[michelej1]

In light of the Wal*Mart talk, I've been reading old Azoff interviews and found this one about concert guarantees interesting. FM was mentioned as being guaranteed $650,000 per show.


Forbes, July 7, 2003

HEADLINE: The Road to Riches, BYLINE: Peter Kafka

HIGHLIGHT:
CD sales sag under Napster-style piracy. So Jay-Z and other hot acts--especially craggy veterans--have turned to concert tours.
BODY:

As CD sales sag under Napster-style piracy, Jay-Z and other hot acts--especially craggy veterans--turn to concert tours to reap their real fortunes.

In 100-degree heat, the crowd starts to build in front of a Las Vegas nightclub two hours before the doors swing open. By 9:30 p.m. 1,500 sweaty people are packed inside, where it's almost as hellish as it is outdoors.

Onstage, though, Jay-Z barely breaks a sweat. The languid rapper, who has accessorized a military-style T shirt with diamond-encrusted dog tags, gets his fans to do much of the work: They rhyme along with him during each song, finishing his verses when he holds out the microphone. One hour later the rapper walks offstage, working his way through the kitchen. His entourage of 20 retires to the green room to joke and pass around vodka. Jay-Z enters a separate suite and sits, alone, with two bodyguards parked out front.

Graced with the requisite rapper scowl, the predictable rap sheet and an ear for a catchy hook, Jay-Z will repeat this ritual through the summer on a much larger, more lucrative scale. The club show is a warm-up for the 33-city Rock the Mic tour he is headlining with 50 Cent, the muscled, glowering rapper du jour. Touring with them are the hyperactive Busta Rhymes, the playful Missy Elliott and several other acts. Playing to crowds of 20,000, Jay-Z should net around $100,000 per performance, or more than $1,000 per minute onstage.

That's $3.3 million or more for a summer of work, good pay even for Jay-Z, who has sold 30 million records. Musicians of every stripe will make a pile of money touring this summer. The Dixie Chicks, the country crooners who came under fire for opposing the war in Iraq, sold more than $45 million in tickets for 57 shows in less than a week. Eminem, the white-rapper-turned-actor who sold more discs last year than any other musician, sold $5.2 million worth of tickets to 88,000 people for two upcoming sold-out shows at Ford Field in his home city of Detroit.

Graying geezer groups reap the biggest riches, bankrolled by baby boomers who can afford stiff ticket prices. You could see The Who for free at Woodstock in 1969; last year tickets to see the band's two surviving members creak onstage sold for an average of $77 apiece. The loftiest perches on Pollstar magazine's annual list of highest-grossing acts are held mostly by aging rock stars: Last year Paul McCartney ($103.3 million), who charged a top ticket price of $250, the Rolling Stones ($87.9 million) and Cher ($73.6 million) topped the charts. McCartney plowed through 90 dates in 14 months, playing two-and-a-half-hour shows for half a million people in Rome, 100,000 in Moscow's Red Square and 35,000 in the Beatles' birthplace of Liverpool, U.K.

By the time the Eagles wrap up the 40-date first leg of their supposedly last tour, dubbed Farewell I (wink-wink), they will have earned at least $30 million in guarantees--before T shirt sales. Even Cher, whose own farewell tour has stretched out for more than a year, will stay on the road through the end of August, flanked by the mechanical elephant that appears on stage with her.

The concert business has never been bigger, in dissonant contrast to the recorded-music business. While music sales have dropped for three years in a row, from $13 billion to $11.5 billion in 2002, hurt by Napster-style digital piracy and a lackluster flow of hot new acts, the tour business has climbed for four years straight, from $1.3 billion in 1998 to $2.1 billion last year. Thus musicians increasingly rely on road shows for their income. Performers frequently moan about never seeing a royalty check from their record label, no matter how many discs they sell. But a top concert draw can take home 35% of the night's gate and up to 50% of the dollar flow from merchandise sold at the show. The labels get none of it.

"The top 10% of artists make money selling records. The rest go on tour," says Scott Welch, who manages singers Alanis Morissette and LeAnn Rimes.

Now the music labels, hungry for revenue from any source, are mulling over whether to make a grab for a piece of the tour biz. One company already has: In October EMI Recorded Music signed a deal with Brit singer Robbie Williams that gives the label a cut of the pop star's merchandise, publishing, touring revenue and sponsorship. Williams, unknown here but huge everywhere else, is a former boy-band star who has sold 26 million records since 1995 and regularly sells out concert crowds. His current European tour includes three nights at England's cavernous Knebworth Stadium, where he will cavort in front of 150,000 people each night. Hence EMI's willingness to pay him an estimated $20 million for a 25% stake for his nonmusic revenue, in addition to hefty per-album advances.

EMI officials say they are pursuing similar deals with other musicians, both superstars and new acts. Other label executives are eyeing the idea, albeit less openly. Vivendi's Island Def Jam may create a tour division. At Sony Music, before he left the top job earlier this year, the embattled Tommy Mottola is said to have asked several top acts to share the wealth; they demurred.

But the record companies, despite their tough times, may have an awful time prying tour dollars out of the musicians they made famous. A new group typically gets only 14% of a CD's wholesale price, and even that cut dwindles to a third of that once the company deducts promotional fees. The talent grouses that the labels hide money in confusing, byzantine royalty statements. In November Bertelsmann's BMG unit made headlines merely for promising to provide clear, transparent accounting.

"The record companies for so many years have screwed the artists on royalty statements," says manager Welch. "Now they want to be my partners?" He vows: "Here's what can't happen: You're not going to get our touring business and leave the rest of the business the way it is." He would consider splitting all profits between artist and record company, 50-50.

Label executives, off the record, retort that taking a share of the tour receipts is only logical: After all, the labels spend millions promoting their artists' careers (and charge them for it). And record companies need the money. "Costs are going this way," says David Munns, who runs EMI's North American business, pointing a finger toward the ceiling of his Manhattan office, "and the revenue is going this way," he says, planting a thumb downward. "At some point we are going to have to turn the tap off, unless we try something else."

Two companies fueled this live-band boom: SFX Entertainment, the Robert Sillerman-led roll-up of concert promoters and concert venues; and Clear Channel Communications, the San Antonio radio and advertising conglomerate that swallowed SFX in 2000. Under Sillerman SFX cobbled together several dozen concert venues and a network of regional concert promoters, a seat-of-the-pants crew that estimated how much each act could generate in revenue, offered a guarantee and kept a piece of any remaining profit from each concert. Combining the two let SFX drive popular acts to its own amphitheaters and arenas, then capture any ancillary revenue, like parking fees. Clear Channel executives, who thought the business made even more sense combined with its advertising arm--they could promise marketers that fans who flocked to Clear Channel concerts would also see ads the company placed in and outside of its amphitheaters--took it off Sillerman's hands for $4.4 billion.

The strategy drove both companies to place ever-bigger bets on the concert business in the form of guarantees paid to music acts booked at their venues. Ten years ago a large per-show guarantee ran about $200,000; anything over that was shared by artist and promoter, usually in an 85-15 split. Now bands like Fleetwood Mac command $650,000 per show, and profit splits run closer to 90-10 for hot acts.

Telecom billionaire Philip Anschutz has pushed prices even higher via his Anschutz Entertainment Group. AEG, which entered the market in 2000 and differs from Clear Channel only in scope, generally books artists at indoor arenas. AEG chief Randy Phillips says he spent $140 million last year on guarantees for ten tours, including Celine Dion's three-year gig at Caesars Palace in Las Vegas. Ticket prices have risen accordingly, up 79% in eight years for top tours, from an average of $26 to $47, Pollstar says.

But the economics for the acts haven't changed much: Most advisers try to get their acts to leave the show with up to 65% to 70% of ticket sales, then use half of that sum to pay off that night's costs. Musicians also keep up to 50% of any merchandise sales from the show, which range from $5 per head at Billy Joel concerts--fans of the Piano Man apparently don't need a $280 embroidered varsity jacket--to $15 at concerts featuring boy bands like 'N Sync, whose prepubescent girl fans buy multiple posters, one for each member.

Hip-hop performers like Jay-Z used to miss out on touring's big upside. Promoters and venues balked at hosting rap gigs, citing increased insurance costs and worries that violence would erupt. When Jay-Z organized his first big tour, in 1999, available dates were so hard to come by that the tour hopscotched back and forth across the country. "We had to really take what what we could get," says Jay-Z, born Shawn Carter in Brooklyn 33 years ago.

Three years later, booking Jay-Z's tour is a snap. Clear Channel has guaranteed most of the 33 dates, and Reebok and Footlocker will kick in a combined $5 million to defray costs. And no one raises an eyebrow at booking rappers these days, even two admitted former drug dealers: Jay-Z pleaded guilty to a misdemeanor assault charge after stabbing a rival in 1999, and 50 Cent uses as a marketing tool the fact that he was shot nine times.

Jay-Z's crammed lineup requires all the acts to give up some dollars to make the tour work. His guarantee, an estimated $100,000, is perhaps half of what he might command if he weren't splitting ticket fees with a bevy of other acts. The acts will also save money by sharing the same stage and lighting, and they will travel by bus rather than chartered plane. There's no free backstage liquor.

Also, Jay-Z will squeeze more value from his shows, using them as a cross-marketing opportunity for his new line of Reebok shoes and his Rocawear clothing business (see story, p. 88). He doesn't worry about his record label eyeing his tour profits--he and two partners hold a 50% stake in Roc-A-Fella Records (Vivendi Universal's Island Def Jam owns the other half). Island paid him a $22 million advance in 2002 to extend the partnership through 2005.

But other artists--and their lawyers and managers--are looking at record labels warily. To date only EMI and Robbie Williams have agreed to share tour revenue, and deals with other stars will be difficult to pull off because the labels lack leverage. If you have been around long enough to create a lucrative concert business, what do you need a label for? The Eagles, who have one of the best tour businesses around, released a new single in June on their own label; manager Irving Azoff cut his own distribution deals to get the song to retailers.

The most logical way for the labels to cash in on concerts is by striking deals with young, unsigned bands that would be more willing to forgo future dollars for a larger upfront payment. Consecutive rounds of consolidation and price-cutting have left less room for new bands to begin with, and advances are dropping, too: A new act that once might have commanded $250,000 advance is lucky to get half of that.

A handful of smaller labels are offering to be more generous with CD royalties for a piece of the tour take. Hybrid Recordings, launched this year by concert promoter John Scher and former A&M Records president Al Cafaro, promises to split all recorded music profits with the artists; they also are talking to acts about taking a 15% share of revenues from touring, merchandise and publishing deals in exchange for an upfront payment. The label has signed only two acts--Drug Money, a country-inflected rock group from North Carolina, and singer/songwriter Matthew Ryan--to such an all-in deal, but Scher insists he will be able to land both unsigned bands and veteran acts.

Still, the big labels have failed at similar diversification before. They bought or created merchandising arms in the 1980s and early 1990s, only to abandon them. And the tour business could be slowing, prompting artists to put up even tougher resistance to sharing the gate. While ticket revenue has been on the rise, the number of tickets sold has stalled or declined. Last year the top 100 touring acts sold a total of 35.1 million tickets, up from 34.4 million in 2001--but down 5% from the 37.1 million sold in 2000. There seems to be some resistance to sky-high prices.

"One of the things that we are learning, painfully, is that we need to correct our ticket prices," says Donald Law, who runs Clear Channel's concert arm, which saw revenues drop 8% in the first quarter from a year ago and plans to spend up to 20% less on concert guarantees this year. In the meantime acts like Jay-Z will keep hitting the road. "There's nothing better than live performance," he says. "You can just feel 20,000 people singing along to your songs. There's nothing more satisfying to an artist." Or, for now, more lucrative.

Additional reporting by Kemp Powers.

Pay to Play Even acts that don't sell out stadiums can make decent money on the road-if they keep expenses in check. Below is a weekly touring budget for a band playing 5,000-seat venues, four or five times a week; the booking agency that provided the numbers agreed to do so on the condition that FORBES not identify the band.-

GUARANTEES PER WEEK 125,000
MANAGEMENT(15%) 18,750
AGENCY(10%) 12,500
BUSINESS MANAGER (5%) 6,250
BAND WAGES 11,971
CREW WAGES 14,934
PER DIEMS 4,130
PRODUCTION COSTS 9,750
HOTELS 7,722
TRANSPORTATION 13,840
OTHER TOUR EXPENSES 1,763
EQUIPMENT INSURANCE 2,500
WORKERS' COMPENSATION 1,480 - -

TOTAL WEEKLY EXPENSES 105,590
TOTAL WEEKLY INCOME 19,410