Band power thrives in the live music model

Despite the digitisation of the music industry, live music continues to thrive, as the economics of touring stack the odds heavily in favour of the artist.

In his piece from last week (The music industry may be streaming towards a cliff, October 9), Alan Kohler argued that “legitimate music publishing is narrowing down to a battle between two alternatives: downloads or streaming.”

He is most likely right. The recorded music industry is continuing to move away at a rapid pace from the physical format. In 2003, the wholesale value of CD sales in Australia was $539 million. In 2012, it had shrunk $193 million. For the same period, physical music DVD sales have dropped from $71 million in wholesale revenue in 2003 to $17.5 million in 2012.

If you think digital album sales are making up the physical revenue decrease, you would be wrong. Very wrong. 2005 digital album sales were a modest $940,000, increasing to $63 million in 2012. In the same period that digital sales have increased by $62 million, physical sales have decreased by over $250 million. ‘Digital other’ — which is how ARIA categorises ringtones, streaming, ad supported income and digital music video revenue —  contributed just $19 million to the overall revenue pie in 2012.

To be honest, the analysis around streaming versus ownership is most likely overstated. The importance of recorded music as a direct stream of revenue for artists is much lower than it used to be. Gone are the days where some bands could live very comfortably off recorded music revenue alone; gone are the days labels were regularly prepared to pay significant advances for recording and video clips to promote a band or act. The real money is in touring and live performance.

This is in small part necessity and, in large part, good business for the artist. The label model is generally stacked against the artist: in most cases the label will advance an artist money in order for the act to produce a record, a video and pay for other promotional and distribution services. These advances are fully recoupable and, in most cases, the artist will lose considerable control and certain rights in exchange for what is essentially a line of credit provided by the label. The label takes the financial risk, and in doing so it wants a strong return.

This is not to say the label doesn’t provided services of value, but the costs as a result of these can make it hard for an artist to make a profit on their recorded music. The live model is much different, especially for acts with a large fanbase. The economics of touring are significantly different, with odds stacked significantly in the artists' favour. A high-profile act can walk away from an arena show with over $300,000, even before merchandise and sponsorship are factored in, with the promoter barely covering costs. If they’re lucky, they might take a small percentage of the average once the guarantee has been met.

For an example of this, look at US company Live Nation. For 2012, it generated $US3.87 billion in revenue for its concerts division — which promoted large scale tours from the likes of Jay-Z, Lady Gaga, Pink — but an operating loss of $US120 million. For Live Nation, the end game is to make the majority of its profit from ticketing, sponsorship and ancillary revenue from those attending shows. The artist doesn’t sacrifice much for the promoter, which essentially funds entire tours upfront and taking all the risk.

In reality, for most artists, agents and managers, Live Nation is the most important player in the music industry. Some may say iTunes is the most powerful operator, but no one is writing cheques to artists at the scale Live Nation is. The company has successfully become more and more powerful by offering artists a direct route to fans, with a high financial return, and for the most part getting out of the way.

Many look at the digitisation of the music industry as an indicator of where the newspaper industry might head. But sometimes I feel they are looking at the wrong things; looking at iTunes (paid) and streaming (essentially free for most people) constrains the future prospects of the industry to two areas its already dabbling in and seeing mixed results.

Newspapers have tried the free and paid options. The paid option is still first and foremost the printed newspaper. Circulation across the board for the print product is dropping — not as dramatically as physical CD sales did 10 years ago — but still enough to hurt. Adding to this is the cut in print advertising revenue which continues to decline at a higher rate than circulation.

Most newspapers, at least locally, have given away their product for free online for the past ten years but have not seen digital advertising revenue deliver the revenue required to make up for the bleed in print revenue. It’s pretty clear that neither option in isolation or combined is alone going to save the medium in its present form. If anything, what it has demonstrated is if a paywall or a free option is the best we’ve got, newspapers across the country need dramatic, unprecedented cost containment well beyond what either has confronted to date.

One thing the emergence of live touring has demonstrated is the notion that in a digital world people are increasingly unwilling to pay for music was never correct. They may be less inclined to pay for some formats of recorded music (albums specifically) but they are particularly more than willing to invest their time and money in the live show. However, this requires the artists to get out of the studio and be available to their audience night after night. Still, the rewards are worth it for those with a dedicated fanbase.

Newspaper brands are considered by many to have strong levels of brand awareness and significant loyalty from readers. If that is the case, why aren’t any of them really trying to extend their relationship with readers beyond their core product?

Look at business media, for instance. Will local readers pay for business coverage? It’s most likely not going to happen aside some specific, specialist areas. However, the same environment which has caused BRW to stop printing later in the year, is seeing strong attendance at business conferences that can cost up to $3,000 just to attend. How is it that people are unwilling to pay $10 for a magazine but willing to spend $3,000 for a few days to hear people — most of whom have built their own brands via these media channels — speak?

It’s most likely a range of factors. The print/digital product is so easily accessible and abundant it has lost a lot of its perceived value. Secondly, attendance at a seminar or conference is deemed higher value for networking, visibility and also education. Thirdly, it is likely people follow experts and respected journalists and industry figures much closer than they follow media brands. In music, it used to be desirable to sign to a certain label as it added credibility to the artist, nowadays that has flipped. It’s most likely the same with journalists. Look at Nate Silver, he left the New York Times for sports brand ESPN because, in reality, he didn’t need them anymore.

Kohler wrote that “(the) musicians I’ve been speaking to say they can still make a living, but it’s harder and there’s less money, and the main thing nowadays is live tours For other industries like movies, books and newspapers, the same thing applies – without the option of live tours.”

For newspapers and their key writers, I believe it may actually be the opposite. The key to their survival might be replicating the evolution of the music industry from a predominantly recorded retail product into a living, breathing real life multi-channel experience. And Kohler himself is an example of this.

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