It used to be all about records, but now the music business revolves around gigs. Henry Tricks, The Economist’s finance editor, finds out why ...

From INTELLIGENT LIFE magazine, Winter 2008

It is Prague 1976 and rock’n’roll is in the dock. Members of a banned underground band, the Plastic People of the Universe, are on trial. Their crime? Performing weird psychedelic covers of Lou Reed songs to long-haired fans in barns in the backwoods of Bohemia. Vaclav Havel, who is in court, is so appalled by the absurdity of the trial that he launches a movement, Charter 77, to free Czechoslovakia from the Soviet grip. The Velvet Underground, via the Plastic People, help to stir the velvet revolution.

In Prague 2008 rock and rebellion of a different sort are in the air. The British band Coldplay are in town, dressed like renegade soldiers, with red and black armbands sewn into their designer fatigues. Flashing images of “Liberty leading the people”, Delacroix’s  painting of a French uprising in the 1830s, are everywhere; it is the cover of Coldplay’s latest album, “Viva La Vida”. As Chris Martin steps forward to greet the crowd, painted guitar in hand, it’s almost a parody of “Les Misérables”. “Ahoy!” he cries. The crowd go wild, and wave, if not burning torches, illuminated mobile phones. This is a city that, since the Prague Spring of 1968, has been steeped in rock, and it is Coldplay’s first gig here. The excitement is tremendous. Even Russians are here in droves—to soak up the music this time, not suppress it.

It’s a clean-cut, bourgeois crowd, however. No one I speak to has heard of the Plastic People of the Universe, despite the top-up of fame they received in 2006 when Tom Stoppard, the Czech-born British playwright, put them at the centre of his brilliant play “Rock’n’Roll”. The woman next to me, a Russian financial planner for an American firm, is much keener to talk about The Economist than Coldplay. The average age is summed up by the “Viva La Vida” bibs on sale amid the T-shirts.

I’m standing close to the stage, listening to Czechs, Russians, young Americans, Italians, Irish, Brits—and those were just the ones I spoke to—singing out rousing, if churchy, songs that have become backing tracks for the lives of the globalised middle classes. There is an incongruity here. Chris Martin is a long-time campaigner against the excesses of globalisation. The tour is accompanied by Oxfam, which blogs every day from the tour bus. But Coldplay are unlikely to let any of that spoil their music (Martin once said he couldn’t find the right rhyme for North American Free Trade Agreement). And the concerts, T-shirts, advertising, stadiums, ticketing, internet sales and so on are largely controlled by Live Nation, an American multinational that now pulls more strings in the music industry than any record company ever did.

Thankfully, Coldplay’s performance is still good. Even if you’re not a big fan, their anthems drag you in, the pyrotechnics dazzle, and you can feel the chemistry between crowd and band. The show is genuinely live–“We’ve fucked up this song, so let’s sing it again,” Chris Martin sings in the middle of an encore. Guy Berryman, the bassist, unobtrusively takes photos of Martin as he bashes the piano. Confetti falls like butterflies from the rooftops and some of the girls try, joyously, to catch it in their mouths.

Live music has come a long way since the late 1970s, when the Plastics were in a Prague prison and The Clash and the Sex Pistols were pouring out bilious songs about riots, clampdowns and anarchy in Britain. Over my concert-going life, the archetypal gig has gone from a scruffy, beer-stained orgy of sweat and spit to a well-oiled 21st-century machine, where bottled water is so pricey that you can hardly afford to sweat, and the tickets cost a bomb. In fact , a bit more—because bombs don't carry booking fees.

Someone who helped instigate that transition is Miles Copeland, the American-born former manager of The Police. During his years in London, he tells me in a long conversation from his office in Los Angeles, he was called a Nazi because of his belief in the essentially free-enterprise nature of the music industry. When Channel 4 asked him to present a documentary on Britain at the time, Sting, lead singer of The Police, “freaked out”, Copeland says; he feared Copeland’s Thatcherite views would damage the band’s left-wing credentials. How times have changed. Back then, The Clash would pull skinny young fans through the dressing-room window so they wouldn’t have to fork out for a ticket to the gig. No longer. “It has become accepted that you go out and take as much money as people are prepared to pay,” Copeland says approvingly. “The Clash”, he adds, “would have been incredibly embarrassed to think that they were making money on the side out of their fans. Now nobody gives a shit.”

Rob Hallett, another promoter of the punk and new-wave era, particularly recalls the dinginess. He dragged Duran Duran around the country charging a meagre £5-7 a ticket. Everywhere he went, the facilities were lousy. Bingley Hall, Stafford, an out-of-town venue aimed at fans in Birmingham, one of Britain’s biggest cities, was a cattle market by day. “It stank of cow poo,” he remembers.

In those days, for up-and-coming bands, touring was a loss leader. However much the gigs fizzed with anarchic energy, in economic terms they were little more than a long marketing slog to sell records. Now the tables have turned. Because of falling sales, rampant piracy, and digital distribution, recording revenues are dwindling. The price of an album has remained roughly level in the 20 years that CDs have been the main format, whereas ticket prices have soared. The record companies continue to lick their wounds, cutting back on staff and on investment in new acts. The big money is in live music, and the records help sell the tour, not the other way around. That means the big promoters increasingly rule the music business, muscling in on the ticketing, the merchandising, the fan clubs, even the recording. U2's last tour grossed $389m in 2005-06; the album that went with it, “How to Dismantle an Atomic Bomb”, grossed about $150m. And they are a chart-topping, Grammy-winning band.

Rob Hallett now runs AEG Live, one of the world’s largest promotions companies, which owns the 02 arenas in London, Berlin and other cities. It’s a business that suffers from none of the structural stresses of the record companies. When Prince, a singer who appeared to have burnt out on his incandescent ego, suddenly proposed playing 21 shows on the trot at London’s biggest indoor arena, the 02, at a ticket price of £31.21—the number of his rented mansion in Los Angeles—Rob Hallett was won over, against his better judgment. “We never dreamed we could do 21 nights.” Every night was a sell-out, even though it was high summer, usually a tricky time to fill concert halls. Even now, tickets for big shows are selling faster than you can say credit crunch. In October the Killers announced a British tour starting in February, and all 50,000 tickets were said to have gone in two-and-a-half hours.

There are several forces at play that have changed the dynamics of the music industry, some of which would have been inconceivable to the young punks of the 1970s. One of the few authoritative analysts of these trends is Alan Krueger, a professor of labour economics at Princeton. To show that rock is about economics as well as art, he quotes Paul McCartney: “Somebody said to me, ‘But the Beatles were antimaterialistic.’ That’s a huge myth. John and I literally used to sit down and say, ‘Now, let’s write a swimming pool.’ ”

In an exhaustive study in 2004, Krueger and a Princeton colleague, Marie Connolly, noted that concert-ticket prices “exploded” between 1996 and 2003, increasing 82% on average at a time when consumer-price inflation was 17%. Ticket sales as a whole declined, but fans were prepared to pay much more to see their favourite bands. It is estimated that the leading acts now make about seven-tenths of their income from touring. David Bowie discussed this phenomenon in an interview with the New York Times in 2002. “The absolute transformation of everything that we ever thought about music will take place within ten years, and nothing is going to be able to stop it,” he said. “Music itself is going to be like running water or electricity…you’d better be prepared for doing a lot of touring because that’s really the only unique situation that’s going to be left.”

Krueger calls this “Bowie theory”, but its exponents could just as easily be Sting or Led Zeppelin. Miles Copeland, discussing The Police’s reunion tour in 2007-08, suggests that one of Sting’s motives for reforming the band may have been declining revenues from record sales, which would have made it hard to pay back advances to his record company and maintain his lifestyle into old age. The tour was a self-contained pension plan. “The annuity of the record business that we all used to bank on is not there any more,” Copeland says. The tour grossed a reported $243m.

I saw The Police perform at Twickenham, London, and they vastly exceeded my expectations. But as I bopped alongside my host, the chief executive of a large insurance company, rock music appeared anything but counter-cultural. Tickets were changing hands for more than £100, and you could easily spend another £50 on a programme, a t-shirt,  a snack and a drink. If you were a really big cheese, you could take part in an auction for a vip backstage pass to The Police’s last concert at Madison Square Garden, New York. That included “meet and greets”, personal photos with the band and front-row seats. At least the proceeds went to charity.

For true materialism, there’s Madonna. The 50-year-old material mum epitomises what Alan Krueger calls the “Superstar Effect”—the bigger the star, the more chance there is, thanks to technology (internet, CDs, DVDs, mobile phones, etc), of reaching new audiences and charging the earth for tickets. Increasingly, these big stars have hogged the arena tills: in 1981 the top 1% of artists took 26% of concert revenues, a figure that had more than doubled, Krueger and Connolly calculate, to 56% by 2003.

Madonna sits at the apex of another trend that is reshaping the music industry: the all-in, or “360” deals whereby the artist signs a contract that includes tour promotion, merchandising and so on, as well as the record deal. She dumped Warner Brothers, her record label, to join Live Nation, the world’s biggest concert promoter, for a reported whopping $120m over ten years. The deal encompasses not just her future tours but her albums, merchandising, website, fan club, DVDs and the Madonna brand.

When she next tours, she can sit down with Live Nation and set her ticket prices. Even though she always plays large venues, her prices are top of the range—along with the Rolling Stones, she pioneered the £150 seat. She can be guaranteed shows in the 50-odd countries where Live Nation operates. Live Nation owns many of the venues, so she can presumably set her terms quite high—they need her to fill their seats more than she needs them. On top of that, she has forged a deal with Viagogo, an online ticket reseller, to make it her exclusive site. That gives her a cut of the scalping revenues, too.

For its part, Live Nation gets more information than any firm has ever had before on its superstars’ fan bases, their spending patterns and tastes. As of January 1st 2009, when an arrangement with Ticketmaster, the world’s largest ticketing site, comes to an end, Live Nation will also control the ticketing, the booking fees and the fans’ contact details. That gives it the opportunity to target the fan again and again—offering special-edition records, videos of the concert they have attended, downloads and all sorts of other paraphernalia. “There is huge excitement about the ability to talk to the fan at the moment of passion,” says Jason Garner, Live Nation’s chief executive of global music. Whether the fan wants such personal attention is a moot point. It depends, I suppose, how much money they have left to spend after the show.

Ultimately, the high prices reflect demand—if tickets were too exorbitant, there wouldn’t be touts reselling them even more steeply; resales that bring no benefit to the artist. But not all bands are comfortable with the direction the industry is taking. Before Live Nation was spun off from Clear Channel, a massive conglomerate, in 2005, at least one hit band, Nebraska’s Bright Eyes, boycotted its venues, saying they were not supporting independent music. Veterans like Bruce Springsteen and Tom Petty routinely charge less for their tickets than they could, on the laudable grounds that they make enough money from fans as it is. Springsteen also refuses to accept corporate sponsorship. Coldplay keep their tickets around $60, below those of other superstars, believing they still need to nurture their fan base.

Another criticism is that with so much attention lavished on superstars such as Coldplay, there is less support for bands coming out of obscurity. This is particularly the case now that record companies have less money to invest in a band’s stature, by pushing them onto the airwaves, for example. Bands have new means to develop a following, of course. With a camera and a cheap software programme, they can shoot their own music videos and put them on YouTube. Word-of-mouth marketing is easier in the internet age. And mobile-phone companies, such as Vodafone, are investing heavily in music. But successful bands these days have to be marketing geniuses as well as musicians. That is only likely to make the business even more money-mad.

The good news is that live music continues to surprise and thrill, and many of the biggest bands—even oldies like the Rolling Stones—are masters of the art of bringing themselves and their audiences back to life each night. At a few recent gigs, a phrase from Miles Copeland has stuck in my head: “You can digitise a song. You can’t digitise a concert.”  Yet even concerts now have a digital quality to them that can be exhilarating. In Prague Coldplay's audience went mad when the band was off stage, waving their phones around to create a swarm of firefly lights. One of the cameramen filmed it and up it came on the big screens. We watched ourselves entertaining each other. Childish, I know, but it was a high point of the night—and the band never even took part.

What is it about such spontaneous eruptions of mass enjoyment? Perhaps it is the loneliness of the digital age. We mostly  listen to our music through headphones; seldom do we sing along around a piano or record player.
Perhaps it is an act of faith. Few people now sing together in church. Is a rock concert now a chance to have a glorious choir practice, with added guitars?

Perhaps live music, however businesslike it has become, carries indelible traces of our teenage dreams. It is heartening to hear that Live Nation scrapped an experiment in digital ticketing because too many people missed the little thrill of clasping the paper ticket and keeping it as a memento. In our fast-changing world, it may simply be reassuringly familiar. I flew home from Tokyo in October on the same plane as Radiohead, who had just played six sell-out nights in Japan. In the baggage hall at Heathrow, I watched a roadie wrap his huge, tattooed arms around the elfin figure of the singer, Thom Yorke, as they parted at the end of the tour. No longer anarchy, for sure. But it was still rock’n’roll.

And the promoters are no fools—they know as well as anyone that if they don’t nurture rising stars, the lights will go out. Rob Hallett, from his perch at the top of AEG Live, is not too elevated to see the danger. “I hope to God there are loads of young punks out there waiting to kick the shit out of our business,” he says. “That’s the only way this industry is going to survive.”

Picture credit: Carlos Capote, AlbySpace, terren in Virginia and Anirudh Koul (all via Flickr)

(Henry Tricks is finance editor of The Economist and a rock fan.)