasing potential competitors, particularly in markets where it seeks to expand. For example, in July, 2019, Live Nation purchased a controlling share of the stock of the largest concert promotion and ticketing company in Latin America, OCESA Entretenimiento. 

Through its dominant position in the quickly growing live music industry, Live Nation continues to produce record-breaking revenues. In its latest financial reporting for the 2019 fiscal year (ending 12/31/19), Live Nation boasted an increase in total revenue of 7% from the previous year to a total of $11.5 billion. This revenue is associated with 2019 concert attendance of 98 million patrons at Live Nation events in over 700 venues. In 2019, Live Nation promoted over 40,000 concerts in 42 countries.

Because Live Nation is a publicly-held company, it issues quarterly earnings reports, which enable us to look a bit more deeply into the revenue sources of this industry and their relative profitability. In their financial reports, Live Nation divides their business into three sectors: Concerts, Ticketing, and Sponsorship.  Of these, concerts provide the vast majority of the company’s gross revenue: $9.5 billion for FY 2019 out of total company gross revenue of $11.5 billion (83%). By comparison, ticketing accounted for $1.5 billion of the company’s gross revenue, only 13% of the total. Sponsorship revenue was the lowest of the three, with about $600 million, only 5% of the total.

However, despite accounting for only 13% of Live Nation’s gross revenue, ticketing was the company’s most profitable activity, earning the company a little over 50% of its operating profits for the 2019 FY ($942 million total). This represents a profit margin for that sector of about 31%. The profitability of the ticketing side of Live Nation’s business arises from two factors: lower costs and higher user fees. Selling tickets has a much lower “overhead” cost structure than putting on concerts. Concert production requires a great deal of coordination and effort, including venue rental, marketing, talent booking, management and maintenance, food and beverage concessions, security, sound, lighting, stage construction and design, merchandising management, etc. The ticketing side of a concert involves far less complexity and costs. Perhaps more importantly, ticketing provides an opportunity to charge so-called “service fees” to customers when they purchase tickets. These service fees are nearly pure profit for Live Nation, as we can see from the 31% profit margins of that sector.

The Live Nation/Ticketmaster merger was initially opposed by the U.S. Justice Department over concerns that it would result in too much concentration of the live concert and ticketing business in one company. The Justice Department eventually consented to the merger in 2010 under certain conditions set forth in a 10-year “consent decree,” including the condition that Live Nation would not retaliate against live entertainment venues that contracted with ticketing services other than those provided by Live Nation.

However, in September of 2019, the U.S. Department of Justice filed action against Live Nation, claiming that it had repeatedly violated the terms of the 2010 consent decree. The DOJ was responding to complaints from some venues that Live Nation was punishing them for not using their Ticketmaster subsidiary by diverting artists away from those venues, the very behavior the 2010 consent decree sought to prevent. In December of 2019, the Department of Justice announced that it reached an agreement with Live Nation to extend the term of the consent decree for an additional five and a half years (to mid-2025), with the addition of the following conditions:

• • • Live Nation may not threaten to withhold concerts from a venue if the venue chooses a ticket service other than Ticketmaster;
    • A threat by Live Nation to withhold any concerts because a venue chooses another ticket service is a violation of the consent decree;
    • Withholding any concerts in response to a venue choosing a ticketer other than Ticketmaster is a violation of the consent decree;
    • The Antitrust Division of the Department of Justice will appoint an independent monitor to investigate and report on Live Nation’s compliance with the consent decree;
    • Live Nation will appoint an internal antitrust compliance officer and conduct regular internal training to ensure its employees fully comply with the consent decree;
    • Live Nation will provide notice to current or potential venue customers of its ticketing services of the clarified and extended consent decree; and
    • Live Nation is subject to an automatic penalty of $1,000,000 for each violation of the consent decree.

 It is too soon to know whether the revisions to the Live Nation consent decree will result in a more competitive live music industry, but that will be an interesting and important area to keep an eye on.