August 14th, 2007

Peace, Love, and Corporate Sponsorship

By Mark Scott
Business Week

Summer music festivals in Europe have gone way past Woodstock. Today's industry has spawned $250 tickets, luxury tents, and tidy profits for investors

Music festivals have come a long way since hoards of music-loving hippies flocked to Woodstock in 1969. The flower-power roots of the original open-air concerts have been replaced by a multibillion-dollar industry that attracts hundreds of thousands of festivalgoers each summer. And unlike the early days of outdoor music festivals in the 1960s, Europe, not the U.S., is the center of the recent revival in multiday events, providing double-digit returns for investors willing to take a chance on this growing sector.

The investment isn’t as risky as it might first appear. According to London-based research firm Mintel, the live music industry in Britain—Europe’s largest market—has grown 8% over the last year to $1.5 billion and forms part of a live entertainment sector currently worth just over $4 billion. Music festival attendance has skyrocketed more than 20% in recent years, while ticket prices at Europe’s major festivals, such as Glastonbury in Britain or Exit in Serbia, have had double-digit price increases since 2000. Some tickets now cost well over $250.

Throughout Europe, this renewed interest in music festivals has coincided with strong domestic economies that have provided music lovers with more money to spend on live entertainment. “The increase in disposable income has been indispensable to the growth of festivals,” says Melvin Benn, director of festivals for British concert promoter Mean Fiddler (MAMA.L).
20% Rate of Return?

Investors have been quick to pounce on the combination of healthy bank balances and growing demand for live music. London-based Ingenious Media, an entertainment investment and advisory group, has just launched a $40 million fund to invest in festivals and is looking to provide a 20% rate of return for its backers. “The live events sector is booming,” says Duncan Reed, commercial director at Ingenious. “At the moment, we haven’t come under much competition.”

That will soon change. A rival fund set up by climate-change charity Global Cool is hoping to raise $100 million to invest in music festivals in Europe and the rest of the world, splitting the profits between investors and the charity itself. While the events Global Cool backs must have a climate-change focus, the company’s chief operating officer Richard Kilgarriff still believes the fund can offer above-average gains. “We’re opening up the sector as a global business opportunity,” he says, adding returns should vary between 15% and 25%.

But can these funds really guarantee such high profit levels? Industry insiders seem to think so, saying corporate sponsors, investment funds, and concert promoters are falling over themselves to cash in on the growing demand for music festivals. According to Mintel leisure analyst Richard Cope, the growth of music on the Internet also has helped to raise awareness of live events. Bands have gained followings on online social-networking sites such as MySpace (NWS) and Facebook, which has translated into larger concert audiences and higher profits for promoters.
Rock ‘n’ Roll Deluxe

Similarly, the type of people attending musical festivals has steadily changed, as more affluent concertgoers demand more and more amenities during their festival experience. This has given rise to a secondary market surrounding festivals that offers every service under the sun to well-heeled music fans. Long gone are the days of weather-beaten tents and lukewarm beer. Now, everything from champagne cocktails to butler service is available to the new breed of music lover who doesn’t want to skimp on creature comforts as he rocks out to his favorite bands. At the 2007 Glastonbury Festival, for example, luxury tents, each fitted with individual bars and a personal masseuse, could be rented for $12,000.

The financial rewards aren’t limited to the festivals themselves. According to the Swiss office of consultants KPMG, economic activity generated by Hungary’s Sziget Festival will reach $54 million by 2010, with much of that going to local businesses, such as hotels and taxi services. “The key to maximizing revenue from festivals is through other income sources,” says Mean Fiddler’s Benn.

Another source of music festival income is sponsorship. Companies from Coca Cola (KO) and MTV (VIA) to mobile giant Orange (FTE) and Britain’s top-selling lager, Carling (TAP), have lent their names to European festivals, hoping to increase brand awareness through the rising interest in live music. While many companies have jumped on the bandwagon, none has embraced music festivals more than Virgin Mobile (VMED), a cellular subsidiary in Richard Branson’s business empire, which created the V Festival in 1996 with the sole purpose of promoting the Virgin brand. Ten years on, the strategy has paid off: The event is now held at two sites simultaneously and attracts more than 130,000 music fans every summer.
Profits Keep Growing

The “corporatization” of music festivals hasn’t been universally welcomed. Critics say turning concerts into a multibillion-dollar industry has taken away from the original ethos of live music, while relentless commercialization strips away the edginess that attracts many people to the music scene. “Companies have to be careful not to be too prominent [at events] or they will turn off their customers,” says Mintel’s Cope.

Despite these concerns, the business of music festivals doesn’t appear to be slowing down. The summer concert season has already expanded into March and September, while new venues across Europe are sprouting up to meet the growing demand. Such prospects are a far cry from the hippie roots of the 1960s. But as long as music festivals provide strong returns for investors, the industry will continue to find backers throughout Europe. 


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