With less money being made in albums and downloads, there’s been a dramatic surge in music concerts and festivals. Here’s how the biggest promoter of them all is raking in the cash…
When vinyl gave way to cassettes, the dawn of music pirating arrived. A whole generation of people began sticking cassette recorders to radio speakers to rip static-filled versions of popular music.
We didn’t know it at the time, but the music industry was never going to be the same after that.
As cassettes were supplanted by Compact Discs, the onset of the Internet and introduction of CD burners on computers soon began taking a toll on recording industry profits.
Then, with the introduction of peer-2-peer file sharing and illegal downloading of songs, the music industry truly got rattled. Sales of CDs began to decline dramatically as the Internet gave rise to sites such as Napster and LimeWire during the early 2000s.
When Apple Inc. (NASDAQ:AAPL) launched its iTunes Store that allowed consumers to affordably (and legally) download high-quality, copy-protected songs, it spurred a badly needed revenue stream for the industry.
But today, the popularity of legal downloads has begun to lose steam. It’s now giving way to yet another listening trend: on-demand streaming.
Nielsen SoundScan reported last year that digital track sales fell from 1.34 billion in 2012 to 1.26 billion in 2013, a 5.7% decrease. Digital album sales fell from 117.7 million in 2012 to 117.6 million in 2013, a 0.1% decrease.
In Q1 2014, Nielsen Soundscan saw another drop in digital sales. Digital track sales were down 12.5%, from 356.5 million to 312 million. Digital album sales went down 14.2%, from 32.4 million to 27.8 million.
Meanwhile, there were 34.28 billion on-demand song and video streams in the first quarter, up 34.7% from 25.44 billion streams in the first quarter of 2013.
The average royalty rate per stream is $0.005, whereas last year’s Q1 average was $0.00375.
Although streaming has benefited artists and their label companies, there’s no telling how long it will last before a new technological innovation comes along.
Internet and album sales aside, there has been a relatively constant source of revenue for the industry through the decades, regardless of how people listen to music: live performances.
You see, to concertgoers, there’s no better experience than seeing their favorite artists singing live on stage.
And where it previously may have been deemed as an once-in-a-lifetime experience, it’s now not uncommon now to see their music idols roll through their town multiple times a year.
As a result of the decline in passive revenues (e.g. album sales), artists are keeping themselves busy (and paid) by frequently taking their acts on the road.
According to Forrester Research, sales in music has lost more than 50% in the decade leading up to 2009 — but in the same 10-year period, concert ticket sales have more than tripled to $4.6 billion.
From festival mainstays such as Glastonbury and Coachella, to relative newcomers South by Southwest (SXSW) and Electric Daisy Carnival (EDC), an increasing number of music events are being added to the global calendar every single year.
On top of that, you have some of the bigger names in music like Celine Dion (Caesars Palace) and Billy Joel (Madison Square Garden) that have been given lucrative residency contracts for extended periods of time.
With live performances quickly becoming one of the most financially critical channels to prop up the music industry, this concert veteran couldn’t be better positioned to ride the wave to big profits.
Top Music Stock To Buy Today:
In the past year, Live Nation Entertainment (NYSE:LYV) has had a spectacular run.
Live Nation holds over 180,000 events each year and promotes 20 of the top 25 tours in the world including Elton John, Cher, Katy Perry, and Lady Gaga.
Its 63 music festivals attract some 5 million fans, making LYV the largest festival producer in the world.
Its recent Q1 earnings show a lot of growth potential as the Company moves into the highly profitable summer festival season.
Here’s a quick look at its impressive rally thus far:
In Q1, revenue rose 22% to $1.12 billion compared with analyst estimates of $963.8 million, as sales in its Concerts segment increased 29% due to a growth in arena events.
All four of the company’s segments (Concerts, Ticketing, Artist Nation, and Sponsorship & Advertising) saw revenue and adjusted operating income grow, and on the bottom line the company’s net loss per share improved from $0.33 to $0.16, beating expectations of a $0.36 loss.
One of the key music genres that will help LYV climb out of the red is electric dance music (EDM).
Live Nation currently has 18 electronic festivals in its portfolio.
As the promoter for EDC, some 400,000 people will be descending upon Las Vegas over a 3-day weekend in June where tickets go for upwards of $100 per person, per day.
The strength of each of LYV’s business segments ultimately funnel into one another as more concert attendees help boost fees from tickets, and giving fans frequent access to artists help push advertising revenues, especially from the record labels.
In essence, what goes around comes back around.
Last year, vinyl sales increased by a whopping 32% to 6 million. Live Nation may be indirectly responsible for the growth, but the music industry’s dependency on Live Nation’s success can’t be understated — and that’s good news for investors.