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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

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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

***

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

***

 

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.)

***

 

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

***

 

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.

***

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.

***

 

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?

***

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.

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Op-Ed: The Nationalisation of Live?

The global Coronavirus COVID-19 health crisis has triggered a macro-economic recession which will undoubtedly lead to a prolonged and painful downturn in business activity.

Assuming eventual medical science countermeasures are successfully tested and delivered in the next twelve-to-eighteen months, in the interim there will also need to be widescale adoption by mass populations of the practise of improved hygiene (including tighter regulation over animal wet markets), a continued level of physical not simply social-distancing, improved access to sanitising and protective wear, potentially restrictive controls and higher costs relating to international travel, a fundamentally different level of insurance risk and coverage cost for all aspects of life, and a host of other currently unimagined protocols relating to the new post-virus normalcy.

2020 and thus 2021 is going to be difficult for millions, and deadly for tens of thousands across the world.

Conventional government fiscal policies such as reducing the cost of borrowing, lowering taxes or QE (Quantitative Easing) aren’t going to fundamentally address the supply & demand shock that has devastated the dining, live entertainment, events, hospitality and travel sectors.  Which is why even laissez-faire governments, hitherto true-believer’s in free-market economics are now dramatically adopting centralised fiscal engineering on a previously unimaginable level.

Having (eventually) imposed bans and restrictions on public assembly and contact, advising and then restricting venues from opening, most governments will be loath to ease countermeasures too soon – for fear of a phase two outbreak – and organisations that have survived may be unable to easily or quickly resume operations (with little capital reserve or employed resource), the populace i.e. those not hospitalised or recuperating from the virus, will be exhausted, mentally if not physically, and will have little disposable income for the non-essentials of life.

Even if there is a temporary summer-season respite from the virus transference and re-infection, this autumn/winter season is not going to see the events and entertainment industries return to the way-it-was.

The backlog of postponed events provisionally scheduled for later this year all clamouring for venues, media-attention, or consumer disposable income will need to successfully retain previously contracted talent, suppliers, support services and ticket bookers, and then perform to breakeven+ capacities.

Unfortunately, that scenario may elude many of the rescheduled events, whenever they are eventually timetabled, despite the optimistic statements from many CEO’s of fiscally impaired companies, or that the public will automatically embrace the opportunity to attend formally organised events.

Rather the consumer-facing (whether attendee, fan, patron, spectator or supporter) service-led sector will require an extended period of non-infection and economic confidence for mass audiences to then rediscover their ‘live-is-back’ mojo.

As a first step, agents, promoters and producers of artists, attractions, teams and sports leagues will need to re-negotiate event funding and logistics, and contractually agree upon a phased relaunching of performances, tours or matches with the health & safety of all constituents a new fundamental concern.

Venues will have to be staffed and ready, able to accentuate their cleanliness with facilities fit for a more health-conscious environment, and with additional concierge and security available to enforce the new norm of acceptable crowd-behaviours.

Ticket retailers and distributors may have to provide additional rights-to-refund for new or rescheduled events to ensure the cash-strapped and nervous populous commit to purchase in advance, or have policies in place to accommodate later-than-usual sales including the management of walk-up ticket enquiries.

Potentially the eventual rebirth of ‘live’ will first develop from spontaneous, unofficial street parties and smaller, localised more grassroots activities, an experiential patchwork of creative community-based initiatives, rather than the automatic implementation of international tours, major sporting tournaments and spectacles.

Unless ‘culture’ is to become a new coordinated and fundamental government priority.

 

Bread & Circus’s

Arguably one role for governments in the immediate period of post-virus recuperation will be the establishment of events and attractions to instil confidence in the re-emergence of public assembly – to entertain, inspire and delight without the primary need for a fiscal ROI, e.g. ‘A Festival for Britain 2.0’.

The scale of funding and access to capital, logistics and resources for any major national ‘celebrations’ will be beyond many of the current live industry operators – from the exhausted and depleted independent venues and promoters with little or no cash reserves, or the major international operators, typically leveraged to the hilt even before the recent market-correction, who have subsequently initiated wholesale furloughing or termination of employees, freelancers, supporting agencies and service providers.

The Coronavirus pandemic has laid bare just how fiscally fragile the live entertainment ecosystem is.

Historically, with declining local, regional or governmental support for the performing arts, museums, music and culture, any civic commissions, grants and subsidies have typically been directed to organisations with longstanding social and economic support networks i.e. metropolitan high-culture art forms, to the neglect of the regions, grassroots or community events or for those creating ‘low-brow’ or commercial pop-culture.

Outside of those organisations fortunate to receive funding or patronage, the mass culture of entertainment and events has largely been left to the free-markets, some of whom have responded to COVID-19 with pleas for government bailouts whilst retaining apparently non-refundable advance ticket revenues in the guise of indefinite event postponements and restrictive right-to-resale.

The supply-side orientation of the live entertainment sector has always relied upon the marketing-engineered advance purchase (weeks, months or years) and then patience of the end-consumer, the fan, patron or supporter to acquire upfront a non-transferable licence-to-attend.  Luckily for many of the currently cashless events and live entertainment producers a notable number of consumers have extended their generous behaviour to convert their previous ticket transactions into credit notes or donations for the relief of organisations, some of whom may still fail to meet their refund responsibilities, and/or shutdown.

 

Force Majeure & COVID-19

Producers with business interruption or event cancellation insurance would have trusted that their policies, and specifically the ‘force majeure’ clause would cover eventualities such as the COVID-19 pandemic.

However, that may not be the case.

Without claiming to be an insurance expert (but acknowledging the definition as provided by the EventManagerBloghttps://www.eventmanagerblog.com/coronavirus-force-majeure), a ‘force majeure’ must be: Unforeseeable, External, and Irresistible i.e. impossible to overcome.

Which certainly sounds like the Coronavirus.

However, if the insurance coverage plan does not explicitly list epidemics and/or communicable diseases as qualifying ‘force majeure’ circumstances, then any payments would be disputed.

The position that many event producers have recently found is that the insurance underwriters will determine any business disruption or cancellation claim around the specific language of each individual insurance policy, and epidemics are not usually included.

Going forward, if there is no insurance claim possible, and producer’s operating funds do not support cancellation costs, then the only option available for many organisations is to indefinitely postpone, negotiate an extension from the talent, beg forgiveness from contracted suppliers and services, and trust the end-consumer will wait.  Or cease operations.

 

The Nationalisation of Live

As outlined in the immediate period post-virus, event production technology and operational logistics will require the timetabling, resources and cashflow to enable the ready deployment of venues, as well as articulated transporters, power, staging, pa, lighting, toilets, and staff whether bars, caterers, cleaners, concierge, crew and medics – straight from the hospital front-line to events and festivals?

Security going forward will also be of a heightened concern.  The health and safety of the talent, event personnel and public will have to be a key focus for protection and maintenance of the well-being of individual events, as well as society at large.

Event insurance of all types will inevitably be both more expensive and limited in scope, with increased levels of operational requirements to fulfil strictly defined pay-out clauses, and unlikely to include any pandemic coverage.

Further, the ability for event producers to commit to any re-launch will depend upon cash reserves, if any, credit facilities (when have the Banks ever lent to live?), or attempt to extend the current events ‘flywheel’ business model of today’s Pre-Sale receipts typically diverted to pay the deposits required (whether for the talent, venue-hire, or marketing costs) of tomorrows Onsale.  With incremental event revenues derived from car parking, F&B, merchandise, ‘Venue Restoration Fees’ or ticketing rebates contributing towards the breakeven aspirations of promoters.

Box offices and ticketing agencies routinely advance ticket sale revenues to (in-house or external) event promoter / producers safe in their domino-theory that whilst individual events may underperform, not all events could fail, or be summarily outlawed. (Whoops!)

Ticketing parties may also co-mingle operational and escrow accounts to advance funds to promoter clients (on occasion underpinned by a level of Reps & Warranties, or other form of contractual indemnity) predicated on the belief that consumers / fans / spectators with their event-spectacle FOMO or supporter loyalty will wait, until the ticket purchased months in advance of the eventual event maturity and event admittance.

And so many parties in the live industries (for their own siloed cashflow requirements) have routinely frustrated basic consumer right-to-refund for ticketing related to rescheduled or postponed events – because the money has already been spent elsewhere.

So, with the current zero events baseline, and hundreds or thousands of already cancelled or postponed events where does the live industry source its ‘kick-starter’ funding from?

Whom therefore is in a better situation than the governments with their ability to underwrite and support a return to ‘live’?

But please without the attendant cultural commissars.