Tag: AEG

Could the Return to a Pre-Pandemic Concert Experience Take Longer Than We Think?

Jeremy Larochelle

 

The increased speed of the vaccine rollout has given many in the live events industry an overly optimistic outlook regarding the swift return to pre-pandemic packed shows. The primary focus thus far has been on how venues need to adjust to “The New Normal” and if they can balance new health mandates against their already razor-thin margins. While the vaccine may relax some of these mandates and allow operators to increase capacity, it does not address the shift we may be facing in the macro-economic demand curve of live events.

 

In December of 2020, The Washington Post found nearly 12 million renters would owe an average of $5,850 in back rent and utilities by January of 2021. According to Mark Zandi, chief economist at Moody’s Analytics, that could equate to almost $70 billion in unpaid debt – “a painful amount that renters, landlords and utility companies will have to sort out.” The US government has been working to provide relief for this housing crisis. Just last week, newly elected US President Joe Biden extended the federal eviction moratorium, which is set to expire on Jan. 31, through at least March 31. In addition to this pause, US Congress had provided $25 billion in rental assistance through their December 2020 stimulus package with Biden asking for an additional $25 billion in his future bill.

 

These cash infusions will chip away at that growing $70 billion debt, but will ultimately come up short and relief will take time to trickle down to concert fans. Likely falling at a time when venues start to re-open at more profitable capacities. This “perfect storm” could leave venues across the country looking to pack their houses against a large portion of their consumer base conflicted over purchasing concert tickets or catching up on their physiological and safety needs. And as Maslow has taught us many will opt to catch up on those basic needs first.

 

This conflict is not a new phenomenon. There are always demographic segments facing the choice of want versus need. However, businesses usually adjust their marketing approach to capitalize on the segments free of that conflict. This is not the case today where a disproportionate percentage of the entire world population has been shaken by the economic impacts of the pandemic. This leaves venue owners to fight over a very small percentage with the necessary disposable income to fork-over.

 

How can concert promoters face this challenge?  First, it is imperative that the majors such as Live Nation, AEG, and NIVA begin to focus their lobbying efforts on getting that second $25 billion round of housing assistance passed. Without it, the suggested rental shortfall is just shy of $50 billion and growing. This would, in essence, double the time for the collective concert fan segment to catch-up on their basic needs and be able to regularly support live events. Second, the industry will have to accept that the supply/demand curve will shift when we return to operations. With fewer fans with adequate resources to attend shows, the only solution is to reduce the price of tickets. Promoters, suppliers, artists, and managers will have to work together to find that new equilibrium and then adjust as the consumer pool emerges from its COVID-catch-up. Ultimately, we will return to those pre-pandemic levels.  However, it is going to take time and compassion for concert fans to get there.

Are We Facing a Post-Pandemic Concert Venue Consolidation?

Jeremy Larochelle

 

Small concert venues teeter the line between a vital music industry need and a profitability challenge for their owners. They are a keystone to the entire music industry serving as the laboratories where artists hone their skills and are instrumental in building and empowering fan bases that will help push that talent up the pipeline to bigger spaces. Yet they operate within a risky business model that is loaded with unpredictability due to the status of the artists they support and the caps on their income streams.

 

There is no doubt that the major live event brands such as Live Nation and AEG understand the vital importance of smaller venues for their long-term strategy. They need these establishments to survive so future superstars and their fan bases can be cultivated to the point that they can fill their larger (and more profitable) amphitheaters and stadiums. Before the pandemic hit, Live Nation was on a $20 million-plus spending spree in Southern California including the acquisition of Spaceland Presents and their roster of small venues such as Echoplex, the Echo, and the Regent. Pre-COVID, both AEG and Live Nation were actively shopping the smaller cap space with every tool at their disposal.  Their strategies included buying out smaller promoters, partnering with established venues, exclusive promotion deals, and perhaps the most strategic.  Selling and installing their ticketing services into these independent venues, which not only provides the majors with revenue but a treasure trove of data to help focus their future investment decisions.

 

Most independent owners will tell you they do this for the love of music and when you analyze their basic business model. You will quickly surmise they aren’t lying. Profitability is difficult in the under 1,000 cap space. The smaller audience size means that the fixed cost per person is higher. This impinges on the variable costs per customer and leads to reduced profitability per show. Add in the fact that the acts at this level are still building their fan bases and owners face the very real possibility that they will not reach 100% occupancy on a regular basis. This lack of regular profitability leads to less money in reserves for slower times and very little protection from systematic risk such as a pandemic that forces them to close down indefinitely.   We have been witnessing this playout since COVID hit. By June of 2020, 90% of Independent Venue Owners said they would need to close within a few months without government help to sustain their businesses. Many are ecstatic that the US Government could provide much-needed relief soon, but this help may (unfortunately) be too little too late. Especially if there are no further rounds of funding coming down the pike.

 

Smaller cap venues simply do not have the economic resources to support reduced capacity, increased testing and sanitization protocols, state and local shutdowns, and weary public. Unfortunately, this means that we will likely continue to see many of these spaces shutter their doors into 2022, and while that is bad news for fans, independent owners, and the free market. It is a HUGE opportunity for well-positioned majors such as Live Nation and AEG.

 

In the words of Baron Rothschild, “buy when there is blood in the streets.” Unfortunately for the live concert industry, very few are positioned to heed the Baron’s advice. Both Live Nation and AEG have the infrastructure and financial reserves to withstand the COVID pandemic. While LN has a serious advantage thanks to their stock market status. A public company can secure financing through numerous debt instruments outside of typical lenders such as selling bonds or by releasing more shares. They can also renegotiate existing loans more easily thanks to their massive liquidity and the horizon-focused mindset of their investors.

 

Both companies have already reduced their workforce and cut spending at unprecedented rates due to the pandemic. And while this is difficult to swallow now, it does pose the opportunity for them to return to service much leaner and potentially free up capital to allocate towards future growth in the strategically important small-cap market. Add in the fact that both have troves of ticketing data which can be cross-analyzed against economic stricken hotspots, prime tour markets, and real estate prices and we are left with a large probability for future consolidation of the small-cap venue market.

 

There are a few saving graces for independent venue owners.  One is the creation of the National Independent Venue Association (NIVA). This organization burst onto the scene and was key in lobbying the US Congress for relief.  They will need to remain vigilant post-COVID and shift their focus from relief to the defense of a free market for the live music industry. Another comes in those with a true passion for live music.  Be it owners, managers, fans, or even leaders at the helm of these majors. We need people who understand that music was never meant to be corporate. It was meant to be raw, emotional, messy, and a little bit scary.  Only then will the magic present itself.