Mus 393B Test 2

Term of a merch Agreement

1 touring cycle or until the advance is recouped - whichever is longer.

Arenas

Between 5,000 - 20,000 people. It's a very fast growing venue and model within the last 10 years. They are multipurpose venues that have a roof and though they're catered to sports teams, they're much more configurable than a stadium.

Most popular venues

Festival sites (most popular), arenas, and theaters

Who is the largest merchant in the retail space?

Guitar Center

Plus Deal (Fee Structure)

It's a flat guarantee plus a percentage. *This is a common structure for concert arena tours. -In a Plus Deal, the promoter profit is considered a cost.

Merchandise

It's always been important, but it's become crucial with record sales going down. Merchandisers are very similar in concept and operation to a record label. They manufacture goods, they see sales, and every time they have a sale they provide a royalty or some percentage of sales to the artist. In the merch business, advances are recoupable, returnable, and could be returnable with interest. The term of the agreement could be very different as well.

Versus Deal (Fee Structure)

It's simply a flat guarantee versus a percentage; whichever is greater for the artist.

Who is the leading trade organization for music products sector?

NAMM (National Association of Music Merchants)

SFX Broadcasting

Robert Sillerman. It was the 7th largest broadcast radio in America in 1996. He bought the 2nd largest concert promoter and his intention was to provide synergies between broadcast and promotion. He would use these radio stations to promote the concerts. SFX merges with Clear Channel and became Clear Channel Entertainment in 2000. It represented the merger of the largest concert promoter with the largest radio conglomerate. By 2003 Clear Channel sold 50% of all tickets in America. There was too much vertical integration.

Festival Sites

Second largest. (10k to 30k) These are outdoor occasions for a multi-day or multi-weekend event. Pros: Can get a lot of talent to cycle through, proved to be very profitable Cons: Have to account for sanitation, extra costs, etc.

State of music Products industry

This industry took a hit with the recession. Some of the challenges it's faced are financial cuts on arts in the schools, overseas manufacturing, lots of consolidation to conglomerate companies, big box retailers (Wal-Mart, Target, Best Buy, etc.), the beginners instrument quality is generally very low which could discourage a young player because it doesn't sound as good as it could, technology, digital printing/distribution and piracy, etc. -The devaluation is closely related to the devaluation of recorded music in the recorded music sector with big box retailers!

Advertising

This is a huge expense for shows - it's always a bottomless pit. For the promotions people, they're always under attack no matter what; if there was a great turnout, they look at their budget and get "you spent too much on advertising." If the turnout isn't great, they hear "you didn't spend enough on advertising." Less advertising generally equals less tickets sold. If there's any area to cut, cut the cost of production - not advertising. Some people say touring is the best thing for advertisers; there's nothing better for people to get up and go to than a concert.

Permits and insurance

include personal injury insurance, property damage insurance, and a clause to require that they hold and carry all requisite permits and licenses. You need to have proof of insurance or COI (certificate of insurance) - usually 1 million dollars of liability insurance. Different types of insurances include concert insurance, liability, event cancelation insurance, artist non-appearance options, weather insurance, pyrotechnic insurance, etc. Usually the biggest determination of the cost of insurances goes by genre, even though that's incredibly stereotypical. Event cancellation insurance depends on how much you spend to put on the event.

Dynamic Pricing

easiest to think of airline and cruise ship ticketing. The airplane has a fixed cost of flying, no matter how many or little are actually on the plane. So with dynamic pricing, the earlier you buy the cheaper the tickets are, and the closer it gets the more expensive it gets. This has transferred over to ticket pricing.

Internet store advantages

easy access, undercut local music stores, etc.

Chain Store Advantages

enables people to have a tactile experience before purchasing, cheaper options, bigger discount, etc.

In terms of products sales what music products sell the most?

fretted instruments tend to sell the most (guitars and electric basses)- 2nd is pro audio (sound reinforcement)

Pollstar

kind of like the IMDB for the concert industry. You can find out artist's managers, booking agencies, venues, etc. You can also find venues within a certain radius where you can see which ones are available for a certain date.

The biggest change in recent years when it comes to concerts and touring

large, multi-day festivals

2 types of revenue streams for non profits

market income & philanthropic income. The non-profit world has typically not been able to thrive off of market-based income. They then have to make up for lost money through philanthropic income, aka donors.

Local store Advantages

more connection to the customer, better customer service, most specific knowledge and selection, instrument rentals/repairs, music lessons, tries to foster a sense of community and loyalty on a local level, they position themselves as a supporter of the lifestyle of music and not just somewhere that sells instruments and accessories, repairs and lessons are a very important driver of local store business because it often drives traffic, the instrument rental market, etc.

Bill Graham in northern California

one of the concert promoter pioneers

Secondary Ticketing Markets

scalpers. Tickets are bought from the seller and then sold for somebody else usually for a profit. This secondary market is so big now that the mainstream ticketing market has decided to join them, with TicketsNow owned by TicketMaster and StubHub which is owned by AEG Live. These places take 15 percent for providing marketplace

Who do you want to spend your time advertising too?

the Super Fans and Enthusiastic Fans, because the Familiar Fans and Casual Fans are the most popular market that actually goes to see the shows.

Tour Merchandising

the artist must decide which merch company to go with. Royalty rates, the merch companies' retail distribution and product development, advance amount, quality of merchandise, etc. are all thing the artist's team needs to look at. Revenue projections for merch is based on a per capita basis.

Shrinkage

the loss of product usually due to theft, giveaways - and usually there's an acceptable shrink. They generally try to hold it to 1% "don't worry about losing pennies when you're losing dollars."

Boxscore

tracks concert box office activity. They only care about ticket sales - they don't track actual attendance and the data comes from concert promoters

Ampitheaters

typically seat between 5,00 - 30,000 people. They're similar to stadiums because they're outdoor and have weather issues; it's built around a stage.

Settlement Process

when you make sure books are balanced on all ends and people are paid after a show

Things found in talent agreement

- A deadline found in the talent offer - Force Majeure Clause, or "Act of God" clause, which can include illness, accidents, organized labor disputes, etc. - Can't add somebody without approval (emcee, etc.) - Insurance requirement for liability - Performance licensing that requires the promoter of their responsibility to secure all PRO licenses. PROs typically license the venue. - Comp tickets - Radius clause, which stipulates that talent can't announce and/or perform another concert within a certain radius for a defined period of time. The term is the date of execution of the agreement to usually 30 days after the agreement, and it's usually for about 90 miles. - Artist billing in marketing and promotions, meaning how are they billed on advertising marquees, etc.

Retailers

- A full line retail configuration is sort of a one-stop for materials, lessons, instruments, etc. The majority of the profit is coming from the accessories and support services for the smaller stores. Sell to schools, hobbyists, all the way up to professionals. - A combo store focuses on the rhythm section. Think of an actual combo group. - Specialty shops are reserved for more high-end or professional/semi-professional players. These are the small violin shops for example. They offer experiences you can't replicate online (like trying the instrument out before you buy it). - Retail configurations include chain stores, local stores, and Internet retailers.

Structure of a non profit organization

-Typically non-hierarchical. Non-profits and arts organization rely heavily on boards, committees, and volunteers. This can create a very complex and bureaucratic organizational structure. Many non-profits are led by a board of directors. These board members are generally volunteers and are not paid. The board makes the policy, which then the full-time staff carries out. Board members aren't selected for their art or knowledge - it's typically "who has a lot of money that we can get on our board?" → Usually non-profits are famously known for running off of extremely lean staff. Link from board of directors and full-time staff is called the executive director. It's a demanding and sometimes awkward position to be in. In addition to an executive director there may also be an artistic director. The exec director would handle the business and the art director would handle the art. → Volunteers are very important to the non-profit world. This is a critical labor pool in the arts admin world. They often function as event volunteers - sometimes they can sell season ticket subscriptions or be a part of other fundraising. They tend to be people who want to give back and students.

Manufacturers

-larger manufacturers are starting to bypass wholesalers and go direct to retailers. - Historically, they've been family-run businesses. Think of Fender, REMO, Vic Firth, Sabian, Zildjian, Steinway & Sons, etc. are all large family-run businesses. Family-run businesses run differently than other companies. Since the recession, the manufacturing industry has gone through a series of consolidation. A number of entrepreneurs who built these brands made their start with the rock n' roll era. Things really blew up after The Beatles. The music product business exploded during the birth of rock n' roll - Manufacturing generally is located overseas in Canada, Mexico, or Asia (cheaper labor). Significant manufacturers include Yamaha, Fender, Gibson, Steinway, Hal Leonard, Alfred, etc.

Sources of philanthropic funding

1. Grants (donations for initiatives or projects) 2. Sponsorships - generally corporate sponsorships 3. Donations (endowment- money or property, indivudal)

Sponsorships (4 types)

1. Label Support 2. Cash Support 3. Promotional/Marketing Support very common - this is where we see something called deliverables, which is most commonly tickets. Other forms can be sponsored giveaway items, the sponsor name on the artist website, private concerts for key clients, signage at booths, etc. 4. In-Kind Support - Let's say you need photography "if you donate your photography services, I will give you all these deliverables in exchange for your services."

2 Sets of Costs for a live show

1. Start up costs - Designing the show, renting out rehearsal halls, anything you'd need to launch the tour like deposits for venues, deposits for artist guarantees, etc. 2. Running expenses - Grounds costs for transportation, lodgings, hotel accommodations, crew wages, dancers, front of house monitor sound guys, equipment, the assembly of the staging for union members, sound reinforcement, instrument rentals, venue rental costs (a flat fee, surcharges, flat fee + a surcharge, any one of those combinations), entourage expenses, managers, etc.

4 types of fans

1. Super Fan - the fan that attends no matter what 2. Enthusiastic Fan - knowledgeable about the music, may own the record, and they want to see the live show if possible - they're willing to spend slightly more than the average price, but they're much more sensitive than the Super Fan to price, date, and location. 3. Familiar Fan - doesn't own the record, is mildly interested in the event, but wants to get out and have a good time. They're much more sensitive to price and convenience. 4. Casual Fan - they may have heard a couple of tunes, don't own the record, can't name anyone in the band, but they're usually tagalongs with their friends.

2 General methods for tour merchandising

1. The big artists can be compensated on a gross sales basis, meaning that after taxes and credit card fees, they take a percentage of the gross, which can be 30% - 40%. 2. For most artists, it's done off a profit split based on net sales - net sales are the gross sales minus your cost of production, any expenses you had (taxes, credit card fees, hall fees) - then, the profit you have is split between the merch company and the artist. They are typically 75/25 for artist/merch company, but they can be 85/15 for artist/merch company.

sources of market funding (non profit)

1. Ticket sales. Typically arts orgs only earn 30% - 65% off of ticket sales. It's hard to engage young people. 2. Subscription sales (season ticket buyers). Think of the Staples Center. Season tickets are usually tickets + some value added good or service that is packaged together and then marked up for a perceived value pricing. This is the non-profits' preferred model. The arts org gets a pile of money all at once with season tickets. 3. Record sales 4. Broadcast rights - whether it's PBS or ABC

3 things to focus on (Tour Planning)

1. Why - To build a fan base. Historically, it was to promote record sales and to make money. 2. When - Often it's after you release the album. It's important to check what's going on locally and to see what your competitors are. Over 70% of all touring happens between April and September; Spring and Summer are the biggest touring times, but it also depends on artist availability, the record release schedule, how recently the artist has played in the given market (don't want to over saturate a market; typically every year or two), who else is touring during that time, the availability of media and marketing exposure, venue availability, sports schedules if it's an arena, etc. 3. Where - Find out where the fans are. Historically it's been tracked by album sales, but that's changed in today's market. As far as venues go we need to look at capacity, aesthetics, seating configuration (general admission or actual seats), availability. When it comes to venue agreements, promoters can offer a "4 wall deal", meaning you literally rent the four walls and coordinate what you decorate them with.

Classical arts music timeline

1960s, 70's, and 80's → Huge creative explosion. Congress created the NEA - National Endowment for the Arts. It's an independent grant agency that supports the classical industry. Between 1958 -1969, Leonard Bernstein was the conductor for the New York Philharmonic, and sometimes this would be recorded and broadcast over PBS. Leonard Bernstein would come out and talk about the music as well to educate people about the classical arts. It was later taken over in the 1980s by John Williams, (1980 - 1993), who was the conductor of the Boston Symphony Pops Orchestra. In the 70's and 80's we see a rise in the adapted score for film. They primarily adapted classical music. In the 80's things start to change. There was some controversy around the NEA because taxpayers were funding it. It all changed when Robert Mapplethorpe had an exhibition with some controversial photography that was partly funded by the NEA. We see orchestras in the 1990s begin to increase their audience engagement. Film music is often a gateway to classical music.

Rider- The Four Types

A rider is an addendum to an agreement for the performance. 1. Technical Rider - Everything technical like stage and lighting requirements. 2. Security Rider - What level of security does the artist need for the show? 3. Merchandising Rider - Defines the terms and conditions the venue must follow. 4. Hospitality Rider - Describes what the artist needs in order to be comfortable, including dressing room requirements, catering requirements, hotel requirements, etc.

Non profits and Arts organizations

Although this isn't a widely publicized sector of the industry, it's a very important part of our industry. The Grammy awards, NAAM, RIAA, etc. are all non-profits and operate differently. - Symphonic music, chamber music, jazz, opera, choral music, ballet, dance, and even some church music. Historically the arts industry has been separated from

Music Products Industry

Generates 17 billion globally and 7 billion in the US → *They encompass the manufacturing, distribution, and retailing on physical music products - including musical instruments, musical accessories, print music, instructional materials (method books, audio, video, etc.), and support services such as lessons and instrument repair. *Test question!

Live Nation

In 2005, Clear Channel then spins off the concert promotion business and makes a separate publicly traded company called Live Nation. By 2007, Live Nation popularizes the 360 Deals with Jay-Z and Madonna. They're the guilty party on this thing. In 2010 Live Nation merges with Ticket Master. Now as of today, Live Nation controls performers, venues, ticketing agents, and the promotion machine to make it happen. It's a huge vertically integrated operation

Stadium

Largest venue. These are multipurpose venues that can seat over 30,000 people. The largest stadium is in Mexico City for 105,000 people. Pros: Good potential Cons: Bigger capacity (bigger rental fee), weather, not the greatest acoustics

2 biggest concert promoters

Live Nation and AEG Live

!. Ticket Sales

Main revenue is from ticket sales. It's gross minus cost to get the net sales potential. To make ticket revenue projections, we need to focus on ticket pricing. Ticket pricing has been largely suppressed, using it as a loss leader for record promotion. Since then, ticket pricing has skyrocketed since 1996 because records aren't selling anymore. On average, ticket prices have doubled since then. -One of the least predictable forms of revenue, but it's the main source of revenue typically. You put your ticket revenue at 60% max capacity. *Look at the ticketing vocab in the book - test questions! Typically the pre sales tickets are reserved for the super fans and others. When tickets aren't selling, you paper the house to fill the house, or section off certain sections with curtains or other ways. Months in advance: Pros- better projection of sales cons- people could forget so more marketing Weeks- Pros- Hype of it being soon, less marketing. Cons- hard to budget

Important aspects of an event

Maintaining relationships for a concert promoter is paramount. Re-cap meetings are very important for event planners. It's smart to have the meetings one week after the event - if it's the day after, everyone is just relieved for it to be over and all the emotions are still high. Also, don't make it too long after because people forget. Include the promoter, venue, etc. for the meeting - whomever you can get who was a part of it. Then when the time comes for the next event, you grab your budget plan and your notes from the past recap meeting and try to reconcile the two.

Can non for profits make profit?

Non-profit organizations are allowed to make a profit. Surplus revenues aren't allowed to be distributed as profits or dividends - they're put back into the organization.

Criticism of Philanthropic based funding

Orgs are often shielded from market forces and over time this lack of competition. This can insulate the org from the audience and they can lose their audience. The amount of energy, resources, and time to convince old people to give endowments is quite a lot, instead of producing and preserving the arts.

Licenses and permits

PRO license, pyrotechnics license, street closures, sidewalk use permits, food permit, temporary food vendor/liquor licenses, permits for erecting structures or tents, amplified sound permit, public works permit, sanitation permit, solid waste removal permit for getting rid of trash, etc. → You also need to keep in mind the ADA - American Disabilities Act. You have to provide a certain number of accessibility seating and having them always on hand.

Buyback Agreements

Promoters get first dibs with the artist for new tours. - "Right of 1st refusal" - Late 1960s → Bill Graham and promoters like him start eating up other areas. - Spread risk over multiple shows - Cross-collaterize shows

How we try to budget advertising

Promoters will come up with some sort of flat rate per ticket to try and budget the whole production. Usually it's $3-$6 per ticket that they try to get a ballpark on what they should spend on advertising. But it really depends on the market - a lot of EDM artists advertise on social media while classical artists rely on traditional methods - go where the fans are.

Performance agreement contract

Relatively simple, lasting only a couple of pages. The types of things in this personal service agreement are... - A statement of date, time, and minimum length of performance - Statement of performance location - Some clause that the promoter has proof before the contract is signed - The payment terms and fee structures - The form of payment (what's up front and off the back end)

Merchandise bringing in high profit

T-shirts and hoodies are top, but stickers are also very high on the list

Criticism of market based funding

The cultural contributions of people are incalculable so they shouldn't have to worry about ticket sales. Too much time is spent focusing on gaining a new audience and alienating all the old people - even though the old people are the ones who donate through philanthropic funding

Ticketing Agent

The largest one is Ticketmaster. Before Ticketmaster, ticketing was seen as a cost for the venue. There was a lot of accounting, management, etc. Ticket Master basically created the hotline where you can call and order tickets, and it has evolved to what it is now. Ticketmaster is the exclusive ticketing agent and makes all of their money off of surcharges. Ticketmaster is collecting data on every sale. They sell their data! They've become a huge player in the marketing game. Live Nation bought Ticket Master. AXS tickets is through AEG Live, and has become a major player in the game as well.

Percentage (Fee Structure)

The promoter and artist agree to split a percentage of all the proceeds. It's typically 85/15, with the artist getting 85% and the promoter getting 15%. The split is always from net revenue, meaning your gross ticketing revenue minus the concert production expenses, venue rental, marketing and promotions efforts, etc.

Flat Guarantee (Fee Structure)

The promoter says, "I'll give you $1,500 to play this show, you in?" and the artist agrees. It doesn't matter how many people show up. *This is the most commonly used, especially for festivals.

Non profits tax designation

There are two that are important: 501 (c)(3) is a charity and 501 (c)(6) is a trade organization.

Promotion of Music Products

Typical strategies include catalog distribution, email, banner ads, building a customer database, regular sales, some local TV/radio/newspaper spots, point of sale promotions, special promotions, clinics/workshops (to persuade educators to buy music products for their students), the NAMM show, etc., co- op advertising

Theaters

Typically range between 5,000 - 10,000 people. Some of the advantages are a dedicated stage, more intimate experience, etc. This is a popular venue for musicians who aren't super mega stars.

Clubs

Typically range from hundreds to about 5,000. Pros: The most numerous, production costs are small Cons: Small capacity, crappy club owners

How we set the price of tickets

We have to consider the venue, the market, target audience, etc. More often than not, the cost of the ticket depends on the stature of the artist - the artist will say, "I want to make a lot of money", which is more of an example of cost-based pricing. The price is usually hammered out between the artist manager, agent, and promoter. In terms of pricing, there are different values based on the different seats, or the "perceived value" of the seat. You have to do something called "scaling the house", which means determining what the price points will be (typically 3 price points) based on how close you are to the stage, sidelines, etc. Then we have to manage the ticket manifest Papering the house- giving away free tickets to make it look more full/drive business to concessions

Changing from one Merch company to another

Within merch agreements, there's usually big contemplation for selloff rights - typically the company has 60-90 days to liquidate whatever left they have. It's the artist's job to make sure that the old manufacturer isn't allowed to manufacture any new material during this liquidation process. From an artist's perspective, the artist should make sure they have the right to buy off the remaining inventory. It's usually cost plus 5%. That merchandise then becomes the property of the artist and could either sell it themselves or sell it to the new merchandiser

Hall Fees

an important part of these negotiations - hall fees are capped at 30%.

How the record industry viewed and supported artist tours (1960's-1990's)

as a method of record promotion and artist development.

Main current issues with arts orgs

audience development, outreach to school, discounting tickets for people under 40, social media/websites, The New York Met have released operas in movie theaters. Use of technology as a loss leader to drive ticket sales.

Advances (Merchandising)

can vary wildly - merch companies have been giving up larger advances than record labels. Advanced repayment is the threat that merch companies typically hold over the artist - the artist not meeting the per capita revenue projection is one reason why the recoupment period would be started. -tend to be more generous in merch rather than in the recording industry

Typical Promotional Tools

customer databases, media and editorial coverage, news articles, paid forms of advertising in print/radio/TV/outdoor advertising, Internet advertising, promotional sponsor, etc. → Types of consumers (who we're trying to market to) -

Concert Promoters (Buyers)

pay the artist to perform. They act as the middleman between the artist and the audience. They take on a substantial managerial role and substantial risk in this transaction. In essence, the buyers are buying access to an event that they have no control over. They have to know the market, awareness of talent, promotional outlets, be good negotiators, be able to delegate, detail-oriented, etc. Their entire goal is to profit from selling tickets. Ticket revenue is used to cover everything. A more popular model today is to have everything vertically integrated like AEG Live. - There are sometimes soft-ticket buyers who will buy tickets for fairs, casinos, etc. For example, if an artist is performing at a casino, the casino wants the artist so that fans will gamble. It's almost a loss leader. - Private Event Buyers - Almost looked at as "selling out", but these private events where big names come pays really well. → AEG - Anschutz Entertainment Group → C3 - Just recently bought by Live Natio

Music Products Industry Market

primarily caters to the educational markets and hobbyists, which is why it isn't glamorous or sexy. High school and music programs have been a gateway for many professional musicians. Historically, as a career, this has been the part of our business where people have ended up and not sought after as a profession initially. - This industry offers, predictability, stability, and can be attractive for those interested in education.

Back time plan

requires you to first detail every task that needs to get done for the event. Back timing can happen after the event as well - this is called a settlement process.

Budget Concerns

→ Budgeting in the touring industry is a very critical part. Admittedly, it's one of the least exciting parts, but we have to look at it as a tool, not a chore. Creative people think that it's a way that the business people are going to limit their creativity, but it shouldn't be looked at this way. It should be used as a tool to shape the event and a way to focus the artist's creativity. The most common way shows go upside down is underestimating expenses and overestimating potential revenue. Budget tracking is a never-ending process. A contingency fund is very crucial as well - need to leave a cushion! Cash flow management is critical. -When it comes to the revenue side, it's always better to be conservative on estimating what the total revenue will be.