Music to the moguls’ ears: festivals provide a steady stream of money

Music festivals have changed. Once just weekend breaks for the young and hedonistic, they are now moneymaking machines and an integral part of the music industry

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As conventional money-making activities in the music industry become more volatile, the importance of festivals has increased

Music festivals were once the preserve of those wanting to escape the humdrum routine of normal life for a few days. With hygiene and sleep not a priority, events would frequently resemble a battle zone of churned-up mud, bleary-eyed youths, and countless low-quality food stalls.

However, over the last decade music festivals have changed dramatically, largely as a result of an influx of corporate sponsorship and an increase in the age of punters. The world’s student population would previously make up most of the crowd at events like the UK’s Glastonbury Festival, but now affluent young professionals largely dominate these events. In turn, the festivals themselves have adapted, so as to provide a few of the comforts that these pampered middle class attendees are accustomed to.

The surge in popularity of these events – primarily in the UK, but also across Europe and the US – has meant businesses are keen to associate themselves with them. Major brands, from drinks manufactures and fashion outlets, to carmakers and tech firms, are flocking to sponsor big music festivals in the hope that the crowds will connect them with a wild, cool lifestyle.

While festivals have been around for many years, they were popularised in the late 1960s and 1970s, with the emergence of rock music. From Woodstock in the US, to the Isle of Wight and Glastonbury in the UK, major gatherings of music fans and artists would occur during summer.

[T]he average age at Glastonbury is now 36

Throughout the 1980s and early 1990s, these events would continue to take place, but they were largely aimed at a young crowd, with little in the way of sponsorship. Major brands didn’t want to be associated with the hedonistic chaos that occurred at such events, so organisers relied on ticket prices to make money. Unfortunately, a lax attitude towards security and a lack of professionalism in event management meant few of these festivals managed to turn a profit.

By the turn of the century, many organisers faced the realisation that they would need to bolster security and bring in outside help to ensure they could survive. Glastonbury began to be run with a secure fence around the perimeter and Mean Fiddler, an events management company, was brought in to oversee it. Other festivals had also sprung up in the UK in the previous few years, including the Virgin-sponsored V Festival, while the popular Reading Festival evolved into a dual event, with a sister festival in Leeds, both sponsored by beer behemoth Carling.

In recent years, major US event management companies like Live Nation and AEG Live have been eager to get into the festival scene, particularly in Europe. AEG is the owner of the vastly popular Coachella Festival in California, while Live Nation helps to run Glastonbury, Reading/Leeds, and Hyde Park Calling in the UK. Such is the change in demographic at festivals that brands are now desperate to be associated with the affluent attendees. Indeed, the average age at Glastonbury is now 36.

Sponsorship surge
Sponsorship opportunities are now rife. Hip-hop mogul Jay Z’s festival, Made in America, is sponsored by Budweiser. The brand’s owner, Anhueser Busch, sees the move as a way to attach itself to the music industry and gain a whole new wave of customers. Paul Chibe, Vice President of US Marketing at Anhueser Busch, told Fortune that it is not about making money, but about strengthening their relationship with consumers: “Music is a key part of who people are. It’s a powerful pathway to create relationships with the consumer.” He added: “When people think of great music and the brands that enable it, we want them to think of Budweiser.”

Citing Budweiser’s long history within the music industry – it once organised its own festival in the 1980s called Superfest – Chibe also stated that he wanted to reconnect with consumers through Made in America. “I felt like it was important that we re-establish ourselves as a leader in the music industry. We did it last year in Philadelphia and it ended up being a much bigger success than we ever expected. From a financial standpoint we put more in. We didn’t make money on it.”

According to IEG’s Sponsorship Report (IEGSR), Budweiser’s parent company is the most active sponsor of music festivals in the US by some distance, with 31 percent of events in North America having a partnership with the firm last year. Indeed, alcoholic drinks manufacturers in general dominated sponsorship of music festivals, led by beer makers, followed by spirits manufacturers. Banks and soft drink companies were also particularly active in the market, while telecoms firms and carmakers also invest in sponsoring major music events. The next-largest company on IEGSR’s list, PepsiCo, came second, with 24 percent coverage. Other brands to sponsor large music events include Dutch beer Heineken, energy drink Red Bull, Coca-Cola, MillerCoors, Verizon Wireless, Ford Motors and Toyota Motor Corporation.

All these sponsorship deals amounted to $1.34bn of investment in music venues, festivals and tours last year, according to IEG. This figure represented an increase of 4.4 percent, showing how the North American market is increasingly shifting towards major weekend festival events as a means for the music industry to make money.

Another report, by music industry analysts Frukt, showed that brands are increasingly taking notice of festivals because they are seen as ‘rites of passage’ for the highly lucrative Millennial generation. Frukt’s 2013 Field Work report says: “With such a dramatic shift in the mindset and behaviours of the 18 to 34-year-old consumer – both in terms of music consumption and creative intent – over the last two decades, festivals are currently undergoing something of a metamorphosis. The Millennial festival experience is almost unrecognisable from the Baby Boomer heydays of Woodstock, and rapidly becoming a very different beast from the heavy-handed, sponsorship-led experience Generation X had to endure. As promoters and brands attempt to appeal to the most hyper-connected, technologically savvy and socially adept generation the world has ever known, the activation rulebook is being actively rewritten.”

According to Frukt, the industries sponsoring music festivals in Europe are much the same as those in the US. Alcoholic beverage makers make up a quarter of the market, while soft drinks are also prominent. Fashion brands like H&M, and TOMS have all used festivals as a way of promoting themselves. Sweden’s H&M has been particularly active, having a presence in 2013 at Denmark’s Roskilde Festival, Germany’s Hurricane Festival, Coachella in the US, and Pitchfork Festival in Belgium. Pop-up units allowed fans to get customised clothing, while there were also on-site swap shops.

Birgitte Kastberg, H&M’s Marketing Manager in Denmark, told Frukt: “Fashion and music are closely linked, and therefore we think that Roskilde Festival is a great place to get close to the festival audience in a relaxed and different way. Lots of festival guests loved the concept of the swap shop. They handed in their used clothes to H&M and picked up a redesign item in return. By meeting the guests at the festival, we were able to provide an insight into some of the things that are important for H&M – including better use of natural resources.”

Once a stomping ground for the world's student population, festivals mostly attract affluent young professionals these days
Once a stomping ground for the world’s student population, festivals mostly attract affluent young professionals these days

Monetising music
Corporate sponsorship of music events may have grown exponentially, but the concept is not new. The Rolling Stones were the first major act to capitalise on their popularity, bringing in major corporate brands to help pay for their increasingly lavish tours. The band had not always had a great track record with big concerts. In 1969, at the height of the counterculture era, the band was part of the Altamont Free Concert in California. Coming five months after the historic Woodstock in New York – which many cite as the first major music festival – Altamont had been dubbed ‘Woodstock West’.

Despite featuring a bill of artists that included The Grateful Dead, Jefferson Airplane, Santana, and The Flying Burrito Brothers, the event became notorious for the violence that broke out. This was largely as a result of the Hells Angels motorcycle club being hired as security for the event, who had agreed to be paid in beer for their work. With approximately 300,000 people attending, chaos quickly broke out. Four people died, including 18-year-old Meredith Hunter, who was stabbed after drawing a gun during an altercation with one of the Hells Angels.

Mick Jagger, the band’s lead singer, told Fortune in a 2002 interview that when they were starting out, the music industry was not geared towards making money for the artists. “When we started out, there wasn’t really any money in rock and roll. There wasn’t a touring industry; it didn’t even exist. Obviously, there was somebody maybe who made money, but it certainly wasn’t the act. Basically, even if you were very successful, you got paid nothing.”

The Rolling Stones would go onto revolutionise the way major concerts were run, with all manner of sponsors desperate to associate themselves with such a popular band. On a 2007 tour, the band reportedly made $558m, with an average audience of 35,800.

Industry importance
With dwindling sales as a result of the online spread of music, the industry has had to look at different ways to make money. The festival season in Europe has become a crucial part of the industry’s calendar, with releases timed to coincide with events. Artists, too, are more likely to turn a profit from playing to large festival audiences, not least by way of attracting new fans that would not have bought a ticket to see them alone.

Concerts and festivals make up 60 percent of the North American music industry, according to LA Weekly. Revenues in the region last year reached $4.3bn, substantially more than the $1.5bn they were worth in 1999. This has come while record sales have plummeted 50 percent over the last 16 years.

While events like Glastonbury are prestigious enough to not require huge payments to artists, many other events will pay exorbitant fees in order to ensure sufficient draw to sell tickets. In 2008, Coachella reportedly paid Prince $4m to play, after the initial line-up was deemed lacklustre and tickets had not sold out. This year’s British Summer Time events will see Blur, The Who, The Strokes and Taylor Swift headline their own days, with undoubtedly huge fees to do so.

However, while live music and festivals in general are key to the industry’s profitability, there are concerns over saturation, especially in Europe. A number of festivals in the UK have been cancelled due to poor ticket sales, including the long-running Big Chill Festival. The US market last year also saw a number of cancellations, including the AEG Live-run All Points West in New Jersey and Mile High Fest in Denver.

Despite these failures, the industry has undergone a shift towards live shows; festivals are key to this. With the changing lifestyles of the sub-40 demographic, it isn’t a surprise to see money and sponsorship pouring into the market.

Four of the best

Roskilde, Denmark
The largest festival in northern Europe and the longest-running in Denmark, Roskilde has become a staple of the summer festival market. Launched in 1971 by two students, Mogens Sandfær and Jesper Switzer Møller, and promoter Carl Fischer, Roskilde was originally a major event for hippies, but has since become the biggest mainstream youth festival in all of Scandinavia. Around 130,000 fans descend on the site for a weekend each summer. Roskilde has played host to acts including Sting, Nirvana, Iggy Pop, U2, Eric Clapton, Ray Charles, Prince, Iron Maiden and Bruce Springsteen. While it has maintained its non-profit ideals since it launched, brands have played a role in the event. Carlberg’s Tuborg beer is a notable sponsor, having been a major partner since 2002.

Glastonbury, UK
Perhaps the most recognisable festival in the world, Glastonbury has been running since 1970. Organised by farmer Michael Eavis on his Somerset lands, the festival has hosted some of the world’s biggest artists, including David Bowie, The Rolling Stones, Radiohead, Beyonce, Blur and Metallica. This year will see The Who and Kanye West top the bill. Artists are not paid as much as elsewhere, instead performing for the prestige. Set in the hills of Somerset, it frequently descends into a mud bath due to the combination of rain and 200,000 stomping visitors. It is also known for not taking sponsorship, while donating profits to charities like Oxfam and Water Aid.

Coachella, USA
Coachella, in Palm Springs, California, has become the premier music event in the US calendar. Started 15 years ago, with an audience of 1,500, the lush fields that host the event now cater for around 579,000. Spread over two weekends, 2014’s event reportedly generated $78.3m. While organisers have resisted adding a sponsor to the festival name, certain tents have been sponsored by brands like Heineken and H&M. Organised by Goldenvoice, a subsidiary of AEG Live, the festival has hosted acts including Prince, Kraftwerk, Dr Dre, AC/DC, Radiohead, Madonna and The White Stripes. Coachella has become the most fashionable festival in America, with a stream of A-list celebrities queuing to be photographed in attendance.

Benicàssim, Spain
Spain’s leading festival takes place in July, in the coastal town of Benicàssim. Running since 1995, it offers a sunny alternative to the muddier festivals of northern Europe, and is particularly popular with British fans. Artists to have played include Bob Dylan, Oasis, Depeche Mode, Lou Reed, The Cure and Brian Wilson. Relatively small, compared to other festivals, it typically sees just over 50,000 fans descend on the small town. A litany of sponsors help to fund the event, with Visa, Vodafone and Heineken all putting their names to the event in recent years. Partly owned by UK promoters SJM Concerts and Festival Republic, which is itself partly owned by Live Nation, Benicassim has become a major money-spinner on the European festival scene.