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Music Executive Jeremy Geffen Predicts Live Events and Streaming Services

Recent M&A activity in the music and entertainment marketing industry is being driven in part by the shift away from record sales and toward live entertainment and streaming music.

Apple’s (AAPL) recent announcement of a $3 billion takeover of Beats Electronics, a music streaming and headphone company founded by hip hop artist and music producer Dr. Dre and Chairman of Interscope Geffen A&M Records Jimmy Iovine, is the latest in a series of multi-billion dollar music industry transactions that are hoping to lift the sector.

The 2010 merger between Live Nation and Ticketmaster, creating Live Nation Entertainment (LYV) brought together Live Nation, the world’s largest producer of live music concerts, with Ticketmaster, the world’s largest live event ticketing company. The combined company connected nearly 49 million fans to 22,000 live music events for over 2,300 artists in 2012.

However, there are still signs of trouble for the music industry amid some areas of optimism. A recent report published by The Recording Industry Association of America (RIAA) suggests that despite continued sales and revenue weakness, especially in traditional formats, the music business isn’t dead yet.

The RIAA report illustrates the numerous technological and practical challenges facing an industry that has been slow to recover from the economic malaise and return to pre-recessionary growth. Music industry revenue has been largely flat at $7 billion since 2010. Shipments in physical formats (CDs, vinyl, etc.) fell 12%, from $2.8 billion in 2012 to $2.4 billion in 2013, a trend that has continued as digital downloads, streaming music and widespread piracy have cut deeply into sales. In 2013, the RIAA reported that physical copies of albums now account for only 35% of industry sales, while digital purchases now represent 40% of total revenue.

Streaming music services like Spotify and Pandora (P), where people are able to enjoy their favorite music online for free or as part of a subscription, have proved to be both popular and profitable. “It’s something to be excited about and is changing the industry in ways no one could have predicted a few years ago when digital downloads were the only option accessible online for consumers,” explains Los Angeles music executive Jeremy Geffen, president of Geffen Management Group, who has worked over the past twelve years with artists and groups like D12, Robin Gibb, Smokey Robinson, Bone Thugs ‘n Harmony, and Jacob Latimore. During that time he has seen the music industry change in many ways, noticing that consumers – increasingly mobile and on their digital devices, are leading the industry to embrace change, instead of the other way around.

“Basically, since 2010 revenue has been flat, record sales are anemic and we still haven’t found a way to stop the bleeding. Streaming and subscription music services has been a rare bright spot for the industry, but it’s hard to know whether this is a long-term growth story or we’re just enjoying a couple of years of calm in the eye of the storm," says Geffen. Whether or not the exponential growth of streaming music is sustainable or will ultimately come at the expense of the digital download market, the numbers are unmistakable. The RIAA report noted that streaming contributed 21% of total industry revenues in 2013, compared with just 3% in 2007.

In addition to transition away from physical format to online digital downloads and streaming media, music festivals have become another timely savior for the music industry, connecting with fans and advertisers who are also struggling to reach the 18-29 demographic who are used to skipping commercials and mousing over display ads. These massive festivals, like Coachella, Bonnaroo, and Lollapalooza, are a key element to introducing new talent into the scene, showcasing existing talent and reaching new listeners in a large scale. They’re also a big business; these shows can easily sell out in as little as twenty minutes and draw upwards of 150,000 fans for a single weekend of entertainment. In 2013, Coachella raked in over $47 million in revenue, nearly three times the $17 million generated from the festival in 2007, according to a recent article in Fortune magazine.

In 2013, Coachella booked a wide range of musicians, including Blur, The Stone Roses, Modest Mouse, Wu Tang Clan and Red Hot Chili Peppers, spanning wide-ranging genres including rock, electronic, modern rock, hip hop, and more. The diversity of talent allows the possibility for new discovery and some unlikely collaboration by the artists themselves that is a draw for anyone who enjoys live music or the vibrant social scene that extends from the parking lot to the front of the stage.

“I think there is a chance to reverse some of these sales and revenue numbers we’ve been reading about over the past couple of years and turn the business around,” says Geffen. “These live music festivals that are coming up all over the country are actually making money. They are promising an experience to tens of thousands of people that no digital download or music stream can replicate. In this increasingly fragmented world of online interaction, people still want a one of a kind live experience with their closest friends and their favorite artist – they can get the download later.”