Tour Economics

[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

[michelej1]

[Cute: Courier Mail Australia, April 29, 2003, since Stevie has Eagles friends, I have actually often wished that she would be persuaded to do something if they were doing it. Never thought it might work the other way around]

* EAGLES alert: the members of country-rock institution are nearing completion of their first studio album since 1979's The Long Run.

We can imagine the discussions down at Eagles HQ . . .

Eagles: "We are never going back in the studio, not even if hell freezes over."

Cunning manager Irving Azoff: "You know that Fleetwood Mac have made a new album?"

Eagles: "We'll be there tomorrow at 8am."

No way that white rock's biggest unit shifters of the '70s were going to let white rock's other biggest unit shifters of the '70s take a free swing in the grab for ca . . . umm, we mean in the pursuit of artistic excellence.

A new single, Hole in the World, is planned, as well as the threateningly titled Farewell 1 tour of the US. Ka-ching!

[michelej1]

[This article discusses the diminishing importance of the album and Azoff says that the tour is the most important thing. Album is an afterthought, now]

Billboard, January 25, 2003

BODY:

2002 was a record year for touring, with upward of $2 billion in tickets sold worldwide. And, increasingly, it appears that labels are casting a jealous eye toward the concert business as more than just a promotional tool for records.

"The touring industry is in better shape than the record companies these days," says Don Law, co-CEO of Clear Channel Entertainment (CCE), the world's largest promoter. "I would venture to say that touring is a more stable revenue stream for artists than royalties right now."

Veteran artists and their managers are well aware of touring's elevated stature-even in a world where live performances were already an important force. "I've always considered touring the biggest priority," says Irving Azoff, manager of such acts as Eagles and Christina Aguilera. "If you don't have a fan base from touring, you won't have to worry about how many records you sell."

A newer player on the national scene, Chad Kroeger of Nickelback, says his band has always placed the emphasis on touring. "Hardly any bands recoup [on albums], but every band knows how to make money on the road. More and more, it's turning out that these little discs are like greeting cards or previews of what your show is going to be like live."

As Goo Goo Dolls' Robby Takac puts it, touring is the new barometer for success. "You used to be able to base it on whether you were selling records, but the world's changed," he says. "Now it's based on the shows, and they're bigger and better than ever. We're getting our biggest numbers ever. Good cowboys hang on until the end."

Matchbox Twenty's Rob Thomas agrees. "It can't be about record sales anymore. We want to get to that point where you don't have to have a radio hit to sustain you. I don't think we're there yet, but we're a lot closer."

Touring offers a better profit margin and return on sweat equity for acts than recording and is an area where artists can still exert total creative control. In simple terms, an artist can expect to leave town with 50%-65% of ticket sales, which can be four times the artist's cut of gross CD sales.

"Artists are simply not making a fair amount of money on the traditional record deal," says John Scher, former promoter and current artist manager. "With touring, most artists are making a really fair amount of money, and everyone involved in the process is making a reasonably fair return on their investment and sweat equity."

The road is filled with artists who have continued to sell out concerts without the benefit of current radio hits, such as Jimmy Buffett and Billy Joel (and 2002's top-grosser, Paul McCartney). And those coming after them say they have learned those lessons well.

"From day one for us, we targeted touring," Kix Brooks of country duo Brooks & Dunn says. "We nurtured touring, because we knew that would sustain us after that point in every artist's career when radio falls off [and] record sales dwindle."

"We never trusted our ability to continue to sell records and have songs on the radio," partner Ronnie Dunn adds. "We're really shocked and amazed that we've been able to continue to do that, but our long-term plan was to do like Buffett and a lot of artists have done, where you can still go sing and play and do what you love to do if you bring them a great show every year."

The 2002 Billboard list of top tours bears out that touring often sustains careers when record sales are moot: Half of the top 25 touring acts did not enjoy hit albums for the year and in some cases did not have any current product at all. "The top touring artists to a large degree are way past their prime of selling records," Scher notes. "The industry has spawned this sort of second touring business of acts who aren't selling a lot of records [but are] doing profitable business for everybody."

SHOuld labels get a cut?

With touring revenue becoming more attractive, record labels appear increasingly interested in getting in on the action. In October 2002, EMI negotiated a deal with Robbie Williams that, in exchange for a healthy advance, includes a share of publishing, merchandising, and touring revenue (Billboard, Oct. 19, 2002). Additionally, BMG chairman/CEO Rolf Schmidt-Holtz has said that BMG will pursue similar deals with appropriate artists. Representatives for BMG and EMI declined to be interviewed for this story.

Such developments raise a big red flag for artist managers. "For many years-from the inception of our business, really-record companies have looked at touring as simply a way to sell records," says Tony Dimitriades, manager for such acts as Tom Petty and Fleetwood Mac. "Now that their business model is faltering, I'm hearing more and more from them, 'Well, you guys have the touring, and we don't have that.' I don't think that's for any reason other than they're trying to find more revenue. The record companies have no justification, in my view, to believe they are entitled to any piece of the touring pie."

Other managers share Dimitriades' dim view of the labels' motivation. "These deals are almost like arbitrage; it's like a banking deal. The labels are saying, 'We're going to use your money to mitigate risk and give you some return,' " says Jim Guerinot, whose clients include No Doubt, Beck, and Social Distortion. "The premise is that the labels should get touring money because [they say], 'We spend all the money getting the branding.' But by everyone's estimate, 90% of these acts fail. If you fail 90% of the time, how much is you and how much is the artist? If [labels] were successful with the artists 100% of the time, that may be different."

Buck Williams, booking agent for such acts as R.E.M. and co-manager of Widespread Panic, flatly states that labels "deserve zero" from touring. "Their mission has nothing to do with touring. They're in the business of selling records, and they believe that's the only career an artist has: selling records."

Scher says the industry is transitioning toward more partnerships in all phases of an artist's career. "It's a matter of throwing the old model out the window," he says. "I think we'll see both new and veteran artists entering into new arrangements where they are in a partnership with the record company and management." He says that "everybody involved in risk and decision-making" would be rewarded from such income streams as record sales, publishing, touring, and merchandising.

There are certain multifaceted companies that are already involved in tour earnings. "As a production company, we always have been a part of touring and merchandising, and as a management company we're always part of it," says teen-pop guru Lou Pearlman, who wears manager, label head, and tour director hats via his Orlando, Fla.-based Transcontinental companies. But, he adds, "on the record-label side, a straight record deal has never taken in touring and merchandising, because we've been told it would be a conflict of interest."

Some are taking a wait-and-see attitude as the new landscape develops. "To say we'd never consider it would be silly," Phish manager John Paluska says. "But I have a very hard time imagining us doing that. We control our publishing, merchandising, and touring in-house, and I know we all like it that way. I don't think in general that artists are going to be very receptive to that. It's important to have checks and balances."

Even so, record companies will always benefit, if indirectly, from tours. "This has always been a symbiotic relationship," CCE VP of touring Brad Wavra says. "Our job as promoters is to bring the same music to the masses, and if we do our job well, presumably you'll see album sales fall out of that in each market."

MAKING UP SHORTFALLS

Despite the decline in album sales in the overall market, managers do not expect a proportionate increase in touring activity.

"Phish is going to tour as much as they're going to tour," Paluska says. "It's never a conversation that we'd better tour more because people aren't selling as many albums."

Guerinot concurs. "I would never say, 'We sold half as many records; let's do twice as much touring.' "

Besides, because an artist is grossing more does not mean they are putting more dollars in their pockets. Azoff says, "Costs are so much higher, and facilities, promoters, and Ticketmaster are all taking off the top."

Guerinot notes that a number of current recording artists have been able to increase concert attendance despite a decline in their album sales. For example, he notes that No Doubt's 1996 album, Tragic Kingdom, sold 17 million copies worldwide. At that time, the Interscope act sold out two Los Angeles-area arena dates. Its current album, Rock Steady, has sold a fraction of Tragic Kingdom's numbers-2.4 million copies in the U.S., according to Nielsen SoundScan-yet on its latest tour, No Doubt sold out four Los Angeles-area arena dates. "And," Guerinot says, "I think people have the sense that No Doubt are bigger than they've ever been."

Once that touring base is established-as Paluska notes, with careful cultivation and respect for the fans-an act can go on forever. "It is a good feeling to know that for the Phish guys, nobody can ever take our live show away from us," Paluska says. "Their popularity will go through ups and downs, but [touring is] something that they can always fall back on. Musicians who can't do that face tough times."