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Cashing in on live music: Meet the investors buying into the biz

With the live music industry enjoying unprecedented growth, external investors are flexing their financial muscles to exploit the profitability of live events

By Anna Grace on 14 Mar 2019

Industry investment, cashing in on live music

Kala festival in Albania


The global live music industry has experienced a significant uptick in fortunes over the past decade. A switch in favour – from listening to recorded music at home, to physically attending the live event – has facilitated immense growth and profitability, driven by escalating ticket prices and the desirability to attend high-end live experiences.

This financial success has created a world of possibility for live music events, which are becoming more and more appealing to investors and fans alike. Thanks to consumer preference and industry adaptability, “the sector is growing more rapidly than the economy as a whole,” according to Lisa Boden, partner at Edition Capital, an investment company specialising in the entertainment and leisure industry.

“It is therefore an attractive space to invest into,” she adds.

Journalist and entertainment stock-market analyst Manfred Tari believes that while traditional industries are becoming saturated with investors, private-equity firms are speculating on different business sectors that have not previously been properly explored.

“The stock markets are not delivering the profit margins usually required by investors, so investors are looking into other industries to gain that 10% profit margin or more,” says Tari. “The live music industry is providing one of these different investment fields.”

Big money
Private-equity firms are pouring money into the live industry like never before, acquiring stakes in major talent- booking agencies, buying up popular festivals, and entering into partnerships with venue management companies.

“The live music sector is growing more rapidly than the economy as a whole”

“Whenever a deal takes place, it shows what kind of strategies are being used by investment companies,” explains Tari. “One particular deal that comes to mind is the merger between AEG facilities and SMG, backed by the huge private-equity company, Onex. This merger explains well what is going on in general – private-equity companies are looking for opportunities and just jumping in.”

The recently announced ASM Global merger could boast a portfolio of 310 arenas, stadia, convention centres and performing arts venues, if the deal is given the green light by monopoly watchdogs. The venue management colossus would span five continents and has been hailed by supporters as a “major step” for the live music industry.

Meanwhile, in the outdoor space, festivals are proving to be a highly lucrative aspect of the industry. Providence Equity Partners is the private-equity backer of Superstruct Entertainment, a festival owner and operator led by Creamfields founder James Barton. The company has acquired stakes in major European festivals, including Barcelona’s Sónar, Hungary’s Sziget, Norway’s Øya and Flow Festival in Finland.

Also tapping into the potential profitability of the festivals sector, Edition Capital serves as an example of one of the investment giants gambling on the continued popularity of the business. Investing in festival promoter Impresario Festivals was “one of the most prominent investments that we as a team made,” says Edition partner, Boden.

Through the Impresario Festivals investment, the company acquired a number of UK festival brands “with clearly unique audiences,” such as London’s Field Day, 80s-themed Rewind, and laidback surf festival, Boardmasters. “We sold that business in 2016, more than doubling the investors’ money,” Boden tells IQ.

Tari notes, “A main effect that we will see from these kinds of investments, like in the case of Superstruct and Waterland Private Equity, is that private-equity firms will now be looking to consolidate their place, investing in multiple similar companies and synchronising between them.”

“Private-equity firms will now be looking to consolidate their place, investing in multiple similar companies and synchronising between them”

In December 2018, Netherlands-based investment firm Waterland Private Equity acquired six leading Scandinavian promoters and agencies to create All Things Live, which it described as a “new independent market leader in Nordic live entertainment.” The company, comprising ICO Concerts and ICO Management; Friction and Atomic Soul Booking; Blixten & Co and Maloney Concerts, represents 140 Nordic artists and promotes almost 3,000 local and international events. All Things Live has a combined annual revenue of US$96 million, according to the company.

“Headliners coming to one event can now be supplied to many concerts across the private-equity firm’s portfolio. That is how these kinds of investments will change business structures,” observes Tari.

It’s all about the experience
Live shows and events have not always proved as financially fruitful. Indeed, recorded music dominated the industry as the chief generator of cash flow up until a decade ago, and according to collection society PRS for Music, the change in fortunes for live music in the UK occurred in 2008, with the United States following suit a few years later.

The origin of this movement of value from recorded content to live experience transcends the music business, extending to the wider entertainment industry and consumer habits in general. “People, particularly millennials and Generation Z, are spending increasing amounts of disposable income on doing things rather than owning things,” notes Boden.

This tendency to favour live experience over material possessions is commonly referred to as the experience economy, of which “the live entertainment sector is at the forefront,” says Boden.

That shift is proving enticing for large investment firms who can see that the live music industry is revelling in changing consumer preference, as leading festival and event promoters tap into the specific trends that accompany the era of the experience economy.

“People, particularly millennials and Generation Z, are spending increasing amounts of disposable income on doing things rather than owning things”

“The live experience – festivals and events – brings in a lot of other trends, such as personalisation, relevance and the availability of additional content to augment the experience,” says David Fisher, investment director at Edge Investments, a venture-capital company that specialises in creative industries finance.

Fisher explains that the businesses with most growth potential are those that “think about the experience economy and live events in a different way,” making a particular effort to target customers and personalise services.

“We are seeing this trend towards personalisation in every industry,” says Fisher. “Being able to understand the customer – what they’ve bought before, which kind of content they enjoy – is vital for offering the right solution to each customer’s requirements.”

In February 2019, Edge completed a $4.6 million investment in Festicket, a ticketing platform that packages together festival tickets, travel, accommodation and add-ons. “An attractive element of Festicket is that they get to know their customers,” Fisher tells IQ. “They identify a target, personalise their services and bring that target to specific customers, hence the ease of their tailored packaging, with festival tickets, accommodation and travel all in one place.”

Festicket sent 70 million emails last year, according to Fisher, “ensuring the development of a personal relationship with consumers.”

An individualised service and fresh outlook is a must for Boden, too. According to the Edition partner, the most attractive element for a potential investor is “an ability to attract and retain a loyal audience.” She adds, “Ultimately, the event needs to have a unique niche – it can’t just be another middle-of-the-road festival or event.”

“These investments mean that tickets will get a bit more expensive for fans and the entire industry set-up is going to change”

Indeed, the burgeoning international festival scene and the increasing willingness of festivalgoers to travel abroad is allowing further expansion of the festival market and offering ever more lucrative opportunities to investors.

Edition recently invested in Mainstage Festivals, a company that blurs the lines between music festivals and travel, offering festivalgoers a holiday as well as a live music experience. Last year, Mainstage launched Kala, the first international music festival to take place in Albania, receiving critical and public acclaim.

A bright future?
As long as the experience economy continues to thrive, the trend of external investors injecting funds into the live music industry shows no signs of slowing down.

The creativity and inventiveness of industry professionals, as well as swift technological advances, are enhancing the quality of live experiences, prolonging their impact and keeping both consumers and investors hooked.

Boden expects to see “increasing numbers of active firms and active funds” taking an interest in the sector in the short term. If larger players become involved in the future – a prospect that she deems likely – investors will gain more exit routes and the public will receive a greater size and diversity of offerings, she says.

Fisher is similarly optimistic: “Bringing investment into an industry is a good thing, as it means businesses can then invest themselves, leading to employment, growth and profit,” he says. “In the UK, the creative industries make up 10% of the GDP. It is important to get investment into such a large sector of our economy.”

These investments are providing attractive cash flows for many major festivals, agencies and venues, facilitating further expansion of the booming international live music industry and proving beneficial for all involved.

“Recipients of funding in the live events arena need to be able to provide that return, otherwise the money will dry up and go elsewhere”

However, the influx of investment may serve to change the live music industry in some less favourable ways, especially for concert attendees and festivalgoers.

“Firstly, these investments mean that tickets will get a bit more expensive for fans,” warns Tari. “Secondly, the entire industry set-up is going to change.”

In the past, the music industry received funding from impresarios or standalone investors who would work with artists and audiences on a more local, personal level. Nowadays, these kinds of investors are making way for huge corporate companies, dealing on a global level.

As a result, “agents now almost have the role of a product manager, so direct relations between the artists and the agent are less meaningful and the industry is becoming more corporatised in general,” says Tari.

Artists benefit from this, to a certain extent, due to the significant financial and professional advantages corporatisation brings. However, “fans are mostly not aware of these kinds of developments, and most have no idea that they are paying higher ticket prices for the benefit of investors,” Tari believes.

Furthermore, the sector cannot rely upon private-equity cash flows to boost the industry indefinitely. “Any sensible financial investor is investing for one reason: to make a return,” explains Fisher. “Recipients of funding in the live events arena need to be able to provide that return, otherwise the money will dry up and go elsewhere,” he says.

Tari echoes the sentiment. “These kinds of investors are looking for live events companies that already have a significant number of artists and a certain financial capacity – they aren’t concerned by the talent involved – it’s all about the financial potential.”

 


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