The proliferation of technology has had rippling effects across multiple industries. Everything from how companies store and process data to how consumers view and purchase goods and services has been transformed with the advent of technological innovations like the Internet, cloud computing and mobile devices. In a previous blog, “YouTube’s Gain Is Network TV’s Loss,” we discussed the increasing trend of consumers “cutting the cord,” by viewing media content through digital sources rather than traditional cable networks.

Profound changes such as these typically take place over multiple years and often disrupt entire industries. With our thematic approach to investing, we look to identify and capitalize on these types of transformative changes on behalf of our investors. In the following two-part blog, we will address how we are investing in disruptions driven by technology and changes in consumer behavior. Here we will examine how the music industry is being impacted. The next blog in this series will address transformations in the retail industry.

Song and Album Sales Continue to Shrink

The transition over the past decade from albums and CDs to digital downloads to streaming audio services has changed the way that music artists earn income.

Ten years ago, the sale of albums and CDs accounted for the vast bulk of the global music industry’s revenue (See Exhibit 1). Last year, they contributed just over a third of the industry’s revenue. During the past decade, another trend was obvious―and that was steady, year-over-year declines in the industry’s total revenue.

Exhibit 1: Global Record Music Industry Revenue ($B) -- OppenheimerFunds

The rise in paid subscription services has not helped to offset this decline. While subscription services like Spotify had 68 million users last year and brought in $2 billion in revenue for the music industry, far more users―900 million―prefer listening to music for free, on ad-supported sites like YouTube. The industry earned only $634 million from these sites last year.

A good number of the users opting not to pay for music are Millennials, so this trend of steady declines from the sales of recorded music will surely continue. Millennials are now the most important market for any consumer industry. Last year, for the first time, they outnumbered the Baby Boomers and are now the nation’s largest generational cohort. In 2017, they will become the nation’s largest spending group, commanding over $1 trillion in purchasing power.

Concerts Are Where the Money Is at Now

For the music industry and recording artists, the news isn’t entirely bleak. While Millennials may not be willing to pay for music online, they are very interested in attending live music events. In fact, 2015 saw a broad increase in the number of people attending music events. In 2014, 44% of the U.S. population attended a concert at some point. Last year, that number jumped to 51%, and if you look only at Millennials, it grows even further, with 59% saying they had attended a live music event at some point.

It is a trend that has been playing out across a number of consumer industries, as Millennials have shown a preference for having experiences over owning particular consumer goods. According to the 2015 Nielsen Music 360 U.S. report, Millennials allocate 64% of what they spend on music for live events―much higher than the 52% allocation the general population gives to concerts.

The implication for recording artists is that they won’t ever be able to afford to do what the Beatles did in 1966, and that is to stop touring. Today, for many artists, almost all of their income comes from touring. Exhibit 2

Exhibit 2: Touring Has Become the Primary Driver of Artists' Personal Income -- OppenheimerFunds

Live Nation’s Flywheel Business Model

The company well poised to benefit from all these changes is Live Nation. The company has a flywheel business model, in which each part of its business propels the success of the others.

  • Concert Promotion: Live Nation makes money from setting up and promoting concerts. In many instances, it also makes money from concession sales at live events.
  • Ticketmaster: Live Nation owns the pre-eminent online ticketing agency for concerts. This particular business operates like a toll booth, in that revenue―with a relatively high profit margin―is generated every time someone buys a ticket. The consumer data that Ticketmaster collects benefits Live Nation’s other lines of business. The data is useful to advertisers and to artists who want to build or expand their audience. Ticketing accounts for 22% of the company’s revenue but a much bigger part of its profits.
  • Sponsorship and Advertising: Live Nation sells ads and sponsorship to concerts and music festivals, which advertisers find as effective channels to reach Millennials who are not big consumers of traditional advertising outlets like magazines and newspapers. The relationships to advertisers and sponsors also help artists find additional ways to monetize content offered to their fans. In 2015, domestic advertisers spent over $1.4 billion sponsoring music festivals and live events.
  • Artist Nation: Live Nation also represents artists. Its Artist Nation division enables it to build close, long-term partnerships with the bands the firm promotes through its other lines of business. The information it collects from ticketing and artists’ fan clubs enables the firm to be highly effective in reaching new and potential fans. Artist Nation now accounts for only about 5% of Live Nation’s revenue, but it is a strategic part of the business model.

While in years past more people may have been content to listen to new music on their elaborate home sound systems, increasingly people—with Millennials leading the way—are getting out to hear live music. Live Nation’s diverse business enables it to realize revenue from every aspect of that experience—from the tickets you purchase, to the ads you see at the venue, to the band performing on the stage.

BrochureMillennials Enjoy Concerts and
Live Nation is Benefitting

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