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The Economics behind the Thriving Festival Industry

The economics behind the thriving festival industry is enough of a reason to start thinking about investing in it.

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The Economics behind the Thriving Festival Industry
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Chicago’s house music and Detroit’s techno sound made their way into Europe’s club scenes in the 80s. By the 90s, British dance music events were drawing people by the thousands. And so, after its initial marginal status, electronic dance music became—at its best—the high-energy electric sound that taps into the soul of a crowd and transforms it into a community.

The rise of the internet helped spread dance music like wildfire. Social media became millennials’ go-to channel for buying tickets to festivals and club shows. And they flocked in the tens of thousands. DJs who earned followings for airing their mixes over YouTube were ecstatic to find themselves filling Madison Square Garden.

Sensing a new music segment with the potential for large-scale touring, Robert F. X. Sillerman consolidated geographically separate concert promoters into what would become Live Nation—which, along with A.E.G. Live, is today’s top international purveyor of electronic dance music (EDM). These big promoters work with a number of key producers. Some have more than a decade of experience with electronic entertainment, but the financial potential has really taken off in the last five years.

Big names in EDM production include:

  • Insomniac. Producer of the Electric Daisy Carnival in Las Vegas, making the city famous all over again for showcasing DJs and their art. Partners with companies like LiveXLive, Tencent Video, and Zebra Entertainment.
  • Hard Events. Tours major cities and, since Live National Entertainment acquired it in 2012, has featured generation-bridging entertainers such as Snoop Dogg and 2 Live Crew.
  • Ultra. Its namesake Ultra Music Festival in Miami runs three days each year, attracting 165,000 ticket holders to see 175 acts on eight stages. A festival weekend generates $79 million in revenue for the Miami area economy. It also supports state and local governments with more than $10 million in yearly tax revenue. It’s now expanding internationally.
  • Made. Runs NYC’s Electric Zoo festival, which has also spread internationally. This producer recruits fans to bring in more fans, effectively broadening its audience through perks for festival ambassadors.

These are just a few of the big dance festival producers that constantly find and support new artists. With fresh acts like Afrojack, The Chainsmokers, Marshmello, and more arriving each year, EDM music festivals continue to attract investors and sponsors both from within the music industry and beyond.

Festival Sponsorship Opportunities

What about investing opportunities? Shares of SFX Entertainment can be bought on the NASDAQ index. More lucrative, though, is the opportunity to have EDM power hitters as your brand ambassadors.

EDM has, just in the most recent five years, become symbiotic with sponsors. Brands such as Uber, Budweiser, Jägermeister, 7Up, Emporio Armani, Sol Republic headphones, and even Trident Gum have invested millions into the EDM space. Why? Dimitri Thivaios, a leading DJ in polls for DJ Magazine, describes EDM as the music of today’s generation.

Vodka maker Smirnoff, through its corporate partnership with Live Nation, actively supports the work of artists and DJs. The Smirnoff House streams live acts to their corporate parties worldwide. This is how brands make up what the industry now misses in record sales and performance revenues. Smart money today is in sponsorship and brand investment.

The goal for any brand? To become an accepted lifestyle choice of concert-goers, DJs, and music promoters. For their exhibits to appear on Instagram. To get global attention through the Twitter streams of top DJs and their millions of followers.

And the profit can come with social benefit. There are sponsorship opportunities for EDM fests that are devoted to charity fundraising, such as Italy’s Owo Sound Festival. Investors can also fund female entrepreneurs in the EDM industry.

Revenues Versus Costs of Festivals

Big-name producers can sell a single ticket for $200, $300, $400 and more, and that’s not counting VIP options.

Rave gear company GloFX calls a $440 general admission ticket to the Electric Daisy Carnival “a bargain for the experience of a lifetime.”

And yes, most tickets are sold singly. EDM fans don’t require significant others to attend. The events offer a community experience that welcomes and draws singles as well as couples and groups. The effect: high ticket sales.

Plus, EDM is fertile ground for newer artists to find some true breakthrough opportunities. So the money has meaning.

On the other side of the coin, promoters now have to shell out millions to get a top DJ to headline a festival. And stunning musical and visual productions are expensive logistical feats in so many aspects. A major producer will annually spend upwards of $70,000 in security alone.

The rise in EDM festivals all over the world means intense competition to provide phenomenal shows. With all they spend, they still can’t keep up with the demand for EDM extravaganzas.

Economics of Festivals: Will Revenues Rise?

Over the recent five years since 2012, EDM rose from a $4 billion market to one valued at $7.4 billion. Ticket sales and revenue from live streaming could rise to $10 billion by 2020, says EDM financial expert Kevin Watson, founder of Danceonomics. The EDM fan base is about an 85/15 ratio of under-35 to over-35-year-olds. The more fans get into the 35+ bracket, the more disposable income the overall fan base tends to have.

Manu Beers and Michiel Beers are the owners of Tomorrowland. This EDM festival, as celebrity DJ Armin van Buuren told CNBC, blends with “a theme park combined with a food festival combined with a cultural event.” The Belgian blockbuster festival draws millennial tourists who want to spend thousands of dollars on the full experience.

In an increasingly competitive sphere of live EDM events, producers are coming up with remarkable features and add-ons for clientele keen to spend money on a one-of-a-kind EDM experience. With outstanding planning (and a lot of hype), a 3-day festival can pump up a local economy and generate revenue in the hundreds of millions. Sponsorships invariably become a key factor in a big festival’s growth. Well-connected companies with known sponsors can access the resources to evolve.

And the evolution of EDM continues. As Chris Carey, CEO of the research company Media Insight Consulting, told CNBC, “Expectations are growing so people have to work faster in order to keep up.”

So, are festivals profitable? Evidence will be in full bloom at the Djakarta, Indonesia Warehouse Project in December 2018. Want proof of Asia’s demand for EDM, and the health of festival economics? The Djakarta Warehouse Project commands $400+ for admission to the 2-day event.

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