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The Economics of Music Festivals: Who's Getting Rich, Who's Going Broke?

Coachella
Coachella
Jamey hopkins/Wikipedia

By Chris Parker

It's as though the sad, lamentable death of recorded music was accompanied by a kick-ass wake. Sure, label executives have had to sell their fancy homes and put their kids in public schools, but the rest of us have been feasting on a musical smorgasbord.

Nothing better exemplifies this than Coachella, the crown jewel among destination music festivals, a sort of spring break for music lovers. Three days of music, over 150 bands, repeated over two weekends (the second week starts on Friday) featuring a wonderful cross-section of music world old and new - Red Hot Chili Peppers, Moby, Wu Tang Clan, Social Distortion, Japandroids, Vampire Weekend, and more.

Coachella is part of a rapid build-up in stationary music festivals, big and small, across the country and reflective of live music's explosion of growth since the millennium. While it won't compensate for a 50 percent drop in U.S. recorded music sales since 1999, concert ticket sales filled nearly 40 percent of that loss between 1999 and 2009.

During that time, North American live music revenues trebled from $1.5 billion to a peak of $4.6 billion before receding a bit during the recession. Last year, concert revenues were $4.3 billion versus $7 billion in music revenues (more than half digital, for the first time). While downloading may have sapped music sales, it's only amplified people's desire to experience music up close and personal.

"You text. You don't call, you don't write notes. You don't pop up at your friends' house. You Skype. We're not touching each other," says the rapper Murs, who founded the Paid Dues festival in Los Angeles. "Technology has separated us so much, it's natural for us to have this desire to come together and [festivals] really cater to that communal nature."

See also: Our Paid Dues 2013 review

It's a booming business, even for newcomers. Last year Firefly Music Festival premiered at a racetrack in Dover, Delaware, drawing more than 30,000 patrons daily, making in the neighborhood of $9 million in ticket sales alone. It's estimated to have injected upwards of $12 million into the local economy.

"There's an increased trend of multi-faceted, social events and people are more willing than ever to make sure they don't miss out on experiential, destination weekends with friends," writes Joe Reynolds, CEO of Red Frog Events, the festival's founder.

Sensing a score, the field's getting crowded. A hardly exhaustive list on Wikipedia logs 110 different major festivals across the country. Live Nation alone put on 18 last year, including Jay-Z's new Made in America, Sasquatch in the Gorge in Washington, and Atlanta's Music Midtown, each of which sold out. Three of the country's biggest, most established festivals - Coachella ($47.3 million, 78,500 daily, six days), Lollapalooza ($22.5 million, 100,000, three days), and Bonnaroo ($30 million, 80,000, four days) - regularly sell out early.

That's the power of an established brand. A 2010 Bloomberg story pegged Bonnaroo's profits at $12 million a year, which would explain the $5 million in charitable donations made during its first decade of existence. It's also why so many promoters are taking their shot.

When you consider the $254 million Coachella brought to the desert region around Indio (and $90 million to the city itself), you can see why a city would do whatever it can to help. Apparently that only holds until a festival's established itself, at which point you grab for more. (See, Indio proposed, then ultimately withdrew, a $4-$6 million ticket tax.)

"One of the obvious reasons music festivals have taken off is a lot of people think they can make a lot of money with them, and it's not that easy," says Grayson Currin, who co-founded the Hopscotch Festival in Chapel Hill, North Carolina, now entering its fourth year. "The margins are pretty small."

***

Coachella founder Paul Tollet came up the way most festival promoters do - in bars and clubs. He began by booking his older brother's Perry's band The Targets. While attending Cal-Poly Pomona, Tollet hooked up with Goldenvoice founder Gary Tovar, who funded his promotion company with proceeds from pot dealing. Tovar eventually took a rap and went to jail, signing over his control in the company to Tollet and his partner Rick Van Santen in '91.

They moved to a 200-square-foot Beverly Hills address to impress the booking agents and benefited from Nirvana's breakthrough as the bands they'd been promoting for years suddenly became big draws. They had plenty of cash flow, and were booking 175 shows a year, but were digging themselves deeper in debt.

Coachella was going to be the big score that pulled them out of debt. Tollet described it as a "Hail Mary" in an OC Weekly story a year ago. He wasn't lying. They were sacked for $1 million. Goldenvoice vice president Skip Page recalls the accountant bawling loudly that last night of the first Coachella when it became clear how much money they'd lost.

That would've been it, had it not been for the relationships Tollet had built with bands over the years. Headliners such as Beck, Rage Against the Machine, and Tool waited patiently for as many as five months to get paid. Employees regularly accepted checks with more bounce than a SuperBall. Tollet and Van Santen eventually sold their promotion company, Goldenvoice, to AEG Live for just enough money to pay off all the people they owed. (Tollet initially retained full control of Coachella and still holds 50 percent ownership.)

"Guys like us, we didn't make any money," says Warped Tour founder Kevin Lyman, who attended Cal Poly-Pomona with Tollet and became friends. "Paul and myself, we had to bring in partners to make it work. Paul put his heart and soul into it, but it was his heart and soul, so he had to bring in AEG to share his whole business because he believed so much in it. I had to bring in Vans as a partner to kind of keep me going until we gained traction. I know that it takes a while to be successful."

Sponsorship is key to any festival, even if it tries to keep things low-key - as Goldenvoice does at Coachella, more than its sister country-themed fest, Stagecoach, the following weekend. It can be the difference between losing and making money, especially in the beginning, and it helps salve the wounds when the weather turns foul. (Rain is an outdoor festival promoter's greatest enemy and single biggest wild card.)

Lollapalooza founder Perry Farrell tried for a while to keep the corporate brands at bay but found sponsorships the only acceptable way to keep ticket prices down. From 2003 to 2010, music sponsorship of concerts and multi-day festivals doubled from $574 million annually to $1.17 billion, with much of that increase coming from festivals.

Of course, sponsorships aren't sitting on a shelf like bottles of Mountain Dew. The good ones typically are reserved for established festivals, and sometimes not even then. While there was a moment when Warner Brothers considered buying Paid Dues from Murs, he hasn't had any luck finding a top-of-the-bill partner for arguably the finest hip-hop festival in the country. This while securing backing from shoe companies for his solo tours.

"It's funny because I haven't been approached by anyone. People tend to shy away from hip-hop. For something that's been proven as an art form and is here to stay - so many people back away from it. It's like pulling teeth to get a sponsorship. I appreciate Monster Energy, Heineken, and some of these sponsors for us, but to get a title sponsor...," Murs says with a sigh. "I understand it's a risk, because it's just the nature of hip-hop culture there are some violent aspects to it, but there's a difference between gangsta rap and what Paid Dues represents."

Red Hot Chili Peppers
Red Hot Chili Peppers

Even after bringing in AEG Live, it wasn't all smooth sailing for Coachella. Its 2001 return was almost sunk by failure to land a suitable headliner. The festival received a lifeline from Farrell, who reunited Jane's Addiction for the second time to play Coachella. By 2003, it had begun to gather real steam with a headlining bill featuring Red Hot Chili Peppers, Beastie Boys and a reunited The Stooges. By 2004 it was a sellout, and has remained so ever since. Even last year when it added a second weekend, it sold out in hours, the lineup still unannounced.

"We've evolved to the point where there are a lot of artists who want to play Coachella, Bonnaroo, Lollapalooza, Austin City Limits, and because these festivals are so well established and in some cases sell out before they even announce the talent, that puts the promoter in a very good negotiating position," says editor Gary Bongiovanni of industry trade publication Pollstar. "They're able to get better deals, though that only works with the established festivals."

There are only so many big-name acts to anchor a big festival, and they earn good money. While the lowest-rung act at Coachella made $15,000 in 2010, headliners can command seven figures. It's turned into a nice living for some acts.

"There's a whole circuit of bands now that seems like all they do is play festivals, and it's turned into a fairly lucrative career," says Lyman, though the drop-off is steep from one shelf to the next. "It drops off very quickly. Kings of Leon, Arcade Fire, Mumford and Sons, Chili Peppers, you're at one echelon, and then [the money] does go down steeply."

For bands further down the rungs, an appearance at a big festival like Coachella or Bonnaroo carries validation and helps attract the attention of other festival promoters. Beyond that, there's the opportunity to reach an audience who might never otherwise hear your band.

"The festival scene has changed everything for musicians and bands. We're just thankful to be a part of it," says Adam Grace of alt-country group Truth & Salvage Co. "There's so many bands and so few slots to fill. It feels really good to kind of be in the club. It's so important doing it just to reach multitudes of people. We know one Bonnarroo performance in terms of fans can be worth three months of touring. So, business-wise, they're great gigs. That's why everyone wants to do them."

The growth of dance music and outdoor festivals mirrors trends in Europe with longer traditions. England has several historic outdoor events, such as Reading and Leads and Glastonbury festivals. They have been in existence since the early '60s and '70s, respectively. The Glastonbury Festival draws more than 175,000 a day, (though it took 2012 off).

That fervor has taken time to cross the pond. In England, live music has outsold recorded music since 2008.

"Since Coachella has gone on, there are countless festivals around the [U.S.], and we're now into our second generation of kids knowing how to go to festivals," says Lyman. "We didn't have that - unlike Europe where there's third and fourth generations of kids going to festivals."

Explosive festival growth in Europe has sprouted 2,500-3,000 festivals yearly and 670 in England alone, a 73 percent increase since 2003. That's a lot more than here and cause for suggestions of over-saturation.

Last year, it reached a breaking point. More than a dozen major English festivals shut down (Big Chill, Sonisphere, Cloud 9), thanks to the EU's ongoing financial troubles, Olympic competition (Glastonbury cited an expected shortage of porta-potties), and a very rainy summer. Market saturation, combined with the difficulty finding big enough acts for fans to justify the several-hundred-dollar expenditure, also contributed to the situation.

"The economics are always difficult, in part because if there isn't an established festival, you have an awful lot of competition for that talent," says Bongiovanni. "There are certain weekends, especially over the summer, where there are so many major festivals going on in Europe, and it's amazing there's enough talent to spread around through them."

In America, there's the added challenge that any independent concert promoter is competing with Live Nation and AEG Live, who have added leverage because they can promise additional gigs at area amphitheatres and clubs under their control.

"We're in a situation of David and Goliath, where the larger festival is run by very big music corporations," says Jon Largay, founder of Phoenix's McDowell Mountain

Music Fest. Nonetheless, MMMF scored a stellar lineup this year featuring the Roots, The Shins, Les Claypool, Heartless Bastards, Deer Tick, Edward Sharpe, Dr. Dog, Umphrey's McGee, and Yonder Mountain String band.

"When you invite 40 bands to play, you don't have a total say in your ending lineup," he says, acknowledging that this time they got almost all their top choices. "We're very excited with the bands that elected to play this year, to a point where we're maybe a little lucky from that standpoint. Maybe our relationships with the agents are good and maybe they understand why we're doing it."

***

The concert industry is about 60 percent the size of the recorded-music market over here. But that didn't prevent a number of bigger music festivals from shutting down during the last few years.

Among them are South Florida's Langerado, Canada's Pemberton B.C., Catalpa Music Festival, New Jersey's All Points West, and Denver's Mile High Fest, the latter two created by Goldenvoice/AEG Live. All but Langerado failed to survive past their second year, a testament to the difficulty in getting a new festival off the ground, even for established operators.

Melvin Benn, director of the UK promoters Festival Republic (Reading and Leeds, the canceled Big Chill), described it as "gambling in its crudest form," since a promoter usually promises to deliver the goods without knowing if people will show. The bigger companies may have even more incentive lately to pull the plug than smaller promoters, who can tolerate smaller margins and a slow build.

"I don't think the climate to lose money to build a festival is out there anymore, because most of the companies that are behind these festivals are beholden to something," says Lyman. "They're beholden to a Live Nation, to their stockholders, and it's hard to justify going out there and losing a million bucks."

This has opened the door for local promoters to launch festivals in secondary and tertiary markets that maybe don't always get the biggest acts. Music festivals' sometimes sketchy economics scare the big boys off. Bongiovanni reports this is still an area of great growth.

"There are a lot of these events, and they're quite successful, but they're not looking to sell 100,000 people," he says. "Obviously it's easier to do 20,000. The economics work a lot easier too."

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