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‘Peak Bleak’ and the ‘Margin Call’ of Live Entertainment

Since my last scribblings Post-Lockdown: Remote-Experiences; the ‘Gig Economy’; Follow the Mon€y & the Disruption of Live some industry colleagues have remarked that perhaps my perspective is a little dark, overly simplistic or even negative with regards to the abilities of the live entertainment sector to eventually bounce-back, with renewed enthusiasm and energy.

We are only a few weeks into this lockdown, and all having to adapt to an evolving environment, with imprecise and isolated information and so it is difficult to be certain, but the outlook is not good.

I will obviously be very happy to be ultimately proved wrong, but in the current environment of a deadly pandemic with an associated economic downward-spiral of furloughs, layoffs, zero commercial activity, and no immediate horizon for an improvement, arguably it’s going to get a lot worse for the live industry before whatever level of relaunch happens along.

Stock Markets

Source: https://www.bbc.co.uk/news/business-51706225

And the timing of any recovery? Don’t be mistaken in thinking it’s going to be anything other than a painful and difficult process and take longer than many currently imagine (Why The Global Recession Could Last A Long Time – Peter S. Goodman, New York Times).

IMF Blog

https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/

So that is the current and future macro-economic reality for the live industry, but more specifically.

 

‘Peak Bleak’

Last week Variety reported (‘Concert Industry Hits Peak Bleak as Artist Guarantees Disappear, Refunds Get Complicated’ – Shirley Halperin, Jem Aswad) that across the live music industry there was an urgent recalculation of the supply-side economics with artist guarantees likely to all but disappear in the near-future and negotiations with promoter-producers would likely involve some form of shared-risk becoming the preferred format for anyone willing and able to tour.

It was further reported that any 2020 events not yet announced were effectively cancelled and that the surviving, often already rescheduled, festivals were now offering a 35% reduction on artist fees: take-it-or-leave-it.

On the demand-side there was also reference to the apparent change in ticket agency refund policies, as reported by the New York Times and others (‘Angry Fans Say First the Concerts Were Canceled, Then the Refunds’ – Ben Sisario) stating that only events with full cancellation would be refunded.  But for postponed or rescheduled events consumers would be expected to continue to wait for further updates or event maturity.

This position immediately attracted the ire of consumer groups, politicians, and media commentators (‘Ticketmaster Quietly Changes Its Refund Policy (TL;DR: You’re Screwed)’ – DigitalMusicNews + Ticketmaster, StubHub, Eventbrite Have All Changed Their Refund Policies – A Journal Of Musical Things), resulting in further policy clarifications and statements (Ticketmaster Clarifies US Refund Policy – IQ Magazine) which merely served to add to the noise and seemingly confirmed a business sector reverting to self-interested type and distancing itself from its consumer-facing moral if not legal obligations.

The Variety article also examined the role played by the self-styled ‘Global Taskforce’ (Statement From Live Nation, AEG, CAA, WME, Paradigm And UTA) the largest live entertainment agencies and promoters, who previously (March 12th) collectively coordinated and then presented a halt to concerts until the end of the month.

But unstated was that the joint-industry conference calls had obviously continued.

And not just to discuss the conflicting future logistical demands of routings and timings for artist and venue availabilities, but also if/when the pandemic should recede sufficiently for the live music industry to make any form of meaningful return.

However, the live sector isn’t the master of its own destiny with the U.S. (still its dominant market and economic driver) experiencing mass unemployment (22M Out Of Work In US As Coronavirus Takes Heavy Economic Toll – The Guardian) , and corporations across all industries desperately attempting to save cash, cutting costs, refinancing debt or pivoting operations to manage the economic fallout.

The Federal Government’s ‘gating criteria’ for the re-opening of venues effectively passed responsibility for the implementation of any timetable to the individual States. And many Governors (New York Extends Stay-At-Home Restrictions Through May 15 – Billboard) and city Mayors (Coronavirus Could Halt L.A. Concerts, Sporting Events Until 2021, Garcetti Says – L.A. Times) across America have indicated that without meaningful testing and protection, and with an effective vaccine still many months away, there will be no large-scale sporting events or concerts permitted until 2021 (New York And LA Mayors Say Live Events ‘Difficult To Imagine’ Until 2021 – Billboard).

Against this background, there was suddenly a fundamental change in the dialogue between the leading live music organisations and its consumers, fans, and patrons.

 

The ‘Margin Call’ of Live Entertainment

Margin Call

(© Before the Door Pictures / Lionsgate / Roadside Attractions)

As you’re all be aware ‘Margin Call’ is a 2011 film written and directed by J. C. Chandor (https://en.wikipedia.org/wiki/Margin_Call).  Essentially the story takes place over 24-hours at an investment bank during the early stages of the 2008 financial crisis and concerns the amoral decisions taken by senior executives to isolate and self-protect the company.

Substituting the above movie poster with headshots of the ‘Global Taskforce’Jay Marciano (Chairman and CEO, AEG Presents), Dan Beckerman (President and CEO, AEG & Board Member, ASM Global), Michael Rapino (CEO and President, Live Nation Entertainment), Rob Light (Managing Partner and Head of the Music Division, CAA), Marc Geiger (Partner and Head of Music, WME), Sam Gores (Chairman, Paradigm), Marty Diamond (Head of Global Music, Paradigm) and David Zedeck (Partner and Global Head Of Music, UTA) – would these executives now facing a similar global meltdown and potential fiscal ruin react in the same self-interested way?

The New York Times on April 16th first revealed (‘Concert Giant AEG Offers Frustrated Fans A Refund’ – Ben Sisario) that AEG was to offer a rolling 30-day refund period for all Coronavirus rescheduled events:

AEG’s refund window will work like this: On May 1, fans will have 30 days to request refunds for shows that have already been rescheduled. After May 1, they will get 30 days from the time new dates are announced.

This policy was consistent with the measures first taken by AEG / Goldenvoice following the original rescheduling of Coachella to October (It’s Official: Coachella Has Been Postponed Until October – L.A. Times), and importantly, this wider ticket refund statement had been agreed in advance with the various major talent agencies, all members of the ‘Global Taskforce’ and therefore under negotiation for some time.

 

Twenty-four hours later (April 17th) there was a follow-up article, again in the New York Times which revealed (Under Fire, Live Nation Outlines New Ticket Refund Plan – Ben Sisario) the response from Live Nation.

Like AEG there would be a rolling 30-day refund period for all Coronavirus rescheduled events, starting May 1st.  Additionally for Live Nation promoted events there were a number of incentives offered to consumers to hold on to their tickets, including the issuing of customer credits worth 150% of the tickets’ value to use on future events (albeit the program only applied to the U.S.).

 

Pushed or Jumped?

In the days surrounding these announcements, two members of the U.S. Congress – Representative Katie Porter and Congressman Bill Pascrell – had called on Live Nation and Ticketmaster to refund fans’ money for postponed as well as cancelled events:

‘With Americans weathering the brutal and continuing impacts of this global crisis, your decision to confiscate their money is reprehensible and should be reversed immediately’ – https://pascrell.house.gov/news/documentsingle.aspx?DocumentID=4260

Additionally, NY Senator James Skoufis had requested the New York Attorney General open an investigation into the practises of Ticketmaster.  A spokesman for the Attorney General had declined to discuss but added ‘We are already looking into the matter.’

Ticketmaster had previously denied changing its refund policy, saying that it only clarified language on its website, but Jared Smith (President Ticketmaster) now stated (April 17th):

Ticketmaster, with the support of our clients, intends to honour our longstanding practice of allowing refunds on cancelled or postponed shows https://blog.ticketmaster.com/a-message-from-ticketmaster-regarding-live-event-refunds/

The post further detailed that there were approximately 55,000 events on the Ticketmaster system between March 1st and the end of 2020, but that 30,000 had already been postponed or cancelled as a result of COVID-19.

Of those 30,000 events, over 12,000 have already been cancelled and Ticketmaster is actively issuing refunds to every one of the purchasers of those events.

A further 5,000 events have been rescheduled, and organizers have now authorized the issuing of refunds to consumers who request them.

Of the remaining 14,000 events – including sports, concerts and theatre shows – event promoters are apparently still considering options of rescheduling or cancellation, but as soon as Ticketmaster has confirmation of those decisions they would be passed onto consumers, with associated refund or ticket retention instructions.

The post confirmed that it is the standard business practice of the Ticketmaster platform to dispatch revenues to event organizers on a weekly basis as tickets are sold.  And Ticketmaster had apparently already distributed approx. $2Bn to those event organizers ‘making it impossible to issue refunds to fans before recouping sales receipts from the organizers, as we’ve done in the past.’

But that ‘Ticketmaster intends to refund as many tickets as possible in as timely a fashion as is feasible.’

 

The Liquidity of Live Nation / Ticketmaster

In preparation for the rolling release of ticket refunds for postponed and further cancelled events, Live Nation (including Ticketmaster) had announced four days earlier (April 13th) (https://www.livenationentertainment.com/2020/04/live-nation-announces-credit-agreement-amendment-additional-revolving-credit-facility-and-cost-reduction-program/) an amended credit agreement, an increased revolving credit facility and the targeting of approx. $500M in cost reductions during 2020.

After speaking to ‘Joseph Bagodonuts’ (a former accountant for one of the ‘Global Taskforce’) and a number of other industry colleagues, but without issuing a formal disclaimer (‘Past performance is not necessarily indicative of future results. All investments carry risk and all investment decisions of an individual remain the responsibility of that individual’), the following points are intended to prompt further discussion, and should only be interpreted as opinion, for which apologies in advance for any technical errors.

 

The amended credit agreement ensured that Live Nation was granted relief from the debt covenants for Q2 2020 and Q3 2020, because their bank realised due to the cessation of events, that there was likely no way to meet them.

Before this action, Live Nation was annually paying approx. $140M in debt interest with, as of December 31st 2019, approx. $3.4Bn in debt and $2.3Bn in operating leases (Live National Entertainment, 2019 Annual Report: https://investors.livenationentertainment.com/sec-filings/annual-reports).

Live Nation has successfully negotiated an additional (or higher) $120M line of credit, increasing its available borrowing to $940M – $400M from the debt facility and $540M from the revolver.

As part of cost reduction efforts Live Nation will implement salary cuts for senior executives, hiring freezes, reduction in the use of contractors, rent re-negotiations and furloughs with Live Nation indicating its intention to utilize the robust payroll support programs offered in the UK, Germany, Italy, France, Spain, and Australia to mitigate a substantial portion of employee costs.  Additionally, in the U.S., Live Nation expects to receive payroll support under the Employee Retention Credit for employer’s program established as part of the 2020 CARES Act.

Live Nation operating expenses are approx. $2Bn annually, so the next two quarters would normally see them burn through half of that, hence the need for $500M in costs savings – which should help see them through this year.

These actions would apparently raise the overall company liquidity to $3.8Bn.  But money received for events past February 29, 2020 are listed as event related deferred revenue which totals $2Bn and this may be a limiting factor.

Live Nation Cash

 

However, Live Nation expects that going forward not all customers will request ticket refunds (apparently over the last month only 5% – 20% of ticket holders for rescheduled shows have done so), with the vast majority preferring to hold on to their tickets for the future date(s).

Based on these trends, as well as an analysis of scenarios where refund rates increase above 20%, aided by the allowance that some international Governments including Germany, Italy and Belgium now permit the issuance of vouchers in place of cash refunds, and planned OnSales in late 2020 for events in 2021, Live Nation is confident it has sufficient liquidity:

‘… gives the company a total liquidity position of $3.8 billion. While event-related deferred revenue balances fluctuate over the course of the year, given the timing of shows in 2020 and expected substantial volume of on-sales for 2021 shows in the second half of this year, the company expects this number to remain above seasonally normal levels throughout this year.’

 

However, Live Nation ceased all concert activity in mid-March, and so the company’s Q1 2020 operating loss is expected to widen versus prior year with adjusted operating income (AOI) expected to drop from being in-line with 2019’s strong first quarter results to a loss, while revenue for the quarter is expected to be down approximately 20%.

Admittedly, Q1 2020 metrics do not tell the full story not least because it is typically the weakest of the year.  And in an interview with CNBC (https://www.youtube.com/watch?v=BVnp6QcOQqQ), Joe Berchtold (President Live Nation) offered an positive tone for the company’s future resilience and remained cautiously optimistic for the remainder of 2020, whilst stressing the consumers appetite for live events would remain undiminished when they (eventually) return in 2021.  (A gamble but what is the guy meant to say?)

However, most of Live Nation’s direct expenses are artist fees. So, two big questions:

Firstly, does Live Nation have ‘Force Majeure’ coverage for the already cancelled or postponed events?  Presumably not, or not consistently across all events, otherwise this would have been a good opportunity to trumpet the fact that they will be able to recover some costs.

Secondly, will Live Nation be able to exert downward pressure on the cost of talent going forward to ease the recovery of live?  Should artists and their management expect tougher negotiations in the near-future?

Additionally, events that were originally scheduled for May, June and July 2020 are currently very uncertain if not already lost.  Given that Q2 and especially Q3 are the key quarters for Live Nation (in 2019 Q2 + Q3 revenues were approx. 60% of annual total or $6.9Bn) the fact that events for August, September and beyond may also need to be cancelled or postponed will impact future projections and overall sustainability.

An article published (April 18th) by Bloomberg (The Music Industry’s Lost Summer: No Bieber, No Swift And Mass Layoffs) suggests that most promoters are increasingly accepting that 2020 is indeed a write-off:

‘The live concert industry might be in the most difficult position of any industry in America. … They talk about airlines. They talk about the auto industry. But the reality is they’ll be back in business way before the concert industry is back.’ – Gregg Perloff, Another Plant Entertainment

Another problem for Live Nation is where it has successfully postponed or rescheduled shows.  Even assuming the proportion of customer refunds remain consistently low, then Live Nation still has a level of increased show costs (the extended ticket sales window and complications resulting from refunds and rescheduling, event re-marketing, revised production services and event logistics, venue cleansing & hygiene, incremental insurance etc.), for a reduced number of events, inevitably attracting fewer attendees, with arguably lower spending on incremental services (F&B, Merchandise etc.) as even those consumers keen to attend will have less cash.

Additionally, Live Nation will have impaired sponsorship and endorsement deals – historically only 5% of its total revenue, but it accounts for up to 45% of its AOI.  In a recent WSJ article IEG reported that a six-month shutdown of live sports and entertainment would put at risk approx. $10Bn of sponsorships – ‘Live Sports and Entertainment Are Shut. Sponsorships Are Taking a Hit’ (SubReq).

Lastly, the act of postponement of events to late 2020 or even 2021 will effectively push concerts, festivals and tours into a new extended timetable and possibly neither artist diaries or venues will be able to easily accommodate this shift without impairing events originally planned for next year – even assuming consumer disposal income, demand for, and access to events has fully recovered.

In 2019 Live Nation had a total annual revenue of $11.5Bn  (https://investors.livenationentertainment.com/) but the full impact of COVID-19 will see that dramatically downsize this year and could also impact 2021 as the activities initially planned for 2020 effectively become split over two years, if not longer, and the cashflow impact is therefore extended for 12-18 months.

They can currently borrow approx. $940M but will have little-to-no revenue to cover any additional unplanned costs.  Add in their pre-existing debt service and unless there is a dramatic global breakthrough in vaccine and personal protection, they are at some point heading back to the ATM.

As previously outlined the live entertainment financial ecosystem as currently designed only works on velocity – covering one event reconciliation (debt) with the next Onsale (deal).

And it all stopped.  At once.  Dark enough for you?

 

***

Contact: chambers.tj@gmail.com

 

 

 

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Post-Lockdown: Remote-Experiences; the ‘Gig Economy’; Follow the Mon€y & the Disruption of Live

Following on from previous posts Op-Ed: The Nationalisation of Live? & Refunds, Cashflow & Live Entertainment M&A, in this evolving Coronavirus environment there is now beginning to be some discussion surrounding the future structure and operations of the (original) ‘gig economy’, albeit against a background of continued event postponements and cancellations, with an increased number of live entertainment company casualties with widescale layoffs and shutdowns, and more undoubtedly to follow.

Post Lockdown

During the current lockdown – Stay at home | Protect the NHS | Save lives – everyone is short-term concentrating on safety and survival, whilst also seeking statistical proof that the COVID-19 infection has peaked.

Once the spread of the epidemic has demonstrably been slowed government officials are not likely to then immediately relax the quarantine measures but will seek to keep control of public assembly, and continue with some level of advisory health controls and/or regulated social distancing for an extended period.

Recent announcements by the Society of London Theatre (‘West End theatres to remain closed until at least May 31’ – The Stage), Broadway (‘Shows were initially slated to close through April 12; they’re now hoping to resume in June’ – Playbill), the English Cricket Board (‘ECB announces delay to professional cricket season’ – ECB), and others including AEG forced to cancel this years ‘BST Hyde Park’ festival season originally scheduled for July (London’s BST Hyde Park 2020 canceled due to Coronavirus – MusicBizWorld), all suggest a nervousness and safety-first approach to any potential relaunch of mass live entertainment, with any ‘all-clear’ signal unlikely to be issued in the near weeks, or months.

So, the live industry should (currently) assume that the late summer / autumn is the (very) earliest before the resumption of any government permitted level of larger scale events can reasonably take place.  And then only with a new focus on event hygiene and security for artists, staff and the public – with temperature sensing scans at entrances and/or continuous monitoring and certification for employees at any service businesses already being discussed (Bob Iger on Disney After Coronavirus: Disney World and Other Parks Could Screen for Illnesses – Barrons + Oak View’s Tim Leiweke Talks Post-Coronavirus Safety Standards for Arenas and Stadiums – Variety ).

Whilst there will undoubtedly be some relief and joy for people to remerge from the enforced isolation, there will also be the first chance for many to grieve over lost ones, and to acknowledge the sacrifice and superb leadership exhibited by the front-line heroes of the health service and other essential workers in food manufacture & distribution, public transportation and the various utilities whom have served all of us during this dreadful episode.

Never again should anyone doubt the fundamental importance of a robust, vibrant, well-funded and fully equipped health service, with universal free delivery at point-of-use.

 

Post lockdown, it is likely that following any eventual relaxation of anti-Coronavirus regulations there would initially be events occurring at local, smaller-scale bars and clubs, spontaneous street parties, informal mass picnics or community events.

Rather than an automatic industry relaunch there will be some societal nervousness about gathering in any large numbers, with perhaps a series of venue ‘soft-openings’ with deliberately scaled back attendances whether arenas, cinemas or theatres with alternate empty seats or rows to deliver lower density capacities, and an increased focus on clean and safe, sanitised environments to reassure the return of audiences.

Whilst there will a welcome embrace of the ‘idea’ of attending events, there inevitably will be some hesitancy, informed in part by the previous scale of infection and the legacy of how it has affected local communities.  A recent study by Performance Research (‘COVID-19 is ratcheting up consumer anxiety about future events, but there are silver linings for the sports and entertainment industry – Performance Research) suggests a return by consumers to events may take a few months, and this survey was taken before the full impact of COVID-19 to the American public became apparent.

Due to the financial and logistical requirements of organised entertainment – concerts, festivals, sports and theatre – of coordinating talent, promoter-producers, venues and event co-promotional partners as well as a myriad of production technologies, services and support staff, all this organisational and logistical energy will also require effective ‘back-to-live’ marketing campaigns and the expressed permission of various regulatory authorities.

Inevitably the industrial return to live will therefore take a longer period, perhaps months stretching into 2021, and it will then not easily return to the scale and operational ways of old, or immediately to the same level of fiscal activity.

 

Future scenarios?

After the virus how people work, shop and socialise will inevitably change.  Some with temporary behavioural shifts others in more markedly and fundamental ways.

Potentially some forms of social distancing will continue via:

Remote-working with a diminished need for centralised permanent office accommodation but with the requirement for networked staff to have ready access to efficient broadband, configurable telephony, virtual team-meeting software and personal printer/scanners;

Remote-shopping will accelerate across many sectors with the hygiene of the journey to/from the purchase as well as the enviro-experience at bars, restaurants, retail outlets and venues will be a consideration for many;

Remote-payments will mean an even greater level of online purchase across all sectors, acceptance by legal authorities of electronic signatures, and the wider adoption of near-proximity contactless technologies with secure biometric identification;

And, Remote-concerts will become part of the event-mix, encompassing broadcasts from a single location to local digital cinema’s or domestic devices, livestreaming, or VR / AR experiences.  As the noted digital-tech consultant Gareth Deakin has commented ‘this particular genie isn’t easily going back into the bottle’, which has implications over the monetisation of live performance rights going forward.

 

The ’gig economy’

The historical ecosystem of the live entertainment industry producing economically scarce, site-specific, time-sensitive, limited inventory, historically under-priced aka ‘sex & spectacle’ looked something like this:

Ecosystem

These socio-economic strata:

Artists / Promoter-Producer / Venues / Media, Advertising & Sponsorship / Ticketing

represent the economic relationships that underpin the live entertainment sector, with all intermediaries connected via a series of supply-side rewards and incentives and predicated on the belief that the FOMO-fuelled end-consumer will pay.

 

The Artist (typically within the music sector from the US or UK) negotiate via their Management and/or Live Agent with the Promoter-Producer (historically operating as the Bank and event guarantor) regarding their Fee – usually calculated as a percentage of the Ticket Face-Value x Sales, after mutually agreed show costs and taxes.

The Fee is either a Fixed amount or Fixed + Percentage (triggered by actual show grosses), with a proportion to be paid upfront as a Deposit.

Historically, the Artist and their Management (typically incentivised by a split of all Artist earnings whether Publishing, Recorded, Sync, Merchandise, Image Rights or Live) have exploited and monetised their economic and cultural scarcity whilst incrementally moving the show-split over the last couple decades from: Fixed Fee to Fixed Plus Percentage e.g. 70-30 Artist-Promoter after costs; then 80-20 Artist-Promoter; 85-15 Artist-Promoter; to 90-10 Artist-Promoter which is now the new entry point for emerging bands or established heritage acts.  (*Artists, if you’re not getting 90-10 maybe it’s time to consider new management?)

However, major international touring Artists (name you favourite household pop superstar) can now receive up to, and on occasions equal, or even exceed, 100% of the stated ticketing revenues.  (But whom and how, that’s another post.)

The Promoter-Producer in conjunction with the Artist determine the Ticket Face-Value pricing and agree upon overall event budget including production and marketing etc.  As mentioned earlier a deposit of up to 50% is paid at exchange of contract to perform, with 100% due by event maturity.  Approximately 3-6-18 months can elapse between the initial agreement and the first date performed under that contract.  Hence the continual need by Promoters for access to cash to fund day-to-day operations.

Promoter-Producers are primarily responsible for the coordinated marketing of events and the distribution of the ticketing rights, with some exceptions for Artist D-2-C ticketing allocations.

Promoter-Producers also rent or otherwise provide Venues (including ‘Greenfield’ sites for festivals) and arrange for production services – Staging, Power, PA, Lighting, Tour Catering etc.

NPO’s (National Portfolio Organisations) refers to those 663 entities in the UK whom between 2015-18 were in receipt of £1Bn of central government funding via the Arts Council England.  In other territories, for example Kulturrådet (Arts Council Norway), Pro Helvetia (Swiss Arts Council), or in the USA, the National Endowment for the Arts, have similar cultural funding support mechanisms, as well as other regional or local civic cultural supporters, albeit on a global basis this type of centralised cultural funding has overall declined in real terms during the last decade.

Venue operators typically contract with (external, but not always) Promoters to rent their Venues for specific events on specific dates and receive fixed hire fees and/or a percentage of ticket revenues.  Venue rental agreements typically include a contractual allocation to the ‘house box-office’, serviced either via a B-2-B ‘white-label’ ticketing solution or managed by a 3rd Party B-2-C ticket retailer.

Some Venues may self-promote but typically only in-house (or across their own Venue network) and usually seek event formats or attractions not competing with their main promoter content-suppliers.

Additionally, Venue operators may provide services such as F&B Concessions, Parking, Security, Ushers and Ticket-Scanning, and will receive part/all the revenues from those concessions, car parking, premium seating & hospitality boxes, venue-specific sponsorship and a commission from any on-site merchandise sales.

Typically, there will also be several overlapping event co-presenters and co-marketing partnerships involving Media, Advertisers, Sponsorship and commercial Affiliates.  Some will be exclusively contracted via the Artist with others linked with the specific tour, residency, or sports season.  Some will be contracted by the Promoter with a potential contribution back towards show settlement, and others are tied to Venue agreements which may on occasion override some of the touring arrangements.

Ticketing encompasses the four main service activities:

PreSale – to special interest and closed user groups, fan clubs, or preferred credit card users;

OnSale – the typical agency retail marketing and distribution service including the sale of tickets primarily through online channels but also through mobile devices, outlets, box office channels and/or 3rd Party Affiliates;

UpSalethe Ticket + Bundle (download, ringtone, or physical product), or Ticket + Package (soundcheck access + hotel + travel with concierge service etc.), or Ticket + Hospitality (ranging from ‘Pie & Pint’ to ‘Canapes & Champagne’ and beyond);

ReSale – whether the dynamically-priced official inventory or the oft speculatively-listed ‘unofficial’ marketplace distributed ticketing.

 

Contrary to popular belief, the ticketing service company does not set (primary) ticket prices or determine seating charts for events as this information is usually provided to them by the Promoter and/or Venue responsible for the ticket inventory.

B-2-B / SaaS ‘white-label’ ticketing service providers usually receive a per ticket processed license fee with product upgrades, maintenance and hardware sales as incremental revenue opportunities.  This can equate to low cents-per-transaction revenues, in part due to the commoditization of this service sector, but volumes are huge with most of the global ticketing sold via these technology platforms.

For B-2-C ticket retail agencies – AXS, Eventim, SeeTickets, Ticketmaster etc. – they typically receive a fixed fee per ticket sold and/or a percentage of the total per ticket and per transaction service fees, with the balance paid as a rebate to the ticket inventory rights owner(s).  This can equate to a considerably higher gross per transaction, but within that is the operational expense of ticketing as well as the various marketing contributions, rebates, commissions and kick-back to inventory suppliers.

Venue Restoration Fees and other local sales taxes may also be applied to the final ticketing checkout.

 

And the role of the Consumer / Fan / Patron / Supporter in this ecosystem is to buy, weeks or months in advance of their desired event experience, a ticket which is usually non-transferable (’All Ticket Sales Are Final’) with limited access to exchange or refund, and which year-on-year becomes ever more expensive.

 

Ticket Prices

Concerts Are More Expensive Than Ever, and Fans Keep Paying Up (10.09.19) – Bloomberg

 

Follow the Mon€y

Within live entertainment, content is king, which determines the availability and the 90/10 or more, cost of the Artist talent, with resultant ticket pricing reflecting those market conditions, although post-virus there may be a (brief?) period of recalculation.

However, distribution has been the key to the monetisation of live, delivered in part via the network of international Promoter-Producers and the growth of new Arenas and Stadia.

The Promoter-Producer has historically been the ‘Bank’, but that may not necessarily be the case going forward – especially if there are any number of sector bankruptcies requiring a formal restructuring of escrow accounts.

Ticketing represents just one event opportunity, with the ticket (face value) revenues split between Artist and Promoter-Producer, and the various associated Service Fees potentially shared by all event partners: Artist-Promoter-Venue-Sponsors-Ticketer.

Ticket Fees

Artist-related live event revenue opportunities now include:

Fixed Fee & Percentage Show-Split, PreSale & OnSale partnerships, UpSale Bundles, Packages & Hospitality + Dynamically-Priced Inventory + Artist-Specific Advertising & Sponsorship + Merchandise Commission

Promoter revenues include:

Show-Split + retrospective period-based rebates from Venue Booking + volume-discounted production services (Staging, PA, Lighting, Security, Power, Toilets) + Non-Artist– Specific Sponsorship + bulk-purchased & discounted Advertising & Co-Marketing Support + F&B Commission + Merchandise Commission + Bundled Broadcast / Streaming / Event Cinema Rights ‘Live From ….’ – but not the I.P.

 

Other revenue derived via ReSale GTV (Gross Transactional Value) is increasingly captured by (Primary) event Rights Owners – Artists with Promoters, or Sport Franchises –  and delivered by the Ticketing partner, for a margin.  There is also a growing convergence and blurring between Primary & Secondary to become a single (dynamic) ticketing marketplace – AXS Marketplace, Eventim fanSale, SeatGeek, StubHub, Ticketmaster+, StubHub, VividSeats etc.

 

It is notable that the Promoter-Producer now has less incentive to achieve event Sell-Out, rather they are now orientated to reach event Break-Even and then develop show-related incremental revenues, some of which may not always be considered within the orignal Artist-Promoter engagement agreement.

 

The Disruption of Live

The live economic model has been fundamentally shattered by the enforced COVID-19 shutdown, and the maintenance of any entertainment company operations without revenues has been impossible for many – not least because of the sector reliance on freelancers, self-employed and zero-hours staff.

Thus far, postponements and event cancellations have been the primary operational focus of promoter activities, with the administration of those decisions typically handled by their social media and marketing teams and the various venue box offices with associated ticket agencies.

Much of this process is now having to be managed remotely, with staff having to methodically work through customer contact, relay updated event information, and respond to any requests for ticket exchange or refund as determined by the promoter T&C’s.  As explained previously many promoters may not be able to satisfy all refund requests which is why postponement (with tickets remaining valid for the rescheduled date) is their preferred position.

It is also notable that some Governments (Italy, Germany and Poland) have supported the issuing of Credit Vouchers by promoters instead of cash (Germany introduces ticket voucher scheme – IQ Magazine) which assists in extending the liquidity of the sector.

But furloughs, layoff and closures are now occurring daily, increasing in scale and affecting all aspects of the live ecosystem.

The major artist agencies (‘It’s the level of dishonesty’: Former Paradigm staff furious over handling of layoffs – LA Times), secondary marketplaces (Viagogo reduces workforce in Limerick due to COVID-19 spread – Irish Examiner), and ticketing platforms are amongst the first to cut-back on staffing numbers with the most notable example in the last few days being Eventbrite (Eventbrite Announces $100 Million Annualized Expense Reduction Plan – BusinessWire).

Their Board have moved to protect the company with deep cuts to staffing, impacting 45% of their global workforce but with a focus on their music division, business development and operations teams, apparently designed to save $100M on an annualised basis.  So, this buys them some time.  But after the virus what is Eventbrite then?  Simply put, less.  And stripped-back in a post-virus depressed events market in which they will have strategically focussed on the self-signup clientele whom overwhelming use the free admissions and marketing toolkit solution rather than the B-2-C music promoter platform previously being developed following the acquisition of Ticketfly by Eventbrite.

The future for the company, and the senior management/founders currently looks bleak, with questions already asked about the efficacy of recent transactions, the timing and resources required for any eventual re-launch, and speculation as to whether the company will be able to attract new capital or whether Eventbrite itself may now be an acquisition target for others.

The live industry is also awaiting an update from the ‘Global Taskforce’ following the original statement March 12th 2020 from Live Nation, AEG, CAA, WME, Paradigm & UTA (PR Newswire) which collectively recommended large scale events be postponed through to the end of March and small-scale events follow guidance set by their local government officials – a timeline now passed.

Given the fundamental importance of the 2nd & 3rd quarters to the annual performance and sustainability of many North American-based live entertainment organisations any extension to the current disruption will have severe and widescale repercussions.

 

***

So, what next?

Live was essentially a cash business and alongside Gambling and Prostitution had a not very classy habit of referring to the end-user as a ‘Punter’.  Except now live has no cash.

Some companies and their commercial relationships will now inevitably fail as the live ecosystem is stretched beyond anything previously envisaged.

This will undoubtedly lead to some painful challenges that will need to be overcome.  But it will also bring new opportunities and the development of creative solutions as the live experience is a core fundamental of life and the attraction and appeal of the live experience will return.

But how will the live sector evolve post-virus?

Arguably the first step is to engage now in resolving some of the fundamental issues of the sector: meaningful access to capital for live cultural forms and activities; definitive sector reporting with increased transparency over audiences, revenues and employment; commercially sustainable and creative careers for practitioners and enablers; the embracing of collaborative working practises and harmonisation of health & safety standards; and an improved mindfulness towards our end-consumer – the ticket buyer.

Comments, as usual via: chambers.tj@gmail.com

10th April 2020

Categories
Uncategorized

Refunds, Cashflow & Live Entertainment M&A

As outlined in my previous post ‘Op-Ed: The Nationalisation of Live?’ (https://tjchambers.com/2020/03/28/op-ed-the-nationalisation-of-live/), following the eventual decline of the Coronavirus COVID-19 pandemic, there will be a number of ticketing organisations that may not have survived an extended trading period with little or no revenue and unprecedented refund requests.

Furloughs, layoffs, and cutbacks across the live entertainment sector are already impacting artist management, live agencies, promoter-producers, venues and ticketing service companies.  With more casualties to follow.

A recent Billboard article ‘Everyone Else Will Likely Go Out of Business: Why Most Ticketing Companies Won’t Survive COVID-19’ (https://www.billboard.com/articles/business/touring/9344816/coronavirus-why-most-ticketing-companies-wont-survive-covid-19) reported on the extreme fragility of a number of North American ticket retailers due to their exposure relating to advances historically made to concert and festival promoters before event maturity.

This calculated cashflow gamble – a by-product of the (B-2-B) market competition for clients – may ultimately imperil the fiscal well-being of many of those interlinked across the ticketing sector or potentially expose the end-consumer to the possibility of no (B-2-C) refunds being available.

Eventbrite

Eventbrite Inc. (02.04.20) via Google

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PaaS – Postponement-As-A-Strategy

Increasingly some within the primary ticketing market are utilising PaaS (Postponement-As-A-Strategy), with tickets already purchased for events now apparently valid for the rescheduled concert / conference / festival / sports tournament now provisionally timetabled for later this year or even 2021 as a (necessary) cashflow tactic, with attendant social-media marketing requests for consumers to #KeepYourTicket.

Others have creatively engineered upgrades to their ticketing UX to enable the conversion of part, or all, of the refund to become a donation to the charitable arthouse / museum / theatre etc.  But only those with more fiscally secure audiences can successfully plead that organisations need the money more than individuals for any extended period.

The UK Government has confirmed that charitable organisations can also claim ‘Gift Aid’ on any ticket refund-donation so further rewarding (incentivising?) support for this initiative (https://www.thestage.co.uk/news/2020/coronavirus-theatres-can-claim-gift-aid-on-donated-ticket-costs-government-confirms/).

The secondary ticket market, who inserted themselves into the live entertainment business over the last decade with their claim to provide an arbitrage alternative (to the restrictive T&C’s of primary) enabling both P-2-P & industrial scalpers access to exchange facilities (albeit typically for a margin considerably above the original face value for high-demand events) for those with ‘unwanted’ tickets, are now increasingly unable to provide payments for tickets resold, or refunds for cancelled or postponed events and so are offering credit vouchers to be redeemed at some point in the future.

In this fast-moving environment, questions are now being openly asked by a growing number of industry commentators, including Eric Fuller (What will ticketing look like after StubHub files for bankruptcy? It’s Time To Decide’ https://medium.com/@ericsfuller/what-will-ticketing-look-like-after-stubhub-files-for-bankruptcy-its-time-to-decide-533bc2e8eeab), as to whether some major players in the secondary market can survive the current cashflow crisis.

Coupled with the inability of many event promoter-producers to adequately cover the costs of rescheduling or cancellation of concerts, tours or residencies – with attendant potential claims from the talent, production services, venues, event co-marketing or televisual partners and sponsors, as well as any ticketing advances already received and potentially spent – the live entertainment industry has ground to a halt with few concrete options other than pray for recovery, plead for (continued) consumer support and (eventual) government bail-out.

CTS Eventim

CTS Eventim A.G. (02.04.20) via Google

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All Ticket Sales Are Final* (*Pre-Virus Typical Consumer Ticketing T&C)

Across the sector there has historically been a widescale blurring of companies operational and escrow accounts in the belief that the good times of continued market growth, new territorial launches, incremental revenue opportunities and sector consolidation would continue unabated.

The live industry had assumed that the growing international network of venues supported by pop-spectacle and sports franchises, embraced by a growing global middle class, fuelled by FOMO designer-bling and the rising level of conspicuous consumption, would continue to be powered by an apparent willingness of ticket buyers to purchase weeks, months or years in advance of an event, during which they typically would have no authorised right to reconsider their purchase, exchange or resale.

The live sector expansion has therefore been largely built on the ‘free-money’ of advance ticket purchasing as well as various supply-side incentives e.g. ticketing service fee-splits, inventory-access rebates, ticket affiliate & distribution fees, and event-related advertising & sponsorship commissions.

In the good times these series of arrangements appeared to industry insiders to be appropriate and necessary – ‘it ain’t broke why fix it’?

MSG

Madison Square Garden Co. (02.04.20) via Google

But for the public they have effectively been mass-lending event organisers and appointed ticketing agents their money, on an interest-free basis, with undeniably restrictive rights to recoup before their selected experience takes place.

And now due to the inability of numerous event organisers and/or their ticketing agents to provide an on-demand refund facility for cancelled or postponed events, it is assumed that they will wait, again.

(This is undeniably a harsh interpretation of the current circumstances that many hard-working, honest and caring organisations, and their staff, operating in the live sector currently find themselves in.  So, apologies in advance to them for any perceived slight whilst they are trying in exceptional circumstances to support and protect both their organisation and audiences.  But a cynic would note that Consumer Law generally does not permit consumers to cancel their tickets and thus claim an automatic refund whilst the event is still onsale.  And some in the industry are very aware of this.)

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Cash Is King

It’s an old oft-repeated adage, but ‘cash is king’.  And the live sector currently doesn’t have any.

It’s a basic commercial tenet for any company to survive, but cashflow is arguably the single most important financial metric.

A start-up company may have fantastic disruptive prospects with initial seed venture funds, an emerging corporation may have developed a promising business model with some level of revenue and reasonable operational expenses, whilst a mature organisation may have significant planned income and comprehensive fiscal controls.

But few live entertainment company operational bases are likely to be designed for the current pandemic which has decimated both supply & demand.

Companies operating within the live events and ticketing sectors will now have a negative cashflow and will have to take painful and corrective measures – cutting back on staff and operations, requesting rental freezes, delays to any business loans, and further refinement of any cashflow enhancing postponement strategies. Or face eventual bankruptcy.

Which is why, within the UK, the various live sector lobby groups and trade associations – CIF (https://www.creativeindustriesfederation.com/), FAC (https://www.thefac.org/), IVW (https://www.independentvenueweek.com/), MMF (https://themmf.net/), MU (https://www.musiciansunion.org.uk/), MVT (http://musicvenuetrust.com/), SOLT (https://solt.co.uk/), STAR (https://www.star.org.uk/), the umbrella organisation UK Music (https://www.ukmusic.org/) and others, have all agitated for government support across the live industry and in particular for employees, freelancers and self-employed workers.

The UK government has initially offered reduced business rates, flexibility for late corporate filings, delayed VAT payments, and the 80% underwriting for furloughed staff (up to £2,500 per month).

Despite the growing number of requests for more, there is (currently) no bailout envisaged for live entertainment organisations – there are simply too many other far more urgent sectors to support: Hospitals, Welfare, Food Distribution & Retail, Public Transportation etc.

DEAG

DEAG Deutsche Entertainment AG (02.04.20) via Google

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Live Entertainment & Access to Capital

To maintain or expand operations within live entertainment a company needs to be able to invest in specialised staff with expertise in talent selection and negotiation skills in deal-making, event production services, offline & online marketing, event promotions (including Health & Safety Regulations) and fiscal management.

The timing between the initial negotiation and then finalised agreement for the artist or attraction to perform, and the maturity of that contracted event, can take months and ready access to cash during this entire period is paramount.

The cost-base for any mid-to-large-scale event promoting business is therefore substantive, and as the number of concerts and tours increase, organisations have larger and larger demands for access to cash.

Without a substantive and regularised cashflow, a promoting business may not be able to compete for the most desirable artists or develop-fund new productions and may never be able to experience company growth but will stagger from event-to-event.

To correct this, what the live industry has done is developed a reliance on ticket face value advances and then other sources of incremental revenues: ticket service fees; rebates and commissions from the bulk purchasing of advertising; retrospective period-based discounts from productions services and venue rental; splits from car parking, F&B, Merchandise, etc.

What Mark Wienkes (Goldman Sachs) referred to in 2008 as a ‘River of Nickels’ strategy (https://www.wsj.com/articles/SB119638444764208825).

Live Nation

Live Nation Entertainment (02.04.20) Via Google

Alternatively, a business could take out a loan (assuming approval by lender(s) and with access to a significant down payment, interest rates and/or liens on property etc.), but Banks and other institutions have typically not welcomed the risk-position of live entertainment.

However, larger operators (in part due to their market-share, scale and consolidation tactics) have successfully arranged credit facilities which has then enabled further accelerated expansion via acquisition.

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Live Entertainment & Ticketing M&A

Within the global live entertainment and ticketing industries Mergers & Acquisition (M&A) has been utilised by the leading international consolidators to strengthen their territorial network, to enhance their technology offerings, and to broaden their concert & festival promotions, ticketing services, and venue management portfolio.

For clarity, M&A are transactions whereby the equity ownership of companies or their operating divisions, or assets are transferred or consolidated within other acquiring organisations.

These deals can be structured in various ways including a single transaction acquiring the complete business, turnover and assets, through to initial minority acquisition, with a pre-agreed earn-out mechanism for original shareholders and/or management leading to an eventual full consolidation, and a myriad of other variants.

Acquisitions within live entertainment have focussed on two types of growth opportunities or consolidation: horizontal and vertical.

Horizontal Consolidation e.g. promoters / ticketers acquiring more-of-the-same

  • Exercise economies of scale, centralisation of costs identifying synergies, reduction of duplicated staff & functions, adoption of best-practise
  • Bulk-purchasing of talent / access to inventory – multi-year, multi-territorial engagement with non-compete clauses
  • Bulk-purchasing of production facilities & logistics – staging, power, toilets, pa, lighting, fencing, roadway with event retrospective discounts
  • Acquisition of bolt-on technologies & services (Contact Centres > Outlets > Kiosks > Internet > Mobile > Social) to enhance the host ticketing platform
  • Typically, a US (Domestic) > International Dynamic
 

Vertical Consolidation e.g. the major international live entertainment aggregators:

  • Artist Management – enabling closer access to talent / ticket inventory
  • Venues – Diary Management & Operation is preferred to building or owning ‘Bricks & Mortar’, but some have made ‘downtown entertainment zones’ a speciality
  • Festivals – delivering incremental revenue opportunities from diminishing the economic authority of ‘headline artists’, greenfield site rental (especially if owned by a sister-company), the adoption of cashless (delivering breakage, as well as insight / control over F&B sales ), campsite rentals, car parking etc.
  • Ticketing: Pre-Sale, On-Sale, Up-Sale & Re-Sale – the four ticketing activities which cover off closed user group access, mainstream retail marketing & distribution, the full range of event pricing, bundling, packaging & product differentiation, discounting & dynamic pricing

A notable recent ticketing transaction was Viagogo announcing its intention to acquire StubHub from eBay for $4.05 Billion Cash (https://www.prnewswire.com/news-releases/viagogo-acquires-stubhub-from-ebay-for-4-05-billion-300964581.html) – the wider industry is now waiting with some interest to observe how this plays out in the current Coronavirus climate.

IQ Magazine reports that Live Nation made twenty acquisitions (including artists management, festivals, promoters and ticketing) in 2019 alone (https://www.iq-mag.net/2019/12/20-2020-live-nation-buys-malaysia-pr-worldwide/) with two transactions completed this year before the COVID-19 meltdown (https://www.iq-mag.net/2020/03/live-nation-acquires-norway-bergen-live/).

Crunchbase details that CTS Eventim has historically made twenty-three acquisitions, including promoters, venues and ticketing organisations including TicketOne (Italy), TicketOnline (Germany), TicTec (Switzerland), Kinoheld (Cinema), Lippupiste (Finland), Ticketcorner (Switzerland), Entradas (Spain) and Venuepoint (Denmark).  More recently it announced exclusive negotiations with Fnac Darty on a strategic ticketing partnership including an initial 48% minority stake in France Billet (https://www.globenewswire.com/news-release/2019/07/24/1887368/0/en/Fnac-Darty-starts-exclusive-negotiations-on-strategic-ticketing-partnership-with-the-CTS-EVENTIM-Group.html).

Anschutz Entertainment Group (AEG) the world’s second largest presenter of live music and entertainment events is a subsidiary of the Anschutz Company and has recently bought out the other minority shareholders in AXS ticketing (https://www.aegworldwide.com/press-center/press-releases/aeg-purchases-all-outstanding-shares-axs), as well as numerous other historical acquisitions including Goldenvoice (producers of Coachella), Concerts West, Messina Touring Group, PromoWest Productions, Bowery Presents, Firefly Music Festival. It also merged its venues division AEG Facilities with SMG to form ASM Global in January 2019 operating more than 300 facilities across five continents.

Deutsche Entertainment (DEAG) is a live entertainment company operating in Germany, Switzerland and the UK via Kilimanjaro Live and Flying Music with its own in-house ticketing brand – MyTicket (powered in Europe by the Secutix SaaS platform) – complimented by the recent 75% acquisition of Gigantic in the UK (https://www.investegate.co.uk/deag-deutsche-entertainment-ak/eqs/deag-to-acquire-75–of-the-uk-ticketing-platform-gigantic-holdings-ltd/20191216122007EHOVN/).

Eventbrite has made nine ticketing systems and technology acquisitions including Lanyrd, Eventioz, Queue, Ticketscript, nvite, Ticketea and Picatic, and the more expensive and problematic Ticketfly for a reported $200M in June 2017 (https://www.musicbusinessworldwide.com/eventbrite-acquire-ticketfly-pandora-200m/).

Many others in the sector, both large and small enterprises have also grown via acquisitions and this level of sustained M&A activity has attracted some interest from Private Equity funds who also believe they can create similar live entertainment organisations.

Specifically, within the ticketing sector, AudienceView announced growth investment from Rubicon Technology Partners in 2016 (https://www.globenewswire.com/news-release/2016/11/03/1337005/0/en/AudienceView-Announces-Growth-Investment-from-Rubicon-Technology-Partners.html) and then subsequently acquired OvationTix, TheatreMania, WhatsOnStage, Vendini and UniversityTickets.

eTix announced growth investment from Parthenon Capital Partners in 2017 (https://www.prnewswire.com/news-releases/etix-announces-growth-investment-from-parthenon-capital-partners-300491831.html) and has subsequently acquired ExtremeTix, TicketBiscuit, Interactive Ticketing, TicketForce and StarTickets.

Providence Equity acquired a majority stake in Ambassadors Theatre Group in 2013 for a reported £350M (https://www.ft.com/content/f282fd10-3a44-11e3-b234-00144feab7de).

Whilst Providence’s growth-equity arm – PSG – in 2017 acquired and then backed Patron Technology (https://www.wsj.com/articles/providences-growth-equity-arm-backs-patron-technology-1500401130) to subsequently complete nine transactions including TicketLeap, ShowClix, SeatAdvisor, Thuzi, Marcato, and Ticketbooth.

Providence Equity has also separately backed Superstruct Entertainment to acquire a number of festival properties including Sziget, Elrow, Sónar, Wacken (W:O:A), Øyafestivalen, Flow Festival and others from Global Media including UK based Victorious Festival, South West Four, Kendal Calling, Truck, Tramlines and Boardmasters as well as Hideout which is held in Croatia.

And then there is Silver Lake Partners (https://www.silverlake.com/).  With over $43Bn in combined assets under management its portfolio includes AMC Entertainment (Cinema), Oak View Group (Entertainment & Sports), TEG (Live Entertainment & Ticketing), Learfield | IMG College (Entertainment & Sports), City Football Group (Sports), Endeavor (Entertainment & Sports), UFC (Entertainment), The Madison Square Company Co. (Entertainment & Sports) etc.

 

Lastly, as noted by the FT (https://www.ft.com/content/a68f94b7-ecc8-4c29-8975-d01d5cefb560 – SubReq) various Hedge Funds are already breathlessly fundraising to exploit various market opportunities amid the current chaos. So, going forward transactions within the live entertainment and ticketing sectors may not simply be undertaken by current industry operators, or funded by those with a pre-existing sector interest, but by new money as well.

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So, change is inevitable, and ‘live’ is from a cashflow perspective f***ed.

There will undoubtedly be some organisations that will regretfully fail to survive. Others will be forced to (temporarily?) merge, collaborate or downsize.

Some, with access to capital, low levels of debt, or friendly government loans for reconstruction, will ‘flourish’ and acquire (previous) competitors and new opportunities alike.

Going forward, perhaps there also needs to be a new social contract with consumers?

Not just with the health and safety of artists, staff and audiences of paramount concern and focus.  Not just with cleaner venues with appropriate levels of social distancing.  But perhaps a new model for event funding and sustainability that doesn’t simply rely on consumers being willing to lend upfront their cash for future spectacles of entertainment?

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I’m happy to receive your comments relating to these posts, and if you’d like to contact about your Post-Virus plans don’t hesitate to get in contact: chambers.tj@gmail.com

Stay safe.