When any 16-year-old with a high-speed Internet connection and a CD burner can make and distribute his or her own Compact Discs, the $14 billion a year recorded music industry is likely to have, shall we say, profit issues. That is, until it finds a better format than the easily shared digital CD.
Despite this challenge, demographic and other trends suggest that the performance side of the music industry is likely to flourish over the next 8 to 10 years. Live concerts are nothing new, of course. Music is performed every week in virtually every conceivable outdoor and indoor venue, from cornfields to concert halls. What's changing is the audience and the ways to market live concerts. The Internet, which enables the free sharing of digital music, also makes marketing live concerts and music festivals much less expensive.
More music is being performed at outdoor venues where multiple bands play on several stages. Instead of being a single two- or three-hour event, a concert can last for days. We are obviously not talking about the Boston Symphony jamming classical favorites with a couple of other orchestras until 2 a.m. Big outdoor music festivals, such as the Lollapalooza tour of the 1990s, feature bands designed to attract young people.
In the next decade, more young people will likely attend these concerts each year. The number of people ages 16 to 24 is expected to increase by more than 4 million, compared with a rise of only 1.7 million between 1990 and 2000, according to projections from the Census Bureau. Gen Y, the 72 million people currently between the ages of 8 and 25, may end up having as big an impact on music as their Baby Boomer parents did when they were young.
Since people under 25 spend more on music than any other age category, according to the Bureau of Labor Statistics, we can expect attendance at music festivals to rise along with increased sales of CDs at concert venues. But the type of music that audience will be hearing and buying will likely change.
Rock music may be popular among this age group, but so is pop, rap, reggae, country, world music and the sub-genres collectively referred to as â€œalternative.â€? Teens can be a fickle bunch, so festival promoters need to stay tuned in to changing music preferences. What is hot one year, such as raves featuring techno music, may be as passÃ© as a three-piece suit the next year.
The increasing fragmentation of the music industry has made it more difficult, and expensive, to reach the aficionados of one particular band or one type of alternative music. Only the more well-established and widely popular groups can afford to advertise in mass media or use the services of ticketing agents such as Ticketmaster.
Niche performers in the music industry, like those in many other businesses, now use e-mail to alert their fans to upcoming concerts or CD releases, and use Web sites to sell their tickets. The Internet is efficient at reaching only those people interested in a particular type of music and helping fans bypass the surcharges imposed by ticket agents.
The music festival business has evolved over the past 20 years to include much more than just outdoor concerts like the ones at Tanglewood in the Berkshires. Beyond renting a big arena and bringing together numerous bands, promoters now line up vendors for food, merchandise and other entertainment, as well as arrange for parking, camping areas and environmentally sensitive cleanup crews, such as Clean Vibes.
A relatively small outdoor music event might have 15,000 to 25,000 attendees. But with tickets selling for $100 and up, plus payments from sponsors and vendors â€” and fees charged for camping and other services â€” each event can generate a cash flow of $5 million or more, according to my estimates.
The prospect of tapping in to that mother lode of cash is enough to interest at least a few of the more adventuresome investors. But this can be a tricky business, and there are lots of possibilities for losing money. Any number of things can go wrong, including bad weather, hiring the wrong bands or attracting an unruly crowd that gets out of control.
Nevertheless, the audience of young music fans is getting bigger every year, and recent history suggests that many of them are willing to spend freely to see some of their favorite groups perform. If some promoters or entrepreneurs were able to reinvent this sector of the music entertainment business the way Cirque du Soleil reinvented the circus business, they might be on to something. When Cirque du Soleil started out, private investors wouldn't finance them. But with seed money from the Canadian government, the company has gone on to become a global enterprise with nearly a billion dollars in revenue.
The key element in making money in the music event business is understanding what the specific audience segments for each type of music want to hear. Once that is known, an event Web site (which can take ticket orders and has links to the performers' Web sites), along with some ads in targeted fan magazines, can efficiently reach the right audience.
It's a challenge for those who put on music festivals and concerts to find the right venue, arrange for sponsorships, sign up vendors and provide adequate security and cleanup services. It is not difficult to find firms or individuals with expertise in these areas. But as with so many other enterprises, it is marketing expertise â€” the ability to attract enough customers to make a venture profitable â€” that makes the crucial difference.
During the next several years, the tens of millions of 16- to 24-year-olds who are now burning their own CDs will pay to hear their favorite bands in a place where they can dance, camp, buy merchandise and otherwise be entertained. It remains for an enterprising individual to survey youthful music fans within a day's drive from a chosen venue to determine what type of music and which new performers would likely attract, say, 25,000 customers spending an average of $200 each. Create and market 10 such events around the country each summer, and the result is a $50 million a year business, the profit on which will likely depend on the accuracy of the research conducted and the decisions made long before the concert begins.
Peter Francese is the founder of American Demographics. He can be reached at email@example.com.