It’s 10:15 on a Midsummer Night. Do You Know Where Your Favorite Artist Is?

In the first part of a series on trends in the music industry, we will explore how the commercialization of music and the emergence of “must-see” programming has shaken up the industry.

In the first week on sale, ULTRA MUSIC FESTIVAL 2014 is on pace to sell out faster than ever before … We understand that our 3rd tier ticket price ($166 per day over three days) may be out of reach for some of our fans. To ensure the premium quality and evolution of Ultra’s ground breaking stage productions & artist line ups, while continuing to meet the ever increasing financial demands associated with producing this massive festival in the heart of an urban metropolis, this price increase was unfortunately necessary … We refuse to cut corners and provide our fans with anything less than the absolute best experience possible. For our fans that will not be able to experience Ultra Music Festival in person, we invite you to watch the ULTRA LIVE festival global live stream (in HD) for FREE.

— Official statement from the Ultra Music Festival, over nine months in advance of the 2014 Festival

I was offered a lot of money to play there and I turned it down because it doesn’t have any meaning. All of the political sides of it seem to have been whitewashed and airbrushed over….It’s not just Glastonbury. I don’t like the whole corporate festival thing. I’ve done V festival with Pulp and as a solo artist, and I hated every minute of it. It’s just nasty and not what I’m about – I want something a bit more free and organic. I want the audiences to feel included rather than trapped. They’ve paid for the privilege to be trapped in a field and marketed to. What the f*** is that all about?

— Richard Hawley on refusing to play the Glastonbury Festival.

We live in interesting times. As we enter the dog days of the summer festival season, the music industry would appear to be in the midst of a boom, if measured by the prevailing popularity of major music festivals and the round the horn buzz of emerging artists on late night television. For the sixth year in a row, artists at Lollapalooza played to daily capacity crowds of 100,000, with most tickets selling months in advance before lineups had been finalized. Ticket demand for Coachella and Austin City Limits has been so high that festival organizers have resorted to the expedient practice of double booking the same lineup on consecutive weekends. The success of the top destination festivals has had a spillover effect on the concert market as a whole, spawning a succession of regional, local, and artist-curated festivals that have transformed the outdoor concert calendar.

On a personal level, pop music has achieved a level of significance in our daily lives that transcends airplay or sales figures. Thanks to the ubiquity of the Internet and mobile devices, music is available to us wherever we go. Paradoxically, music’s expanding global pop culture footprint comes at a time when the industry, and a sizable chunk of its troubadour musicians continue to struggle to eke out a living. Top line data shows 2012 to be a strong rebound for the concert industry from the disaster of 2010, and the industry seems healthy from outward appearances. The reality is much more grim. Much of the brisk demand for concert tickets has been top heavy, driven by skyrocketing ticket prices and the success of superstars and nostalgia acts at the top of the pyramid. Industry pioneer Tom Silverman reiterated last month at the New Music Seminar (the industry confab he relaunched in 2009), that music sales revenues will remain stagnant for the foreseeable future, driven by continuing declines in physical sales. The uncertain financial climate is having a decided impact on how artists approach the marketplace. In the first part of a series looking at trends in the music economy, we will examine how sluggish sales revenues have increased the industry’s dependence on commercial sponsorships and special event programming.

So busy, busy busy, busy scissors

The new music economy presents artists with conflicting market dynamics. On the creative side, the Internet, social media, and a range of user tools have revived a DIY spirit that like previous declaration of independence, has unleashed opportunities for a fresh wave of garage bands, singer/songwriters, and MCs to make and distribute music. The traditional labyrinth of major labels, commercial radio, and establishment media that once served as inscrutable gatekeepers to the discovery of new music have been sidelined by a more whimsical collection of indie labels, YouTube miscellania, and inscrutable bloggers.

Today, artists who manage to get noticed are now capable of breaking big, reaching well beyond the 15 units of fame that accompany a hit record, a record deal, or TV spot. For the aptly titled Icona Pop, the sky’s the limit. In a matter of months, the duo deftly transitioned from playing a houseboat on the Hudson River at CMJ to iconic pop status, achieving that level of ubiquity which sees their riot grrrl anthem accompanying story trailers, a seminal Lena Dunham coming-of-age moment, second half rallies, and ads featuring bourgeois revelers. The fine young lads in the Japandroids receive just praise as indie darlings, but achieve a new level of popular strata when selected to be the entry song for the Vancouver Canucks. Nothing tops the pop culture hall of fame achievement of the White Stripes though, a signature track experiencing its humble beginnings as a riff adopted by the be-sotted followers of a Low Country soccer club to becoming this generation’s jock rock anthem for Seven Nation Armies worldwide.

The digital age was supposed to foretell more doom for a major label system and enhance artist freedom. The Internet has indeed facilitated what was always theoretically possible, leading to a democratization extending to airplay and even artist inventory, allowing artists to self-release mix tapes and pass tracks to fans in real time. Artists enjoy a greater degree of creative control, as major labels are less positioned to blacklist artists or embargo the release of new product. Certainly, major labels are much leaner, relinquishing the role of gatekeeper to the recording or distribution of music.

Yet, while the digital age has afforded artists an unprecedented opportunity to cultivate an audience, artists face the age-old challenge that has bedeviled artists ranging back to the wandering minstrels of the Middle Ages to Mississippi bluesmen, finding a way to get paid absent the support of a grateful benefactor or doting public. The current generation of artists face the unavoidable reality of a steady decline in sales revenues, driven not so much by piracy, as was originally feared, but more the result of a progressive shift in how consumers choose to access music.

The digital revolution helped upend an album-oriented sales model that defined the arms-length relationship between artists and fans for a generation. The initial shift in consumption from music by the slice as opposed to the pie, has evolved into a full scale rout for artists as consumers have elected to forego the physical sale of a unit at a brick-and-mortar record store in favor of a subscription-based model where artists are increasingly compensated by the play, receiving mere fractions of a penny per transaction. The vexing challenge for artists lies in learning how to navigate the shoals of a new music economy where consumers have passed on the concept of physical ownership of music.

After considerable handwringing, the music industry has responded by finding ingenious ways to monetize the value of music (a term of art for turning the consumer upside-down and shaking change from their skinny trousers). In contrast to the film industry, which still derives much of its revenue from box office receipts, the music industry core revenue from sales is steadily shrinking. Tom Silverman estimates that non-sales revenue accounts for roughly 25% of all music revenues, and will continue to rise as physical sales fall.

The most enduring manner is the time-tested approach of cultivating, nurturing, and harvesting a dues-paying constituency, primarily through touring. Much worthy discussion is occurring within the parlors and saloons of the industry, at august settings such as the New Music Seminar and the Future of Music Coalition policy summit, as well as convivial exchanges such as the TED Talks. The basic build-a-bear model involves whetting the appetites of intrigued listeners, converting them into consumers and then into the superfans who spring for meet-and-greets, deluxe editions, and — in the case of industry maverick Amanda Palmer — emerge as equity partners in the artistic franchise. Others look at harnessing technology, finding dues-paying members of the public by capturing streams that already exist, such as fractions off a wireless bill. DIY approaches to fan outreach are no longer simply the tools of trade for artists on the outside looking to get in, but are becoming a fundamental way of doing business for many established artists given the erosion of financial security.

I. A License to Shill.

A key to surviving and thriving in the new music economy is through solicitation of income from the invisible hand that powers much of the entertainment industry, commercial sponsorships. Certainly, music’s links to our emerging popular culture has always been present, a tradition extending back to the golden age of Hollywood musicals, music videos killing off our radio stars, and those shared A Night at the Roxbury head-nodding touchstones that seem to infect us all. Brand marketers have facilitated the process by co-opting entertainers as spokespeople in less obvious ways, and the ubiquitous presence of products in daily life has made these ads seem less intrusive. A long-form Jay-Z documentary spotlighting his latest album that runs during the NBA finals represents the seamless approach of marketers in blurring the lines between art, entertainment, and commerce. Are consumers experiencing a promotion for the NBA, a new album, or the Samsung Experience?

The key for artists looking to not only make a living through their music, but to actually thrive, decadent “records on the wall” style, lies in a consciousness of not just where the revenue sources lie, but who’s footing the bill. Amanda Palmer is justly feted as a pioneer for recognizing her fans as partners, revitalizing an age-old patronage model that conjures up pleasant images of Principal Rooney bootstrapping Pinto so he could self-actualize as Amadeus. But an alternative to endless house parties lies in unlocking the commercial value of music, “Moby-izing” the value that music brings to other things, where that thing be a vampire chick flick, an after-school special, or a BMW ad. And artists are increasingly finding that survival in a commercialized environment extends beyond grabbing the attention of music supervisors, but leveraging commercial relationships. The persistent reality that thriving in an environment where financial success is tied less to sales, and more to the marketability of their work is proving unsettling to many artists.

Many artists are beginning to understand the value that their erstwhile business partners the labels play and are now entering into arms-length agreements that allows artists to focus on their craft, while labels and commercial music entities utilize their financial heft and business acumen to work out deals. So while artists are no longer solely dependent upon major labels for discovery or release, more established artists are finding their financial futures linked to many of these same outfits through 360 deals, relying on commercial entities much better positioned to line up lucrative deals. Major commercial entities still possess the resources to exert market dominance, particularly when it comes to leveraging relationships and slyly utilizing their familiarity with similarly vertically integrated entertainment and brand conglomerates to maximize revenues. An unaffiliated artist can get noticed by a music supervisor and stir the pot by going viral with a YouTube clip. But artists seeking to reap the benefits of patronage, whether via a long form Samsung ad that airs during the NBA Finals (and runs, well, like a Jay-Z making of documentary for the Magna Carta Holy Grail release that um, celebrates Samsung) or a Weezer opening of a Microsoft store at Woodfield Mall (did they talk sweaters?). The industry establishment lives on in the form of 360 deals that marry music to brands.

The commercialization of music doesn’t prevent listeners from hearing about music via word of mouth. Indie artists can still bend the ear of bloggers and utilize social media to cultivate fans and book tours. But in much the way that heavy rotation airplay created a generation of winners, the market saturation of the chosen few who find themselves being blanketed in ads, movies, and TV scores are getting the favorable placement that even I Heart Radio was not capable of delivering. That ubiquitous jingle from the American Idol discovery that you can’t get out of your head? Credit NBC Universal’s non-stop plug of the US Women’s Olympics Gymnastics Dream team, and the unending stream of insurance and lifestyle commercials for that. For many others, YouTube hits and adulation from an adoring fan base is a start, but also the onset of what is likely to be a continuing struggle to maintain their standing in a crowded marketplace. For those already struggling to be heard over the din of their fans’ Rice Krispies in a digital age characterized by information overload, consider the omnipresence of familiar tunes that, thanks to the ubiquity of airplay via synching, results in that much more noise to cut through.

On the Road Again

The decrease in music sales increasingly forces artists to focus on touring, at a time when fans remain eager to support artists by seeing their heroes on stage. Touring, once considered a promotional loss leader activity to promote album sales, has become an end in itself, a major boost for artists, with some observers going as far as to see the concert industry as representing the future of the industry.

Live Nation CEO Michael Rapino opines that “90% of an artist’s earnings come from touring”, while music industry researcher David Laing from the University of Liverpool projects that the concert industry, as broadly defined, crossed a high watermark in 2012, exceeding the total of revenues from sales from music globally, with each in the neighborhood of $25 billion. (The U.S. market is estimated to be around $7 billion in sales). Wherever the exact numbers lie, directionally the trendline seems hard to refute. After experiencing a precipitous drop in revenue in 2010, concert revenues rebounded in 2012 according to industry trade data collected by Pollstar. But sales revenues remain stagnant, even when actual unit sales experience a slight uptick, as was the case in 2012. Artists have responded by hitting the road early and often, with major target markets seeing usual suspects circle back as often as quarterly. Artists also crave the cash cow of appearance fees at major festivals and affinity marketing events (the corporate big boy version of playing the opening of the new shopping center).

With the emphasis shifting away from sales towards touring, the stakes are higher for all parties involved. In much the way that film industry budgets have exploded, the concert business has become an end in itself, with elaborate planning dedicated towards not only tour stops, venues, and set lists, but corporate partnerships. The current upturn in concert business seems to be fueled by three particular segments: 1) the triple-threat market giants, the Billboard superstars whose success as pop culture brands allows them to simultaneously click on all cylinders of sales, concert attendance, and synergistic commercial sponsorship; 2) a broader segment of nostalgia artists who can tap into the discretionary income of an established fan base, and 3) for most of the remainder of the top 150 or so in-demand artists that straddle the mainstream and emerging markets, festivals, and event-based programming. This last segment has captured the industry’s attention, given the potential for synergistic convergence between the streams of touring and licensing. While the relative health of the concert industry has had a positive spillover effect on the club circuit, and artists willing to live on the road can make a good chunk of change off the club circuit, the enormous wooly mammoth in the room are music festivals, seemingly the larger the better. To paraphrase the incessant question, the one that lives on in heavy rotation featuring the befuddled adult who answers his own question through sleight-of-hand before a revolving focus group of precocious children, is bigger better?

We’re the Kids in America: The Advent of Must-See Programming

Last weekend, the masses gathered on Chicago’s lakefront for the grandaddy of North American festivals, Lollapalooza, which in its original caravan form and with its reboot in Chicago in 2005, represented an opportunity for the industry’s most promising underground artists to break through to the mainstream. But well before Perry Farrell kicked off the modern day carnival as a means of letting his freak flag fly, festivals were historically more of a European phenomenon, a mid-summer rite of passage for top of the chart artists who saw the beauty in first taking Copenhagen, before taking Berlin as a cost effective way of reaching markets. Festivals now serve a major convening function for a new generation of artists and fans in the U.S. Artists can now first take in Manhattan (KS) before they take Berlin (OH). Over the last six years, major festival organizers, promoters, and talent wranglers such as C3, Live Nation, AEG Live, and William Morris have built on the ascendant pop culture buzz of Coachella and Bonnaroo as rites of passage, redefining the live music experience through more excessive and longer-winded events that seem to pull in virtually any and all artists with popular appeal into their orbit. The Windish Agency, one of the industry’s most respected booking agencies for bringing in-demand emerging artists to a broader audience, has played an influential and invaluable role in augmenting the indie cred of the festivals, preventing them from simply devolving into a Now That’s What I Call Music cattle call.

On initial spec, festivals are an appealing proposition for artists and fans alike. For emerging artists, invitations to play the largest festivals represent prestige as well as good business, an opportunity to play alongside peers while gaining exposure to a wider audience. Established artists seek the opportunity to capture a lightning in the bottle with a career-defining performance. Fans, in turn, even after shelling out three figures for a day’s entertainment, benefit from the pricing dynamics of one-stop shopping, an all-you-can eat buffet at the food court.

The scale economics of major festivals is big business for festival organizers and their corporate partners. The financial model is compelling. Market an experience to a critical mass of fans. Sell access to said fans to corporate partners. Lather. Rinse. Repeat. The latest wave of festivals represents a safety-in-numbers approach that minimizes risk for promoters and artists alike, while providing fans with a buffet of artists sitting atop the market. The current popularity of the festival concept has triggered a spillover demand for artist driven, regional, and local events. Does this lineup look familiar?

While festivals seemingly represent the cat’s pajamas of immersive musical experiences, particularly for the more casual concertgoer, warning signs of their imminent demise seem to lurk around the corner, particularly in Europe, where the festival culture has been much more ingrained. Consider the fate of the Isle of Man festival, scheduled to make its debut in July in what promised to be a unique setting, but recently announced its cancellation due to slow ticket sales. A festival spokesman glumly noted: “With a festival market that sees festivals sharing similar line-ups running almost every weekend through the summer….we just haven’t been able to sell enough tickets to make the event viable.” Similarly, the US market has seen even some of its more novel concepts, such as the ambitiously conceived and well-staged All Points West, shut down after two years at a breathtaking location across the Hudson River from lower Manhattan in New Jersey, a venue largely accessible by ferry. More recently, the Deluna Fest, one of the more creative venues affixed on prime Florida Gulf Coast beachfront, announced it was cancelling its 2013 festival after two years of uneven ticket sales. The challenge going forward as festivals dot the landscape across North America, will be recreating unique experiences that have become lost in a sea of same. Social critics, be careful what you parody. What if a festival were really to go forward with a decision to go all Alanis Morissette with its programming?

Trend? Meet Your Backlash.

But back to that suit, and the persistent question posed to those kids. Is more better? As a financially insecure industry has doubled down on event-based concerts based on selling a collective experience, artists seem split in their reaction to festival culture. Some artists revel in the innocence, free spirit, and tomfoolery, even as the experience is rebranded as the “Experience”. Others appreciate the hefty payout, fuss-free setup, and opportunity to check off a destination from their bucket list. A growing chorus of artists has begun to bubble over with privately-held frustrations vary widely, ranging from the dominance festival promoters wield over warm-weather touring options, to the need to “play ball” to remain in good favor with promoters, to limited transparency on pay rates, to the basic idea of getting lumped together with America’s 150-in-one massive crockpot. Local club promoters chafe over the restrictive effect of blackout provisions on local bookings, which in extreme cases prevents festival artists from playing within a 300-mile zone period from three to six months of the event date.

The increasing sense of ennui is reflected in public criticism, and not just from those on the outside looking in. Deadmau5 has been a persistent critic of large festivals, even as he has headlined Ultra and Lollapalooza in recent years. “Ultra to me is the definition of insanity: doing the same f’ing thing every year… it’s fun and it’s cool, and if you’ve never been, go. But if you are one of those dudes that go every year, it’s like why would you go again?”

Similarly, festival slots are now much less valuable in breaking artists to the next level, given not only the periodic and persistent return of artists back to the same festivals, but overlap across festivals, as well as the collective sprawl of events. What say you, mau5head? “It’s like that for all major North American festivals … Even if you don’t want to, you are competing against the festival programmer… the other acts … the time slots.”

Festivals have always had their share of cynics, with veteran festivalgoers and artists’ diehard fans alike finding that much anticipated slots rarely live up to the hype, often falling short of expectations, the product of jockeying for position with thousands of disinterested spectators, all to hear a shortened set. But more disturbing for an industry enamored with the idea of marketing a vehicle to a new segment of fans drawn more by a shared experience and less by the music are the tell-tale signs of a high water/shark-tipping point in pop culture: the proliferation of inventive ridicule and an emerging cottage industry in festivalgoer memes.

Nevertheless, for artists, the pressure to play the larger events is persistent. The constant influx of new artists and new releases makes it more of a challenge for emerging and established artists to remain relevant. The modern reality is that artist exposure may be less about winning over new fans by the bushel load through a seminal 35-minute set or good autograph tent-side manners, and more about allowing more enterprising artists to enhance their visibility, and thus marketability for future music placement and corporate pitch opportunities. But the circularity of the concept seems to demystify the dark science of programming (just book everyone since the festivals have everyone and every artist is doing one). By reaping the immediate windfall of a hefty festival payout, there is growing concern that while enhancing the bottom line of festival promoters, and benefiting in the short term, artists are running the risk of collectively contributing to the dilution of the concert-going experience, in the process slowly chipping away at their own brand and potentially cannibalizing a bread and butter source of income, touring.

So What Do We Have for Entertainment: The Quest for the New “New” Thing

The digital age has helped to level the playing field for musicians, allowing artists to self-release and promote new material, build and manage their fan base, and even get paid. The flip side of the DIY environment, given the quixotic nature of YouTube success, the immediate 24/7 feedback of social media, and the democratization of publicity through a sea of self-deputized citizen music bloggers, is an infernal buzz/hype cycle that has led to some smashing viral successes, but also floods the market with artists competing for public attention. The good news/bad news quandary for new, emerging and established artists lies not just in getting recognized, but remaining relevant in a topsy-turvy environment, where even a viral hit does not ensure a shot at stardom, or financial security.

The long term goal of artists remains the same: creating good art and cultivating relationships with fans. But touring and promotion, once a means to promote sales, have become ends in themselves, placing pressure on artists to demonstrate bankability with potential audiences or commercial sponsors. As marketability surpasses sales as sources of revenue, might artistic merit be shoved aside for softer factors like the ability to appeal to a broader consumer segment that may not regularly purchase, but is inclined to react positively to an artist’s placement on a soundtrack or ad? Could music discovery be in the hands of America’s Got Talent-type juries who critique artists as much for their showmanship as their musicianship? Could cross-over success be linked to how artfully one deploys catchy riffs (“Hey!”, “Ho!”) or line up a photogenic ensemble that introduces Boxcar Willie to a new generation?

One of the most telltale signs of the shift in the dynamics of the industry, and the challenge for emerging artists, lies in the diminished significance of milestone calendar events such as SXSW and CMJ for the discovery of new artists. Given the breakneck pace by which artists can go viral and the 24 x 7 x 365 nature of promotion, these events have reinvented themselves in part as pop culture showcases. In the next part of our look at the current market landscape, we’ll take a look at how the evolving market dynamics have transformed these bellwether events and in the process redefined the process of music discovery.