Concert Industry May Be A Bust This Summer
There are already signs that 2009 will be a tough year for live music promoters.
For the last decade, the music industry has countered declining profits from album sales by raising the prices of concert tickets. The average price of a ticket to the top 100 acts rose a stunning 8.4% last year, according to Gary Bongiovanni, the editor in chief of Pollstar, a box office trade magazine.
“That’s not a prescription for a healthy business,” he says, “but that’s what we’ve been doing.
One month into 2009, the good times may be over.
Coachella, the annual rock festival near Palm Springs, Calif. produced by AEG Worldwide, recently announced it would offer a layaway plan for fans who want to spread out the $269 it will cost for a three-day pass. Like a department store pushing hard to sell furniture, the festival will let fans pay half now and the rest by April 1, or put 10% down with equal installments of $121.05 in March and April.
The business model has worked for StageCoach, the country companion to Coachella. Layaway tickets made up a quarter of all sales, promoters say.
Other festivals that offer layaway plans include the All Points West Festival in New Jersey, the Bonnaroo Music and Arts Festival in Tennessee, and the Rothbury Festival in Michigan.
None of it bodes well for the live music industry. Even if customers are able to purchase tickets, they may not be able to purchase high-margin items like beer and T-shirts at the venue. For example, Live Nation (nyse: LYV - news - people ), the world’s largest promoter, loses 4% on each ticket sold, but makes 43% of its overall revenue from extra charges like parking and food.
That puts the company in a precarious place, analysts say. “Tickets are a luxury item that people cut back on,” said Alan Gould, an analyst at Natixis Bleichroeder in New York. David Kerstenbaum, an analyst at Morgan Joseph, agreed, saying, “The company is going to have to be very careful about its price points. They won’t be able to raise prices as much as they probably would have liked.”
Live Nation maintains customers are continuing to buy tickets because their typical consumer goes to just one or two concerts a year. The company says they saw little difference in ticket sales between 2007 and 2008, when the recession kicked in.
Artists, meanwhile, may be hit especially hard by any dip in ticket sales or prices. The upper tier of performers make 7.5 times more money from touring than from recorded music sales, according to a study by Marie Connolly and Alan B. Krueger at Princeton University.
Musicians have leeway in setting ticket prices but are often reluctant to cut prices. “They think ‘Well, so and so got that much, so I’m worth