CMI Explains: The Economics of Running a Festival
Music festivals are a big part of British culture, with iconic events such as Glastonbury being among the best attended and recognised in the entire world. Every summer, millions of people of all ages flock to muddy fields to enjoy a unique experience with their friends, with each festival offering something slightly different and catering to a different audience.
These events are more expensive than ever, though, with most major events seeing massive price increases over the last few decades. As an example, Glastonbury tickets in 1979 – one of the first years – cost a mere £5, or £25.87 in today’s money. Prices steadily rose for decades until in 2003, with Radiohead headlining, ticket prices hit over £100 for the first time (£166.54 in today’s money) Almost every year since, prices have continued to rise faster than inflation, up to £248 for the 2019 event. While the festival definitely has a lot more to offer than the initial events – more stages, as well as more of both big and small name artists – the rise in price would seem like a pure money-grab if one were to not look deeper at the causes of this increase. It might seem that as big events such as Reading festival sell out each year regardless of price, the rising prices are simply a money-grab by organisers taking advantage of the high levels of price inelasticity (where demand does not fall by much with a large price increase).
In actual fact, however, most festivals do not turn large profits. The main reason for the rising prices is therefore relatively simple – costs have risen massively over time. Initially, festivals were large but relatively simple affairs, with little in the way of security or management. Nowadays, large events are massive logistical challenges, with governments and festivalgoers expecting organisers to sort out security, food, water, sanitation, transport, marketing, and marshalling in a relatively small amount of time. All of this does not come cheap, and this doesn’t even take into account the main issue – rising artist costs. Ariana Grande charged $8 million to perform at Coachella 2019, a fee equivalent to 18,648 normal price weekend tickets. Clearly, with a limit on the number of tickets that can be sold safely, prices will have to rise with such large artist payments. As major stars are making more and more money off of concert tours (with Ed Sheeran raking in $776,200,000 off of 255 shows in one tour), they can realistically charge these massive appearance fees, and some major festivals are willing to shell out this kind of money and pass the costs onto festivalgoers.
Baumol’s cost disease is the rise of costs in sectors that have experienced low productivity growth, due to higher costs occurring in more productive industries. This suggests a further reason for rising costs and prices: productivity gains have occurred in other entertainment industries such as Video Gaming and TV, but live music has seen very small gains in comparison. This leads to these events having to raise wages and pay more for infrastructure in order to compete for labour, services and goods with industries that can pay more due to higher productivity. For example, festivals have to pay more for technicians that could otherwise find employment at higher wages in other sectors. This pushes costs up over time, with that increase in costs being passed on through ticket prices to consumers.
These events do not make all of their revenue off of tickets, however. IEG found that there was $1.34 billion in corporate sponsorship of live music in 2014, a significant portion of which went to music festivals. Brands such as Budweiser, Coca-Cola or even McDonalds are willing to shell out large amounts of money to associate themselves with potentially the most important day in many young consumers’ years, attempting to create for themselves a positive brand image. Other revenue streams for festivals include VIP packages, alcohol sales and merchandising, further helping them to raise money to pay for artist fees and logistical costs without having to raise ticket prices even more.
Many festivals perhaps think that spending $8 million on an artist such as Ariana Grande will attract many more paying customers, or perhaps incentivise people to spend more on tickets. However, a survey by the Association of Independent Festivals found that only 8% of consumers stated headline acts were the main reason for them buying their tickets, as opposed to 53% who said the overall experience of the event was more important. This suggests that smaller festivals don’t necessarily need to attract big names in order to sell tickets, but rather need to focus on creating a unique experience, through different types of music or other live performances taking place there.
One reason for rising prices is the emergence of major conglomerated festival organisers such as Live Nation, which controls over 25% of the UK festival market. It organises festivals such as Latitude, Reading and Leeds, TRNSMT and Wireless each summer. These large companies can utilise economies of scale such as using the same artists at multiple different events in the same year, leading to lower costs for themselves while leaving their competitors unable to book some of the biggest festival draws. However, as stated before, other independent festivals can still rely on the creation of a unique experience, that might entice people away from cookie-cutter events organised by the same companies that feature the same artists.
Clearly, rising prices are not putting consumers off of buying tickets, as festival attendance grew every year in the UK between 2012 and 2019. Over this period, total attendance grew from 2.79 million to 5.2 million, showing that festivals are becoming a bigger presence in people’s lives. This reflects an overall growth trend in live music, with concert attendance also rising by a similar percentage over these years. Younger consumers are often considered to be more willing to spend large amounts of money for experiences rather than goods or services, feeling that they gain more value from a festival than other alternatives. This coincides well with the music industry, in which live music is rising in importance due to falling revenue from music sales and streaming. While there may be plenty of complaints in group chats about the ticket prices for next year’s festival circuit, expect more people than ever to fork out for the experience of a lifetime.
In the coming decades, expect the festival industry to see more consolidation at the top end of the market, as major festivals such as Latitude become more commercialised and feature similar artists and genres. Meanwhile, there is likely to be more growth in the independent festival scene, with an emphasis on creating a unique experience that draws in crowds. The festival sector is currently in a poor financial state that could force a shakeup in the festival scene, with some less competitive events either merging or being cancelled permanently. Once the effects of the pandemic dissipate, however, expect a bounce back to happen quickly in this sector.