by Elliott Morss, Morss Global Finance
Introduction
My recent piece of the economics of Tanglewood got me thinking about the overall music industry. The digital era has revolutionized how products are made and sold. The music industry is a good example. Below, I document these changes and go on to wonder about the future of classical music.
Brief Summary of Music Production and Sales
In the beginning, people sang and played crude, hand-made instruments. Various types of music notation have been used for most of recorded time. But it was not until the Middle Ages (5th to 15th centuries) that comprehensive music notation was developed. Music scores had to be handwritten until printing technologies were introduced in 15th and 16th Centuries.
Musicians have been paid for performing for centuries, but sheet music was the first mass-produced music product that could be sold. Since sheet music, we have had a number of “physical” products – vinyl records, CDs and DVDs and now “non-physical” digital products.
How Musicians Get Paid – The Numbers
Table 1 reflects the changes in products and marketing methods in the last two decades. The numbers are pretty remarkable: physical sales were flat at $12 billion from 1995 to 2004. Since then, they have fallen to only $2 billion in 2014. Digital sales are growing rapidly but not enough to compensate for the loss in physical product revenues. Growth in the share of streaming has been impressive: up from 5% of digital in 2009 to 27% in 2014. One casualty in the growth of digital is the decline in music specialty stores (remember the Tower Records music chain?). In their place, we have the online shops – iTunes, Spotfly, Pandora, etc. Interesting note – Billboard’s surveys have found that radio remains the method most used to identify new songs.
Table 1. – Unit and Value Sales of Music Products
Source: Recording Industry Association of America (RIAA)
Live Performances
Apparently, what goes around comes around. After the jump in musicians’ income from sheet music and recorded product sales, the primary source of musicians’ income is once again live performances. I say probably because nobody has totaled live performance income. It would be a herculean task, requiring the tabulation of revenues from the smallest bars where musicians perform….
We do have are data on tour and concert revenues. For example, Pollstar collects data on the top 100 global tours (Table 2).
Table 2. – Top 100 Global Tour Revenues (bil. US$)
Source: Pollstar, 2014 Year End Business Analysis
Dave Laing compiled live music totals for 7 countries (Table 3). His $11 billion total does not include live performances in the remaining 189 countries including Austria, Belgium, China, Denmark, Finland, Greece, Hong Kong, Iceland, Ireland, Israel, Japan, Korea, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, Taiwan, and the United Kingdom. If numbers for those countries were added, it is quite likely the total would be well in excess of $20 billion.
Table 3. – National Data on Live Music
Source: Dave Laing
Pollstar data show that for North America alone, total 2014 concert industry ticket sales were $6.2 billion. And these numbers have been growing rapidly – at a 7.5% growth rate compounded annually since 1990.
Billboard reports income for the top 40 performers along with income sources. For these top performers, 80% of their income came from tours. The top 20 performers for 2014 are listed in Table 4. These numbers can vary significantly year-to-year depending on tour schedules. For example, Taylor Swift was the leading money maker in 2013 ($40 million earned), but she did not tour in 2014. Of course, name recognition is essential for tour income. And because of this, most musicians earn most of their live performance income from local one-night events.
Table 4. – Top 20 Performers, Income and Sources
Source: Billboard Top 40
Table 5 provides summary data on the largest grossing tours for the last 27 years. The durability (both stamina and popularity) of The Rolling Stones, U2, and Madonna is amazing. In this period, The Rolling Stones had the highest grossing tours in 6 years and U2 in 4 years. The totals for each of the nine-year segments are suggestive of the growth in tour revenues. The last 9 years gross is more than double the gross for the 1988-1996 period.
Table 5. – Leading Tours, Last 27 Years
Source: Pollstar, 2014 Year End Business Analysis
Table 6 provides data on the 12 leading tours of all time. Again, it shows that The Rolling Stones and U2 have generated a lot of tour income. Note the wide range in average attendance. With an average draw of only 18,858, Roger Waters had to perform far more frequently than The Stones or Madonna to earn his income.
Table 6. – The 12 Largest Grossing Tours of All Time
Sources: Billboard and Pollstar consolidated on Wikipedia.
Interestingly enough, you don’t have to “tour” to make large sums. Celine Dion made $81 million a few years back by performing at 155 shows at Caesars Palace in Las Vegas.
What were the largest-ever live music events? Jean Michel Jarre and Rod Stewart both attracted an estimated 3.5 million to single events: Jarre for the 850th birthday of Moscow in 1997 and Stewart for a 1994 New Year’s Eve concert in Rio de Janeiro. Jarre also had the third place concert: 2.5 million at a 1990 Paris concert.
Music Festivals
The single biggest change to the concert industry landscape has been the increasing proliferation of large multi-day music festivals. Pollstar estimates that in 2014, there were more than 1,500 confirmed events in 70 countries. It appears that even with music access via streaming and the radio, Millennials are willing pay large sums for multi-day music experiences. And deep-pocketed corporate sponsors are willing to shell out to reach them.
Table 7 provides data on the leading music festivals worldwide. Several of them such as Lolapalooza are being replicated in other locations.
Table 7. – Leading Global Music Festivals
Source: Pollstar, 2014 Top 20 Worldwide Festival Grosses
The Decline in Classical Music Continues
Just as with other music genres, physical sales of classical music are down and revenues from digital sales have not grown enough to compensate for the losses. But for classical music, the problems appear to go deeper. Nielsen/Billboard quantifies total music sales (physical and digital) by genre. As Table 9 indicates, classical sales have fallen by 70.3% since 2009, more than all other genres except Gospel/Religious.
Table 8. – Physical and Digital Equivalent Album Sales (mil. US$)
Source: Nielsen/Billboard
Changing demographics are clearly playing a role. In 1937, the median age at orchestra concerts in Los Angeles was 28. Between 1982 and 2002, the portion of concertgoers under 30 fell from 27 percent to 9 percent; the share over age 60 rose from 16 percent to 30 percent. In 1982 the median age of a classical concertgoer was 40; by 2008 it was 49.
The National Endowment of the Arts regularly surveys Americans on art-related issues. Table 9 shows that the share of adults attending classical concerts is falling.
Table 9. – Percent of American Adults Attending Classical Music Events
Source: National Endowment of the Arts
The following quote from a recent piece by Mark Vanhoenacker puts things in perspective:
“Live classical music is less commercially viable than ever. Attendance per concert has fallen, according to Robert Flanagan, an emeritus professor at Stanford. But “even if every seat were filled, the vast majority of U.S. symphony orchestras still would face significant performance deficits.” Live orchestral music is essentially a charity case. A Bloomberg story on the recent wave of orchestra bankruptcies (an unheard-of phenomenon outside of the U.S., says Flanagan) notes that by 2005, orchestras got more money from donations than from ticket sales. The New York City Opera, once hailed as the “people’s opera,” filed for bankruptcy in October. If the “people” want opera, they’ve got a funny way of showing it.”
There have been a few interesting ways that classical music businesses are tapping into the digital revolution. “LSO Live” is the in-house label for the London Symphony Orchestra. Launched in 2000, LSO has two main goals: to reflect the high quality stage performances and to attract new Classical audiences. Every recording is made in Direct Stream Digital (DSD) and made available in high-resolution audio formats. In 2013, there were nine new releases. The digital audience is evolving and there has been significant growth in high-quality download sales. Streaming services are valuable for LSO Live both as a route of discovery and in cultivating their social media audience.
The Metropolitan Opera’s “Live in HD” is entering its 9th season and has indeed made opera a more popular and accessible art form. The HD broadcasts are now being screened in almost 2,000 movie theaters in over 60 different countries. While this has clearly been a great success, it appears that ticket sales to live performances are down, possibly because people living in the New York area prefer to watch the performances in their local theater that go downtown.
Concluding Remarks
The music industry is like others that have been dramatically changed by the Internet revolution. Both products and marketing methods are quite different than they were only 10 years back. The sales of physical products (records, CDs, DVDs, etc.) have plunged. As is true with newspapers, digital sales of music, while growing, have not made up for the physical revenue drop. But there is hope. Despite the increase in music availability via the Internet, live performances are on the rise. It would seem that as a result of hearing more music, the demand for seeing performers in person has grown.
At least in the US, the demographics are working against classical music. Unlike their grandparents, most young people grew up on current artists so the interest in classical music is waning.
