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:
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;
UpSale – the 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.
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.
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.
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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
tjchambers.com 