The Music Industry Should Be Worried That U2 Is Today's Number One Touring Band

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Jim McCarthy, Fast Company

This post originally appeared on Fast Company.

Everybody has a concert story. Whether it's lifting Wayne Coyne aloft in his human-sized gerbil ball at a Flaming Lips show, camping out all night for Springsteen tickets, or being hypnotized by Skrillex's beats, you've probably got a story, too.

Though individuals' narratives about their concert experiences remain in many ways unchanged, the concert industry itself has evolved over the past 10 or 15 years, because now, it's overtaking album and record sales (digital or otherwise) as the primary source of revenue for big names in the music industry.

In the past, concerts were little more than promotional appearances for record, tape, or CD sales. Popular artists blew into town, played one underpriced show, which guaranteed a sellout, and created a vacuum of envy among those who couldn't go. That, in turn, made the unfortunate masses go out and buy those little pieces of plastic or vinyl that enabled them to at least hear their heroes, since they hadn't been lucky enough to see them in the flesh.

But it's not like that anymore. Which makes marketing and pricing concerts right critical to the health of the music business overall.

In the early 2000s, people stopped buying those previously lucrative little pieces of plastic and vinyl, or at least, much less than they used to. From 1999 to 2009, sales of recordings in the United States dropped from a little more than $14 billion to just over $6 billion.

Meanwhile, the concert business grew, according to this Live Nation investor presentation and Pollstar data, from about $1.5 billion in 1999 to almost $5 billion in 2009. Numbers on this vary from source to source, but the general trend of the 2000′s is clear: recordings plummeted and concerts soared.

This is what I've been telling people for years, and it's attributable to two different but related things: recordings are so cheap to make now that they're hardly worth paying for, and people place a higher and higher value on authentic live interaction than ever before. I've often told the story of how I paid the same amount of money for a Bruce Springsteen album as I did for a Bruce Springsteen concert ticket in 1985. Today, the concert ticket would cost many times more than the recording, if I chose (as a good citizen) not to steal it.

Long term, concerts along with all other forms of live entertainment have a bright future--but the concert business as it's currently done isn't going to cut it.

Over the past few years, ticket prices rose for the reasons I mentioned above--and rightfully so: the live product is the premium product and it had traditionally been underpriced. But the pendulum swung too far in the overpriced direction, especially in concerts, as the acts who were touring stayed pretty much the same.

As late as 2008, the top 10 touring acts were positively jurassic, with an average career launch year of 1986. That's Hasselhoff in Knight Rider old, not even Hasselhoff in BayWatch old. In 2010, that led to a 15% drop in concert sales, which in turn fueled much wailing and teeth-gnashing. Although 2011 has picked up some of the losses of last year, there's still a widespread feeling that concerts aren't on a steady footing.

Why should things feel so shaky when the long-term trend is pointing the right way? Because the business model of the first decade of this century is dying, because it's a lousy business model. Big bucks, big venues, big (old) acts, and high stakes is a loser. Do you really think Fleetwood Mac is going to be pulling down $150 a ticket in 2020?

Instead, the concert business needs to rethink itself to capture the favorable long-term shift of consumers wanting to see the live shows.

To do this, the business needs to do at least these three things:

First, the business needs to get better at audience development.

Let's say that you are the manager of a band. You've got at least some faithful fans, and then you've got people who don't care about your band. You should run your business in a way that not only pleases the faithful, but increases the number of the faithful. Running a Super Bowl ad for an upcoming performance might sell a few tickets, but the people who buy probably won't buy again. Likewise, if your marketing is focused only on the guys and gals who already stand in line on a cold night to see you, you're probably not in for much growth there either. Delight and honor the faithful every day, but then look for places where you're likely to find more people like them and then reach those people with your work.

Fans of a similar band? People who like skateboarding, are between the ages of 18 and 30 and live in the three markets where most of your fans live? Friends of your current fans? All good places to start, but the point is to look for the next ring of faithful fans who just haven't found you yet. Today, concert folks seem to act as though audience development happens automatically. They shouldn't.

Second, live entertainment venues and promoters have to get much better at yield management.

This is simply the idea that you've got to get productivity out of your venues. Airlines, hotels, telecommunication companies, public transportation systems all use yield management, because they have a resource that costs the same to operate (hotel room, airplane, city bus, telephone line) no matter how many people use it. The point is to get people using it as much as possible. In live entertainment, this means getting as much out of each "seat" in a venue as possible.

It's simple to calculate: just take the total revenue from a given show (or run of shows or tour) and then divide it by the number of "seats" that could have been sold. (It doesn't have to be literal seats; just the number of admissions that could have been sold at maximum.)

Say there's a show in a 1000-seat auditorium, and 600 seats were sold at $50 each. That's $30,000 in ticket sales, divided by 1000 seats, leading to a $30 revenue per seat. Perhaps a venue could make more money on the ticket, so let's imagine raising the price to $60 and selling 425 tickets. Is this better?

To find out, just calculate the revenue per seat: $60 x 425 is $25,500. That makes the Revenue Per Seat $25.50, so the price increase didn't help.

The point is that you can tweak the price table to offer different prices so that you're getting the best revenue per seat possible. Raise? Lower? Offer more varied prices? Only revenue per seat can tell you for sure if you're getting it right--but almost no one in the industry uses this metric, though they could and should.

Third, get better at "curating."

How sad is it that U2 is the number one touring band in 2011?

Bing Crosby wasn't the top tour when I was in high school in the late '80s, but that's the equivalent. Yes, U2 is great (so was Bing, for what it's worth), but people in the concert biz have to find a way to get people interested in a newer, fresher, more varied group of acts if they want to keep the business alive.

Venues bid for the same acts, many of whom are overpriced based on success 10, 20, or even 30 years ago. It's not sustainable or even particularly healthy.

Venues that can choose what acts play in their buildings have an opportunity to connect directly to an audience. If they're finding and choosing something distinctive, high-quality, and fun and wrapping it in a great concert-going experience, those venues will succeed and get people coming back just to see what's happening next. It works for theatres, sports teams, and performing arts. It can work for concerts too, but it takes an eye for something special and a willingness to take some risks along the way.

And somebody with a genius eye for the right acts and the right customer experience stands to get rich and famous figuring it out.

If you're in or want to be in the concert biz, there's good news and there's bad news. The bad news is that if you want to keep doing things the way they've been done for the last decade or so, you'd better hope Congress finds a way to save Social Security. The good news is that the fundamental desire of consumers to go to live events, including different and better music-driven events, is greater than ever, and ripe for change.

Copyright © 2011 Business Insider, Inc. All rights reserved.

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This page contains a single entry by Jonathan published on November 15, 2011 3:06 AM.

Discussions: U2 was the previous entry in this blog.

In Esquire, Taymor Says She Was Unfairly Maligned by U2 Leaders Over 'Spider-Man' Woes is the next entry in this blog.

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