meta-roj

tim oren of due diligence has brought in a guest blogger to continue the story of the music. the most recent installment, by kevin laws, gives me some real meat to chew on today. so, with apologies to the vegetarians among us (and kevin, who might take a bit of a beating)….

the high end of the curve

for today’s discussion, we’re limiting ourselves to the “top” of the music industry. for your convenience, i’ve included a table which defines the top. this should give us a common (as in shared) idea of what we’re talking about.

It used to be that the Rolling Stones would tour in order to drum up publicity and demand for their album. No longer – concerts are now tremendous moneymaking opportunities for top artists.

i believe that each performer (or act, if you will) is an enterprise. since we’re talking about the top of the food chain today, let’s get a quick handle on just how big an enterprise we’re discussing. the stones get picked on a lot in these discussions (for many good reasons), and as a result there is lots of information available. about a year ago, fortune (the magazine) ran a piece on the business of being the stones. here’s some relevant numbers:

Rolling Stones Revenue 1989 to 2002 (in millions)
Royalties $56.0
Album sales $466.4
Ticket sales $865.3
Merchandise $135.9
Sponsorships $21.5
Total Stones Revenue: $1545.1

yes, ladies and gentlemen, revenue for the rolling stones is $1.5 billion over 13 years. not bad for a bunch of grandparents and a dead guy (keith died on tour in 1974, but as long as nobody tells him, he’ll never notice. shhh!).

note, also, that the rolling stones are their own label (since 1970-ish). that means album sales, at least on material recorded since 1970, are largely their own – so they count as top-line revenue. for most recording artists, they don’t – the “album sales” line disappears, and you’re left with royalties minus expenses/advances (for more on how this arrangement works, i suggest steve albini’s The Problem With Music, and courtney love’s speech, both of which are widely reproduced. albini and love work together, so there’s some overlap).

of course, missing in this equation is the vast expense required to stage a 30-city stadium tour (and, for that matter, record and distribute an album)… but we can dig deeper. rolling stone (the magazine) has a regular feature on rock’s 50 richest, and the stones are number 2 this year. this is the data condensed into the table at the bottom of this post, so you can see the bigger picture and not just pick on mick.

which end up?

one point that i don’t agree with is that “this [file sharing] has turned the music industry on its head” – perhaps i take the longer view, but from my perspective, the recording industry is what turned the music industry on its head, and we are now in a corrective phase. performing, live, in front of an audience, may have been secondary to the recording industry, but it’s always been central to the music industry. in the tens-of-thousands-of-years long history of humans making music (and trying to making a living with their music), recording is a 150-year (at most) blip.

i also think that performing (as in touring) became a “profit center” for musicians long before file sharing existed (unless you’re prepared to argue that tape-swapping is file sharing 🙂 ). for large acts, like the stones, touring became serious business during the 1970s. go back a decade, and 60s folk acts playing for tips (or drugs? heh), before that, in the 50s big bands playing dance halls – although, in this case, the performances weren’t necessarily tours, they were engagements, sometimes lasting months or years.

there’s money in concerts?

yes, indeed. perhaps more than you realize. the next nit i have to pick is this one:

Ticketmaster’s average ticket price jumped by 10% last year alone.

while that may be true, ticketmaster makes a big deal about how they don’t set ticket prices – promoters and performers (and now, consumers) do. here’s where using the stones as an example can get you into trouble. the stones have a four-decade-in-the-making fanbase – demand far exceeds supply (there is only one rolling stones for all the fans – i’ll touch on this in a bit), and ticket prices (ticketmaster notwithstanding) are kept artificially low. have doubts? check out what brokers and scalpers are charging for stones tickets. sure, the ticket price at ticketmaster may be up 10%, but if you want first-ten-rows seats at a stones concert, and you aren’t blessed by your ancestors (as in lucky), it’s a $700 ticket to ride. no discussion of concert or tour economics can reasonably ignore secondary markets – legal, sanctioned or otherwise. the news that ticketmaster is entering the auction business is big, bold, neon evidence that they know it too.

fans (as in customers) determine value, and stones fans pay $700-and-up for some seats… and there are a lot of stones fans.

monopolies in music

performers are monopolies. this is true of every performer, in every market. for the “rolling stones market” there is only one source: the rolling stones. music is not fungible. cds are not fungible. tickets are not fungible. just try to swap celine dion tickets (or cds) for stones tickets (or cds) sometime.

this monopoly nature is part of the beast, and it’s one of the reasons “giving some of it away” isn’t a problem – in fact, it is absolutely critical. music is about taste. to find your audience, you have to let them sample your goods. that can be at a performance, or on the radio, or on a website, or on a p2p network, or some other new, exciting way. it doesn’t really matter how you do it, but you have to find your audience, and that means they have to hear your music. once you find your audience, they can be yours forever.

performers are monopolies, but they’re just the first in a series of monopolies the consumer faces in this business of music. performers have exclusive deals with labels – one source for recording. performers have exclusive deals with promoters – one source for tours. cities only have so many large venues – one stadium within reasonable driving distance. venues have exclusive deals with ticketmaster – one source for tickets. venues have exclusive deals with coke – one source for drinks. the web is complicated and harsh, and the fans are just along for the ride. how do they get away with this? simple: people love music, and they always will. once we fall in love with a performer, we will bend over backwards, jump through hoops, call radio stations, beg, borrow, steal, and deal with scalpers to see them. and again. and again. and again.

toppling the beast

finally (as in i need to wrap this up), we come to toppling ticketmaster. kevin’s outlined a very particular approach (wait for the contracts to expire, and let big, capable companies bid to replace them). this could work. and it might even be a good thing. but it’s not the whole story.

However successful they have been on the Internet, however, Ticketmaster still has a problem: the Internet cuts the number of middlemen.

here, i disagree. the internet doesn’t cut middlemen. it creates more of them. lots more.

the one-man-in-the-middle strategy is ticketmaster. one source of tickets for them all. one 800 number to call. one website to visit. the real threat to ticketmaster is not cutting middlemen – they’ve already been very successful in keeping the supply chain short. the real threat to ticketmaster is that their suppliers and customers will find a path around them, without them.

sure, there are examples where supply chains do get shorter on the net – but they are exceptions. ebay is an exception.

i sense you have doubts. i have just thrown pie into the face of conventional wisdom.

let’s look at a “more mature” internet market… say, travel. like the concert business, the travel business uses tickets as an allocation mechanism, it is based on limited availability (number of seats), localized monopolies or near-monopolies (serving particular destinations), and large consumer demand. unlike the concert business, it’s been wired for decades. there are lots of suppliers (air, rail, bus, cruise, charter, whatever), lots of consumers, and lots of middlemen.

think fast: did you buy your last airline ticket from the airline? from an affliated airline that doesn’t serve your particular destination but does have a peering arrangement with that airline? from a travel aggregation website? from a travel agent? a package tour business? a discount aggregator? a last-minute aggregator? an auction site? name-your-price reseller? did you get a discount for using a particular credit card? did you trade in frequent flier miles? did you get a package with a hotel? count the middlemen, and don’t stop until you get to ebay to unload that trip you bought and can’t use yourself.

update: the guys at ventureblog have joined the fray, with just a slight twist on the theme.

update: kevin laws has commented on the ventureblog post.

Top 50 Earning Music Acts of 2003 (according to Rolling Stone)
Rank	Act	Touring	Recording	Publishing	Total
		(dollars, in millions)
1	Paul McCartney	64.9	2.2	2.2	72.1
2	The Rolling Stones	39.6	0.9	2.2	44
3	Dave Matthews Band	27.9	0	2.5	43.4
4	Celine Dion	22.4	3.1	0.9	31.1
5	Eminem	5.5	10.4	3.8	28.9
6	Cher	26.2	0.5	0	26.7
7	Bruce Springsteen	17.9	2.2	4.5	24.8
8	Mariah Carey	0	23.1	0.2	23.3
9	Jay-Z	0.7	12.7	0.7	22.7
10	Ozzy Osbourne	3.8	0.2	0.5	22.5
11	Elton John	20.2	0	1.3	22.4
12	Elvis Presley	0	2.9	1.6	20.5
13	Robbie Williams	0	18.8	0	18.8
14	The Eagles	15.1	0.7	1.4	17.6
15	Jimmy Buffett	13.7	0.2	0.5	17.6
16	Billy Joel	16	0	1	17
17	Neil Diamond	16.5	0	0.3	16.2
18	Aerosmith	11.6	1	0.8	16.5
19	Crosby Stills Nash and Young	15.7	0	0.3	16
20	Creed	10.9	1.1	1.6	13.4
21	Rush	13.4	0	0	13.4
22	Linkin Park	1.7	4.7	6.3	13.1
23	The Who	12.6	0	0	12.6
24	Led Zeppelin	0	0.3	12.2	12.4
25	Nirvana	0	0.9	1	12.4
26	Jennifer Lopez	0	0.4	0.9	12.2
27	Red Hot Chili Peppers	6.1	3.4	2.7	12.1
28	Brian Williams	0.2	2.7	0.9	11.8
29	Dr. Dre	0	0.2	0.5	10.6
30	Enya	0	4.9	5.2	10.1
31	Nsync	7.7	0.5	0.9	9.4
32	Barry Manilow	8	1.2	0	9.2
33	Britney Spears	5.5	1.8	1	20
34	Alan Jackson	4.6	3	1.4	9
35	The Neptunes	0	5.8	3.1	8.9
36	Rod Stewart	6.6	1.4	0.8	8.8
37	Andrea Bocelli	8.1	0.2	0.4	8.7
38	Brooks and Dunn	6.7	0.4	1.4	8.1
39	Enrique Iglesias	4.4	1.5	1.7	7.6
40	Tom Petty	6.6	0.2	0.7	7.5
41	Tool	7.3	0	0	7.4
42	Kid Rock	3.4	0.8	1.3	7
43	Kenny Chesney	5.8	1.1	0.1	7
44	Santana	6	0	0.7	6.9
45	Dixie Chicks	0	6.2	0.6	6.8
46	The Beatles	0	2.4	4.4	6.8
47	George Strait	6.7	0	0	6.7
48	Nelly	2.3	1.7	2.6	6.6
49	Shania Twain	0	3.9	2.3	6.4
50	Toby Keith	4.8	0.9	0.6	6.3
Totals		457.1	130.5	80	801.3
Percent of Total		57%	16%	10%	100%

Notes: Totals may exceed Touring+Recording+Publishing in cases where the artist has other revenue (such as endorsements or acting).