Live music is more spectacular, popular and expensive than ever

The pointless wait for the main attraction, the ear-splitting whistle from the microphone, the sweaty crush as the band gets going and then the anti-climactic exit down a badly-lit fire escape. The live music business has often tested the patience of fans.

Ten years ago, Melvin Benn started to see signs that this patience was running out. The Mean Fiddler, which once played host to the Pixies and Billy Bragg and gave its name to a group of venues Benn ran until this summer, began to lose money. Five years later, it had to be shut down.

“If I’m honest with you, it was because of the location,” recalls Benn, now a silver-haired version of the teenage enthusiast who used to hitch-hike to festivals in the 1970s. The Mean Fiddler sits on Harlesden High Street in north-west London, a featureless suburban strip of kebab shops, convenience stores and minicab offices. “In the mid- to late-1990s, people didn’t want to be in the sticks of London to watch live music any more. It was becoming a more accessible activity, and while the old music fans hadn’t minded being in slightly less salubrious areas such as Harlesden, the new music fans wanted to get out of the Tube and feel comfortable about where they were walking.”

On a Tuesday night in late August, a crowd spills out of the concrete and glass Underground station at North Greenwich towards the spiked canopy of the O2 arena. They have come to see Prince, in residence for a record-breaking 21 nights at the rebranded, refitted Millennium Dome. Well-dressed, multilingual and spanning a wide range of ages, they look like the definition of Benn’s new audience.

As they file past uniformed greeters and a branch of Starbucks into a vast, 20,000-capacity arena that boasts seats designed to improve the acoustics, they are also vivid proof of how the live music business is growing up.

The concert industry was once the poor relation of the record business. “It used to be that the tour was there to sell the record,” says David Glick, a former lawyer who last year set up Edge Performance VCT, a £20m fund for investing in live music. Now, with compact disc sales collapsing, it is the other way round.

In an age of media fragmentation, digital disruption and rampant piracy, live music is one of the few parts of the entertainment industry to be enjoying impressive growth. In the US alone, ticket sales grew by 16 per cent last year to $3.6bn, up from $1bn a decade ago according to Pollstar, one of the few research firms attempting to measure the fragmented business. The audience has grown by 50 per cent in that period and average ticket prices have more than doubled.

As if to confirm that the album now promotes the tour, Prince gave away 3m copies of his latest CD in the UK through a tabloid newspaper. Prince is an extreme case, according to Paul McGuinness, U2’s manager since 1978, who argues that the diminutive star would have struggled to find 3m buyers for the album. Unlike Prince or the Rolling Stones, who also packed the O2 arena this summer, U2’s new albums still routinely top the charts. But even Bono and his fellow band members have seen a stark shift in their business model.

“Twenty years ago, we were losing money on the road,” says McGuinness, who keeps the same share of U2’s takings as its four better-known frontmen. The 1987 Joshua Tree tour sold out but the profits were only about $5m – just enough to fund the making of a spin-off film, Rattle and Hum. Last year, when U2’s Vertigo tour wrapped up after 131 shows and 4.6m tickets, it had grossed $389m, McGuinness notes, making it the second most lucrative on record after the Rolling Stones’ tour in 2005. In 20 years, the average ticket price for a U2 concert has risen from about $12 – about the same as a CD – to $85, five to 10 times what many physical albums sell for.

Several connected factors share the credit for this turnround. An expanding audience has allowed promoters to push up ticket prices, tempting more artists out on tour, creating demand for ever more elaborate shows and attracting investment in a new generation of venues to cater to concert-goers who would never be seen dead in Harlesden.

The fact that this is happening just as CD sales are falling off a cliff is no coincidence. A near-30 per cent decline in revenues since the once lucrative format peaked in 1997 is forcing artists back on the road, according to Harvey Goldsmith, who began organising gigs as a student in Brighton and is now, at 61, the UK’s biggest promoter, with events such as Live Aid and Live 8 to his credit.

“With record sales dropping so fast, artists lost their primary source of income,” he says. “If they were going to keep going, the only way to do it was to play live. So more and more artists have suddenly become available. Bands who’d been living off royalty income are starting to reform and go on tour.”

This week, Led Zeppelin announced they were reforming for a one-off gig at the O2 arena, their first full concert in more than 20 years. With the likes of other veteran rockers such as the Eagles, Genesis, Pink Floyd and The Police all now back on stage, the demographics of the live music consumer have been transformed, bringing in older baby boomers with their legendary disposable incomes. Some bands remain wary of simply falling back on their old fans. “The 50-year-olds are perfectly welcome – I’m over 50 myself – but we must recruit new followers each time, otherwise it becomes irrelevant,” says McGuinness, but even U2 are benefiting from the fact their audience is far broader now than 20 years ago.

McGuinness, known as an uncommonly astute manager for having negotiated one of the highest royalty rates in the business for U2, believes he has to “break the band again with each record”. He has stuck to a formula of touring about once every four years, always on the back of a new album, but as audiences have grown, the band has seen the profits from its recordings become less relevant. “We thought from the very beginning it was important not to be at the mercy of the record company, so we had to have a parallel [live] career,” he says. “In those days, nobody foresaw the extraordinary inflation in ticket prices. [But] now record sales and the publishing income that goes along with those sales is a much smaller part of our total business – probably no more than a quarter.”

According to Benn, the economics of touring have become heavily stacked in performers’ favour. “In the 1960s and 1970s, it would have been hard to describe the artists as all-powerful but they are now,” he says. “The rule of thumb now is that 85 per cent [of the ticket revenues] goes to the artist.”

The industry’s growth has been such that there is plenty left over for venue owners, however, and the surge in takings has prompted a wave of investment in what once barely qualified as an industry. At the top end of the market, a few global operators are accumulating large portfolios of existing venues and building new ones. AEG, which this year reopened the much-mocked Millennium Dome as the O2 arena after a £600m overhaul, and operates Manchester’s 20,000-seat MEN Arena, is now working on a 4m square foot “entertainment district” in Los Angeles, where it already owns the similar-size Staples Center. LiveNation, which this year bought the House of Blues chain, has also been reminding record companies of the industry’s changing balance of power by bidding to manage Madonna’s future album releases as well as her tours.

On a smaller scale, funds such as Edge, which Goldsmith runs alongside David Glick, and an £18m venture capital trust raised by Ingenious, a London-based media investment group, are backing entrepreneurial promoters and new events while offering investors what Glick calls “showbiz without tears” – exposure to the sector with the risk-reducing sweetener of tax relief on their profits.

For Goldsmith, an impatient character who has spent more than three decades trying to find appropriate locations for artists as diverse as Bruce Springsteen and the recently deceased Luciano Pavarotti, the emergence of large, professionally-run venues is long overdue. “There has always been a general laziness on behalf of owners, who don’t understand venues have to be updated and refurbished,” he argues. Like Heathrow airport and too many other examples of rusting British infrastructure, “things fall apart, people become jaded, and if they don’t have to use it, they won’t.”

Until the O2 arena opened, artists looking for a large venue in London were limited to two sites built in the 1930s for other purposes: the 12,000 capacity Wembley Arena, where aficionados say the acoustics are affected by the old Empire pool beneath the stage, and Earls Court, an echoing 15,000-seat exhibition hall where concerts have to be squeezed in between trade fairs.

“In the UK, there hadn’t been a large, dedicated music venue since the Royal Albert Hall in 1872,” says David Campbell, a one-time helicopter pilot who, as president and chief executive of AEG Europe, oversaw the Millennium Dome’s redevelopment.

When Bon Jovi opened the O2 in June, the venue started with the disadvantage of having to shake off memories of the ill-conceived Dome, but the early shows here have been greeted with enthusiasm by the music industry. “I wish there was an O2 in every city in Europe. There are precious few arenas in Europe and those that there are are small,” McGuinness says, adding that U2 is likely to play at the arena after their next album, which is expected some time next year.

Campbell likens Europe’s lack of modern performing facilities to the period in which America had discovered the multiplex cinemas “while we were still having to put up with the two-screen Odeon in the High Street”. Just as the cinema industry was forced to sharpen up its act by the DVD boom, live music venues are having to work harder to coax people away from their iPods. And just as theatre owners make their margins from popcorn and bucket-sized servings of cola, concert venues are now paying more attention to other sources of revenue beyond their share of the ticket price.

At midday outside the O2, local schoolchildren are shooting hoops at an NBA-branded basketball area. Inside, a few tourists are wandering around, taking photos of each other in front of a large BMW grille, which forms part of the carmaker’s sponsorship of the venue. Naming rights alone bring in £6m a year from O2, the mobile operator, but AEG has signed up a host of other sponsors from Nestlé to NEC. They have helped fill the ring of corporate boxes around the arena, which account for one in 10 of the seats and a far greater share of the takings.

Sitting at one of 20 bars and restaurants that line the circular route around the inside of the O2, Campbell says the business model also relies on a strategy of filling the venue for more than just a few hours each evening. Outside the bar, an 11-screen cinema is advertising that weekend’s UK premiere of High School Musical 2, hard-hatted workmen are preparing the Tutankhamun exhibition that will open in November, and diggers are clearing the sand from a temporary indoor beach, which will give way to an ice rink for the winter.

“The challenge is how do you create little entertainment cities,” says Campbell. Just as Las Vegas turned itself from a one-business town to a hub for shows, galleries and celebrity-endorsed restaurants, the O2 is wrapping other activities around the music venue at its core to persuade people to come early and stay late. Gambling is one activity that will be missing from the site when the final third of the old Dome is filled in, however. A government change of heart put paid to hopes of installing a super-casino, leaving Campbell to find other uses for the space, and delaying plans for a hotel.

Even without the hotel, he has been recruiting staff from the hospitality industry to bring another innovation to the live music industry: customer service. Chris Moyles, the Radio One breakfast show DJ, began a recent show with five minutes of breathless praise for the staff he had met at the Rolling Stones concert, from the helpful “big dude on the door” to the cheerful “fellow in a luminous jacket” directing people to the station after the concert. “It’s like they’ve had American training,” he said. “I’ve never known anything like it.”

Genevieve Glover, AEG Europe’s “human solutions” director, has been playing the Moyles tape to security guards before they go on shift ever since. “The whole selection process is geared around customer service, no matter what job you’re coming for,” she says.

Since the arena opened, more than 2,000 staff, contractors, tenants and casual workers have been through a one-day “orientation” programme, she says. The presence of smiling, uniformed young women wishing customers a good evening as they leave the Prince concert is a stark contrast to the bouncers of old.

Such investments do not come cheap but Goldsmith believes they are vital to the venue’s success. “Part of it is the magnet of going to the O2. People are not disappointed with the experience, so they’re coming back.” For promoters and artists, a popular venue can make the difference between unsold tickets and a full house, he adds. “The Royal Albert Hall is the busiest venue on the planet. Everybody loves it, because I can put a show on with Mr No Name and I’ll sell 20 per cent of the venue. People just like coming to the Royal Albert Hall.”

Goldsmith came up with the idea for the Millennium Dome to be redeveloped as a music venue, and his Edge fund has exclusive arrangements with the O2 arena (the day after our interview, he put tickets for a Springsteen concert on sale and watched them sell out within two minutes). He predicts the venue will comfortably exceed its target of putting on 150 shows in its first year.

If so, it will have demonstrated one important advantage over the vast arenas in every US city that have made America such an attractive touring market for bands. In venues such as the Staples Center or Madison Square Garden, Campbell notes, acts have to fit around the home games of resident basketball or hockey teams, which may take up 50 or 100 nights a year. “Here, we could put a lot more focus on music.”

Acoustics are not just important for the purists, he insists. The delay period – an artist shouting into a microphone and the crowd responding – is just two seconds in the O2. At older venues, it can be five times as long. “The ones who really get it are the comedians,” Campbell says.

Such improvements are also essential if acts such as U2 are to expect their audience to be willing to pay more for each production. “People have come to expect better shows, sounding better with big productions,” McGuinness says. The visual effects that have become possible as the cost of vast screens has come down are equally important, he adds. “If you invite 60,000 people to a football stadium, you’d better do something they can see.”

With the best tours now borrowing from fine art, video art and architecture, McGuinness says: “The audience intuitively knows a lot of money has been spent to produce this spectacle. They have an innate sense of getting value for their ticket money.” McGuinness, confident that U2’s elaborate productions are worth the money, says: “The proof of that is we did not have one unsold ticket on the last tour.”

He adds that the averages are being boosted by the development of VIP areas such as the O2 arena’s corporate boxes, where tickets can cost hundreds of pounds. “Bono always says rich people have rights too,” he notes.

How long, though, can the virtuous circle continue? Despite the development of new arenas from Coventry to Glasgow, Campbell admits he would be nervous opening anything on the scale of the O2 outside a capital city: “No disrespect to Manchester, but you could never have 21 nights of Prince in Manchester.”

Goldsmith sees some risk that a tougher economic climate, spiralling ticket prices and over-exposed bands could lead to saturation. “There will be a point when artists get too greedy in what they’re asking for, and people think, ‘It wasn’t that good and I’ve already seen them 15 times,’” he says.

But the live music business has one more thing going for it, which most other sectors of the media do not. So far, it cannot be replicated better or more cheaply online. “Is a YouTube experience the same as going to the show?” asks Goldsmith. “You know the answer.”

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