Live Nation: The Show Must Go On
Tuning in Live
Since 1996, Live Nation has been committed to providing the best live concert experience for fans across the world. Following its merger with global ticket sales and distribution leader Ticketmaster in 2010, Live Nation has dominated the center stage as the world’s largest ticket seller and promoter of live entertainment. Despite 14 years of growth, the COVID-19 pandemic caused a 98 percent drop in Live Nation’s 2020 Q2 earnings. With 68 percent of consumers developing new purchasing behaviours as a result of COVID-19, Live Nation must explore strategies to mitigate the decline in demand and strengthen its position as an industry leader.
Media and Entertainment: From Box Office to Home Office
COVID-19 has pushed the media and entertainment (M&E) industry in the direction of digital disruption and emphasized the need to be more remote, virtual, streamed, and personal. In particular, the live entertainment segment of the M&E industry has experienced a 66 percent drop in revenues. Given that Live Nation can no longer depend on its traditional model of in-person concerts, it is crucial for Live Nation to incorporate new, digital trends into its service offerings.
Gaming Industry, Rise Up!
In contrast to the broader M&E space, esports and gaming are continuing to grow at 15.7 percent and 6.9 percent year-over-year, respectively. By 2025, the gaming industry is projected to be valued at over $300 billion with a CAGR of 13 percent. The rise of features enabling player interaction and new free-to-play business models have popularized online multiplayer games. This growth is expected to persist as the virtual world becomes inseparable from—and naturally integrated with—reality.
Game publishers now derive a considerable portion of their revenue from in-game microtransactions, which are minor purchases by players for in-game tools, cosmetics, and character skins, giving players the freedom to change the appearance of their characters. In fact, the financial success of popular free-to-play games such as League of Legends, Fortnite, and Call of Duty: Warzone are attributable largely to the scale of their microtransactions. Their success has only grown during COVID-19: 75 percent of gamers have increased their spending on video game content since the beginning of the pandemic. The rising consumer demand in the gaming industry represents an attractive market for Live Nation to pursue.
Take-Two For Live Nation
As the M&E industry awaits the reopening of concert and event venues, an opportunity arises to capitalize on continued interest in the gaming industry triggered by the pandemic. Live Nation should partner with Take-Two Interactive (Take-Two), a leading video game publisher, to provide its artists with expanded marketing initiatives for new releases, concerts, and events through Take-Two’s multiplayer online games. By integrating marketing elements into games, both parties stand to benefit from drawing in new fans and engaging current ones.
Case Study: Astronomical Profits
Travis Scott’s recent concert in Fortnite garnered 45.8 million views and attracted 27.7 million unique players. This elevated online event differed from the traditional live recordings by exposing consumers to a unique concert experience, where players could move around the in-game world and interact with a digitally enhanced avatar of Scott. For context, the largest music festival in the world, Donauinselfest, regularly attracts no more than 3.3 million people each year. Hence, offering virtual events provides an unparalleled opportunity to reach millions of individuals worldwide.
The virtual concert also incorporated a key element of touring revenue: merchandise sales. Exclusive Travis Scott player skins sold for between 1,500 to 2,000 V-bucks in the Fortnite store, equivalent to $15 to $20 each. Even if only three percent of players present purchased the lowest-price skin, Fortnite would have realized $12.5 million in revenue. Assuming the 30 percent standard cut, $3.7 million would have gone directly to Cactus Jack, Scott’s record label. These virtual merchandise sales ultimately have higher profit margins than traditional concert merchandise, with very low marginal costs.
Bound to be a Hit
Currently, Live Nation’s business model encompasses exclusive partnerships with over 4,000 artists globally through its event promoter business. It also manages over 500 artists through its artist management companies, including a partnership with Roc Nation, a full-service entertainment agency founded by Jay-Z. For Live Nation and its partner artists, a partnership with a gaming publisher like Take-Two would enable access to player bases of at least 150 million at a relatively inexpensive cost. Furthermore, for artists, it eliminates much of the time and effort required to find a suitable one-off deal with a particular video game. Take-Two’s immense library of games would allow artists to quickly find a game partnership that works best for their size, target audience, and budget. For example, a country artist such as Blake Shelton could partner with Red Dead Redemption 2, a blockbuster role-playing game set in the Wild West. In contrast, hip hop artists like J. Cole and Lil Uzi Vert could integrate new album releases with Grand Theft Auto Online (GTA).
Like Travis Scott with Fortnite, there is an opportunity for Live Nation to diversify its merchandise revenue by offering artist-themed virtual merchandise in Take-Two’s games. Live Nation should work directly with Take-Two’s development studios to create marketing for in-game merchandise. Faithful representations of apparel, themed items, or creative interpretations of an artist’s style and iconography could naturally lead to cross-sales between real-world merchandise and in-game equivalents. This benefits both parties and provides more touchpoints of engagements between artists and fans.
From the artists’ perspective, video games not only provide an opportunity to remain relevant but also a way to increase popularity and brand recognition amongst their fan base. For global artists, in particular, video games provide additional touchpoints to connect with and develop a fan base within the international gaming community. Long-lasting partnerships with game studios have the potential to yield recurring benefits as an artist’s career develops.
Not Playing Games Anymore
Previous integrations of M&E content with video games have proven wildly successful for both the artist and the game publisher. Specifically, limited-time microtransactions offer excellent unit economics, given the lack of any variable costs. To put this idea into perspective, a conservatively-priced $10 microtransaction marketed to the 140 million GTA V players would need a conversion rate of just six percent to equal the gross revenue of Drake and Migos’ 43-show tour in late 2018. This figure is also before accounting for the microtransactions’ vastly superior margins relative to in-person events. Game studios can also develop multiple offerings to effectively price discriminate and maximize the average spend per user.
Although the nature of creative marketing campaigns means that no two partnerships between artists and games will look the same, Live Nation and Take-Two can look at a basic structure of the partnerships to streamline and standardize the development process. The first step would consist of matching artists with the Take-Two game. When an artist indicates interest, Live Nation would work with Take-Two to find a game that is best-equipped in terms of player demographics, art direction, and fanbase overlap. Following that, Live Nation would serve as an agency through which the artist and the game studio negotiate on the terms of the agreement and details of the campaign. Many forms of monetization are possible: simpler deals might allocate revenue streams to one party or another, while highly integrated campaigns could necessitate a more complex profit-sharing agreement. The degree of involvement by the artist must also be considered. If the initiative includes putting the artist in-game, they may be required to visit the studio for motion capture and voice acting.
Entertaining the Future
Although Live Nation is a leader in the M&E industry, its traditional model is not sustainable given the shifts in consumer demand and limiting conditions of COVID-19. A strategic partnership between Live Nation and Take-Two would be mutually beneficial in helping Live Nation restore profitability and capitalize on a rapidly-growing industry. Gaming publishers like Take-Two would benefit from valuable access to artist collaborations that will fuel microtransactions and engage players. At the end of the day, Live Nation should turn the challenges presented by the pandemic into an opportunity: a path forward to entertaining the future.