Ticket Masters – Part 5: SFX Entertainment and the Revolution in the Concert Promotion Business

“Ticket Masters. The Rise of the Concert Industry and How the Public Got Scalped” by Dean Budnick and Josh Baron is one the first books that highlight the emergence of the modern concert industry by telling the story of the rise of its main players: Ticketmaster and Live Nation. It gives a deep insight into the processes within the network of concert promoters, ticketing firms and artist agencies and how this network has evolved over the decades.

Until the mid-1990s the US concert promotion business was dominated by local venues and promoters. This changed dramatically when SFX Entertainment appeared on the scene. In part 5 the rise of SFX Entertainment to the main power of concert promotion and its transformation into Live Nation is summarized.

The North American pop and rock music business remained fundamentally unchanged until SFX Entertainment appeared on the scene in 1996.  In the decades before the live market in the U.S. and Canada was controlled by local promoters, who protected their territories from unpleasant competition. Thus, the artists’ managers or their agents had to cut deals with the local power brokers (p. 201). The first eruption that challenged the established system of fragmented local live music markets was Elvis Presley’s national tour deal with Concerts West promotion agency in 1970. Concerts West paid $1 million the Elvis’ management to acquire the right to book a national tour. Therefore, they had to cut out the various middlemen and directly contracted with the venues (p. 201). In response, some angered promoters encouraged impresario Bill Graham to start a competing model of national touring that relied on a network of local promoters. In 1974, Bill Graham sent out Bob Dylan with The Band,Crosby, Stills, Nash & Young and George Harrison for the first ever stadium tour in the U.S. However, local promoters were still in play and, thus, each local subcontractor in each city had so little money that they had to cut everything in order to avoid a deficit. Hence, the first national stadium tour ended up in a fiasko (p. 203).

Bill Graham’s failure showed that national tours would only be profitable, if they were organized by one promoter. After Concerts West successful beginnings, Toronto-based Concerts Productions International (CPI), founded by Michael Cohl, perfected the national touring concept. CPI succeeded in organizing Michael Jackson’s 55 date stadium “Victory” tour in 1984 (pp. 204-206).  In 1989, CPI bought out the Rolling Stones from Bill Graham Presents promotion agency – which had produced the Stones U.S.-tours in 1972, 1975, 1978 and 1981 – by paying a guarantee sum of $65 millions for 50 dates of the “Steel Wheels” tour. This was only affordable, since the entire tour was seen as one package – instead of 50 separate dates –, in which the single concerts were cross-collateralized. This means that the local promoters and venues were only getting flat fees after costs and expenses (p. 211). At the end, “Steel Wheels” tour was a hugh success, not at least for the Rolling Stones, who earned more than $260 million from ticket sales, merchandising and licensing deals, and sponsorship (p. 212). “Steel Wheels” was followed by “Voodoo Lounge”, “Bridges to Babylon”, and “No Security” tours, which made the Stones the top touring act of the 1990s grossing more than $750 million from 333 shows (p. 214). All the dates were successfully produced by CPI. Cohl’s new model of national touring attracted other superstar acts. In 1992, CPI paid U2 a $115 million guarantee for its “ZooTV” tour. Pink Floyd,Crosby, Stills, Nash & Young as well as David Bowie followed after CPI had morphed into The Next Adventure (TNA) (p. 214).

However, Michael Cohl sold The Next Adenture for an undisclosed amount in April 1998 to a new player in the pop and rock music promotion business – SFX Entertainment. In the same year SFX also acquired other music promotion companies: Don Law Presents for $71 million, Cellar Door Productions for $106 million and Avalon Entertainment for $27 million (p. 182). Where did the new power on the live concert market come from, which could afford such multi-million-purchases?

SFX stands for the initials of Robert F. X. Sillerman, who started as a marketing consultant in the mid 1960s and build up a broadcasting conglomerate in the 1980s. In 1992, SFX Broadcasting was formed by combining Sillerman’s Command Communications with radio mogul’s Steven Hicks’ CapStar Communications. The company went public in 1993 and expanded by the infusion of fresh capital (p. 156).

In 1996, SFX Broadcasting profited from the new Telecommunications Act, which deregulated all forms of communication in the U.S. It eliminated the ban on newspapers owning TV stations in the same market, lifted price regulations for cable systems with fewer than 600,000 subscribers, and permitted one company to own two TV stations and an unlimited number of radio stations in the same market. Previously one company was allowed to own only 40 commercial radio stations with a limit of four per market (p. 157). In 1996, Steven Hicks left SFX to form CapStar Broadcasting and SFX bought the New York-based concert producer and promoter Delsener/Slater Enterprises in order to diversify into live entertainment. The purchase provided valuable synergies, since radio stations want to do concert promotion and concert promoters always needed PR for their concerts. In the following year, SFX Broacasting also purchased Indianapolis-based Sunshine Promotions, which operated also two amphitheatres and the Meadows Music Theatre in Hartford, Connecticut (pp. 161-162).

In late summer of 1997, former business partner Steven Hicks surprisingly bought SFX Broadcasting for $2.1 billion – $1.2 billion in cash and $900 million in debt – to incorporate it into his CapStar Broadcasting group, which already owned 241 radio stations. However, it was a special deal as Budnick and Baron point out: “SFX Broadcasting could use its existing cash flow from radio business to finance the acquisition of its concert business as long as the debt was repaid upon the closing of the broadcasting deal after it had cleared governmental review” (p. 163) Within these six months, the promotion arm SFX Entertainment was establised as a public company, which raised enough money at Wall Street in order to repay its debt to CapStar in February 1998 (p. 163). In the meantime, SFX Entertainment used its liquidity to buy several concert promotion agencies: Concert/Southern Promotions in Atlanta for $17 million (p. 166), St. Louis-based Contemporary Productions for $91 million, Bill Graham Presents for $65 million and Houston-based PACE Entertainment for $130 million (p. 169).

Within the short time span of two and a half year SFX purchased nine concert promotion companies and changed the rules of pop and rock music promotion. SFX Entertainment business model relied on three incomes streams: ticket sales, ancillary revenues from food, brewerage and parking fees as well as advertising and sponsorship. Especially income from advertising and sponsorship was very important, since SFX realized that selling its customers data as packages to advertisers is much more lucrative than selling tickets. Within a year SFX doubled its revenue from advertising and sponsorship to $60 million in 1999 (p. 180) and “(…) was rapidly morphing itself into a global marketing company” (p. 197). Therefore SFX could afford to overpay acts by granting them 90 percent of the entrance fees in order to make it unattractive for them to contract with competitors. However, SFX Entertainment also profited from higher ticket prices. Since it entered the live music business in 1996 ticket prices had gone up nearly fifty percent until 1999. Thus, SFX Entertainment earned $1.5 billion in revenue and reported earnings of $209 million in 1999 – more than a quadruple than a year before (p. 192).

Robert F. X. Sillerman showed the world that concert promotion can be a billion-dollar-business and soon attracted investors. On February 29, 2000, SFX Entertainmant annouced its sale to then world largest radio broadcaster Clear Channel Communications, which owned or controlled more than 1,000 radio stations, 550,000 outdoor billboards and 19 television stations, for $4.4 billion (p. 192).

The synergies between broadcasting, advertising and concert promotion seemed obvious. When a big act toured through the country, Clear Channel would provide free advertising space and radio promotion in all the major cities, since it owned half of the billboards and radion stations in each of the cities. In addition, Clear Channel could aggregate the act’s audience in order to sell it to a potential sponsor including radio and billboard advertising. However, what sounds obvious in theory was not in practical terms. In the fall of 2000, the world economy was hit by an economic downturn, which was prologened by the 9/11 terror attacks in 2001. Since SFX, which was incorporated as Clear Channel Entertainment in the Clear Channel conglomerate, carried more than a billion dollars in debt, the new parent company was not able to get rid off the debt burden in the short run. In addition, Clear Channel did not find a way to create real synergies between radio, advertising and concert promotion businesses. In response to the economic problems, the company had to cut costs by setting free DJ staff in favor of cost-saving automation of playlists. Clear Channel was also accused to force artists into Clear Channel-owned tours and venues by promising more radio airplay and the company was one of the main targets of the 2003 congressional hearings on the concentration process in the broadcasting market (p. 223). All these problems led to the decision to spin off Clear Channel Entertainment into a separately traded company named Live Nation in spring 2005. At that time Clear Channel Entertainment/Live Nation was estimated to be worth $1.5 to $2 million – half of what it had been sold for five years earlier (p. 225).

Part 6 is devoted to the merger of Ticketmaster and Live Nation as a new conglomerate, which controls the world’s ticketing and concert promotion business.

Budnick Dean and Josh Baron, 2011, Ticketmasters. The Rise of the Concert Industry and How the Public Got Scalped. New York: ECW Press. ISBN 978-1-55022-949-3, EUR 18.99.


7 Responses to “Ticket Masters – Part 5: SFX Entertainment and the Revolution in the Concert Promotion Business”

  1. 1 Don Schlonzo
    October 13, 2011 at 8:14 am

    Interesting way to escape Ticketmaster & Co in a DIY fashion (though it’s of course only feasible for bands that already have a following and can count on a dedicated fan base):

  2. January 5, 2013 at 4:05 am

    Finally someone is writing about this! The ticket cost for Rolling Stones this year was outrageous and ridiculous. I am a fan but I won’t pay it. My kids want to see One Direction those tickets are over a hundred dollars, are you kidding me. This industry is completely driven by greed. So sad.

  3. January 5, 2013 at 4:13 am

    Reblogged this on maura greenblum and commented:
    If you are interested in what is happening to concert ticket prices today then you will find this interesting.

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