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Been caught stealing

7 October 2014 By Rob Cox

Cable cowboy John Malone and Jane’s Addiction front man Perry Farrell rarely come up in the same context. It turns out, however, that there are far fewer than six degrees of separation between the 73-year-old Liberty Media billionaire and the singer of “Been Caught Stealing.”

The intersection of these two wildly different entrepreneurs only becomes a matter for capital markets to contemplate now. Live Nation Entertainment, the public concert promoter, artist manager and ticketing conglomerate that Malone’s company owns, is in talks to acquire control of C3 Presents, a smaller rival. Where Malone and Farrell meet is on the fields of Chicago’s Grant Park – at Lollapalooza, the music mega-party C3 throws every summer.

In an era when nearly everything in the music world is becoming either shared or rented, there’s a premium to be paid for actual experience – like, say, a music festival. This partly explains Live Nation’s interest in C3, which also runs Austin City Limits and other big gigs, in a deal the New York Times says will value the enterprise at about $250 million.

“People have understood the power of live music, but it has been very fragmented,” Greg Maffei, the president and chief executive of Liberty and chairman of the board of Live Nation, told me in an interview before Live Nation’s interest in C3 became public. “The common experience of the new album release has disappeared. But the shared experience of concerts has only grown in power and scale. This is the best place in music to be.”

Indeed, over the past two years Live Nation’s share price has nearly tripled and its market capitalization surged to almost $5 billion. This is not simply a reflection of investor expectations Malone will keep adding to his 27 percent interest. Terms of a previous deal cap him for the time being at 35 percent. While record labels may still be hurting, live music is booming. Since merging with Ticketmaster in 2010, Live Nation’s top line has grown from $4.2 billion to more than $7 billion.

Festivals like Lollapalooza, and its more celebrated ilk Coachella and Bonnaroo, are critical to the growth of live music. In financial terms, they help propel the dollar volume of sales simply because they represent a higher average ticket price. A regular three-day ticket for Lollapalooza, headlined this year by Outkast, Kings of Leon and Eminem, came in at $250. In addition, there were VIP and Platinum passes, as well as travel packages, on offer.

Live Nation has been able to work with venues around the world to create so-called “tiered experiences” at different price points for concerts. The company’s global scale, meanwhile, has allowed it to wring more profit from touring, which benefits both the artists and Live Nation’s shareholders, he says.

One of the ways it has done this is by increasing the length of tours, particularly internationally, where the economics are better. By adding, say, 10 more cities in Brazil or Southeast Asia, Live Nation can “cut better deals” and better amortize the costs associated with going out on the road, such as renting sound equipment and transportation, or hiring personnel.

Moreover, the bigger Live Nation gets, the better it can monetize its business: “The scale in concert promotions enables you to win ticketing,” which then allows Live Nation to pitch sponsors and advertisers, who in the first six months of 2014 forked out $116 million, minting an operating profit of $72 million, offsetting losses elsewhere. “It’s like Google,” Maffei says. “The guy with 65 percent share of search can make more money than the next guy.”

Festivals have an amplification effect, too, beyond just the Marshall stacks lining the stages. The top festivals are more than mere concerts. They are happenings that sell out well before lineups are even announced, sometimes in minutes. Maffei puts it: “The festival is the show, not the artist.”

It’s also true that in an era where selling records matters less to band economics than touring, a festival functions a bit like radio did in the golden age of recorded music from the 1970s to the turn of the century. For artists not yet at Coachella-headliner status, playing the side stages of a festival offers a chance to shine, which can help improve touring revenue later.

All of which helps to explain why Live Nation, which apart from some electronic dance music shindigs has been relatively light on the festivals front, wants a piece of C3. The firm, named for three founders named Charles or Charlie, helped revive Lollapalooza a decade ago along with founders Farrell and Marc Geiger, now an executive at William Morris Endeavor. C3 also puts on a festival around the music series Austin City Limits.

Coming somewhat late to the party has its hazards for Live Nation. With every city seemingly eager to capture a slice of the festivals business, there’s a risk of cannibalization, and perhaps over-exposure of many acts. There are just so many “reunion” tours a group like Outkast can perform. Fans, too, may grow weary of big, overpopulated experiences with corporate branding shoved in their faces – and their beer choices limited to sponsor Heineken.

Farrell originally envisioned Lollapalooza as a farewell tour for Jane’s Addiction, a traveling festival of sorts with a handful of their favorite fellow musicians, including Ice-T, Siouxsie & the Banshees and Butthole Surfers. The first gig kicked off on July 18, 1991, in Tempe, Arizona, and ended with Farrell and guitarist Dave Navarro getting into a fistfight. Around the same time, Malone’s TCI agreed to buy United Artists Entertainment to expand his cable TV empire.

While a duet between these two couldn’t possibly have been imagined back then, just as the file-sharing disruption that upended the whole music industry was unanticipated, it offers a cautionary note about the shifting nature of the business.


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