Financial planning: Money’s too tight to mention
Unless you’ve been living under a rock since early March – in which case, welcome back! You’ve got a lot to catch up on – you’ll no doubt be exhausted from reading about the financial carnage wreaked upon the live entertainment business by the ongoing Covid-19 pandemic.
So spare a thought for the accountants, financial advisers, investment experts, currency specialists and all those who have been on the front line since then, helping the live industry mitigate the impact of the crisis – and whose expertise will be key to getting live entertainment back on track when the time comes.
Many firms who work with music industry clients have been forced to reinvent their businesses, as well as help their clients boost non-touring-related revenues in the face of the near-total halt in live music globally.
“We’re taking a hit because a lot of our artists’ income is reliant on touring,” explains Mike Skeet, a partner at Skeet Kaye Hopkins (SKH), the London office of US accounting firm Gelfand, Rennert & Feldman. “Our bigger clients can afford to ride things out, but a lot of our smaller artists are concerned they won’t survive.”
After the rescheduling rush in the first few weeks of the crisis, Skeet says much of his Covid-era work has revolved around helping many of those smaller artists access sources of funding. “Previously, they would tour almost non-stop and be out every summer for festivals,” he continues. “So now we’ve been doing a lot of work with helping clients look at government schemes and trying, where we can, to get them help.”
“When you stop running round like a lunatic and stop to focus, you can achieve big things”
Serena Humphrey, a former accountant who runs the UK-based financial coaching company The F Word, tells IQ she is using lockdown to launch The F Word Academy, a ‘finance school for small businesses’ that has been five years in the making and builds on a popular coronavirus business support group she started on Facebook.
Whereas, “at the moment, my team and I can work with 15 to 20 people,” the launch of the online academy scales the F Word business to reach thousands of potential new clients, she explains.
Lloyd Major of Halo Solutions, an F Word client, has similarly realigned his business after agreements to sell the company’s Halo security system to multiple major international venue clients fell through as a result of coronavirus-era purse tightening.
Major, CEO of the company formerly known as Crest Planning, says UK-based Halo lost six-figures’ worth of business – or 50% of turnover – in four weeks in March/April. Now, though, “we’ve picked up open-air cinemas in the East and West Midlands, a contract for NHS [National Health Service] logistics in Hampshire, and we’re talking to well-known artists about behind-closed-doors shows,” he explains.
“While some people would say we might as well just delete the rest of this year, we’re using the opportunity to look inwards and build better internal processes and have a fresh look at our business plans.”
“We’re hurting just like everybody else is”
International payments and foreign-exchange specialist Centtrip has also been hit by the halt in live events, says Freddy Greenish, the company’s head of music, film and entertainment. “We represent the best part of 600 artists, and the summer touring and festival season is always a big part of our year, so we’re hurting just like everybody is,” he comments.
“On the flipside, we have clients that earn foreign income from various different streams – not necessarily just on the live side – and where there’s been quite a bit of market volatility, that presented great opportunities for clients to sell dollars and euros and buy pounds, for example. When it all started to collapse around lockdown, sterling to dollar went to 1.15 [£1/$1.15]…
“So we’ve seen quite a few artists take advantage of that, where the rates have been preferable.”
“In terms of innovation, I do think, strangely, that the challenges have played well to our skillset,” says Paul Bedford, partner at Edition Capital, an investment company specialising in the entertainment and leisure sectors.
“If you are always making capital of strong financial management in a business and something like this comes along, you benefit massively from the fact that most of those businesses already have good habits, such as regularly reviewing cash flow to ensure that they don’t have issues lurking in the future, or, if they do, corrective action is taken to remedy the situation.”
“The shutdown has forced forward and dynamic thinking … where the ‘normal day’ is not relevant”
As the scale of the crisis became apparent, Bedford continues, “each of the senior staff worked closely with around five or six investors to ensure that a robust survival plan was put in place immediately.”
Now, he says, Edition holds “regular update meetings” with those clients “to tweak the plan and to slowly begin post-Covid discussions as to how the business might bounce back.”
“The pandemic shutdown has forced forward and dynamic thinking as it relates to communication and process, where the ‘normal day’ is not relevant,” says Steven Wren, tax partner at SRLV Accountants. “As always, knowing a client’s business inside and out is pivotal in providing proactive advice, as well as ensuring that we communicate with clients on a regular basis.”
Greenish adds that Centtrip has also experienced increased demand for its prepaid, multicurrency MasterCard during the pandemic. “For us, a big one we’ve pushed right from the beginning is trying to take any production or tour cashless through the card,” he explains. “It’s hugely popular, and those artists who haven’t already taken their tour cashless are certainly looking towards it.”
The card even makes sense from a hygiene perspective, he adds: “Even in lockdown we’re all using less cash anyway, as no one wants to transmit the disease.”
“We’re using the opportunity to look inwards and build better internal processes”
Humphrey comments: “This [Covid-19] is going to be in our lives for years now; you’ve got to focus on where the opportunities are. It’s making us all realise we can do big things very fast. This is a lesson in how when you stop running round like a lunatic and stop to focus, you can achieve big things.”
Wren says he has seen many music businesses take advantage of the various government- backed loans available in many countries, as they are seen “as a great source of cheap finance, with some enterprises obtaining significant amounts.” This, he says, demonstrates the viability of the industry to support such debt.
While every business IQ spoke to for this feature is weathering the coronavirus storm, many companies – especially those just starting out, or yet to find their feet – are not so lucky. “There are going to be so many business failures over the next six months,” observes Humphrey. “So many companies just didn’t have a viable business and never worked out how to make money.”
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This article forms part of IQ’s Covid-19 resource centre – a knowledge hub of essential guidance and updating resources for uncertain times.
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Why outside investment is flooding into live music
In the not-too-distant past, whilst working on a potential IPO of a live music operator, I pitched to a large investment fund. Following an in-depth pitch on the growth of the company and the sector as a whole, the fund grandee leaned back in his chair and asked only one question – “What happens to all of the heroin needles after the shows?”
Despite explaining the sector had changed and that artists were now far more focused on image rights and licensed merchandise sales than perpetuating the stereotypes of their forebears, the rock and roll image of live music still lingers in certain quarters today. Seen as an industry led by ‘musos’ and without the professionalisation that has since transformed it, the live music industry traditionally struggled with image problems and was shunned by professional investors.
Happily, however, as the industry has adapted so has the attitude of professional investors. The collapse of recorded music revenues in the early 2000s led to a restructuring of the business model for artists. Albums ceased to be the principle source of revenue but became launch pads for new global rolling tours – some of which last for years. Ed Sheeran’s ÷ tour started in 2017 and has already grossed more than half a billion dollars. The festival sector exploded as the increase in artists touring every year gave them more choice in line-ups and allowed them to attract new consumers.
Professionalisation, along with unprecedented growth in revenues, has helped to shift perceptions for larger investors and seen a flood of new money coming into the sector
Hand in hand with this huge increase in scale, a wide range of businesses shifted from being small cottage industries into larger, more professional outfits. This professionalisation, along with the unprecedented growth in revenues has helped to shift perceptions for larger investors and seen a flood of new money coming into the sector.
Much of the funding moving into this sector is being used for consolidation. The majority of festivals and live venues are still small compared to the industry behemoths that stage thousands of concerts and generate revenues in the billions of dollars. Increasingly, the benefits of consolidation and vertical integration within a company have become clear. Live Nation is the prime example. Its rapid acquisition of venues, promoters and festival brands have helped it establish a presence in every key market but it is its integration of ticketing (through Ticketmaster) that has unlocked value for the business.
With increasing demands from artists for ever higher fees, as well as competition for market share, there is a persuasive logic for small live music businesses to consider being part of a larger collective and share the resources of that network. It is increasingly unreasonable for standalone venues or festivals to compete for global sponsorship revenues from multinational brands unless they can negotiate collectively. Likewise, they cannot devote significant capital to develop new ticketing, cashless or tech solutions on their own.
It is increasingly unreasonable for standalone venues or festivals to compete for global sponsorship revenues from multinational brands unless they can negotiate collectively
This dynamic means that there is a new ceiling in how large a business can become without significant external funding or looking to become part of a larger group.
It isn’t a straightforward decision for the owners of those businesses once they reach that ceiling. Often, they have run their company without reference to a large board or other owners for several years or even decades, and taking on new professional investors or becoming part of a larger, investor-backed group isn’t without its pitfalls. Understanding the ethos of the acquirer or investor is paramount. Do they share your vision for the business in the future? Are you comfortable working collaboratively with a board? These are all questions that need to be considered carefully when deciding on a partner. My fear is that owners will see the money but not consider the impact, and that both sides will end up paying the price.
At Edition, we continue to believe that live music will see exceptional growth and remain an active investor in this sector. We look for businesses that have already developed a compelling product but need that additional financial firepower to push on through to the next level. We believe that the UK will continue to punch well above its weight in developing world-famous talent and brands, and therefore we will continue to look to invest in UK-based firms that can benefit from the underlying trends set out above, and our experience in running live music companies means we can understand both sides of the transaction.
Cashing in on live music: Meet the investors buying into the biz
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.”
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.”