Sep 24, 2020
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Making Money In The Music Industry

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Last year Jimmy Kimmel Live sent a crew to Coachella the two-weekend music festival held in the course of the Southern California desert to invite attendees their opinions about various bands that might ostensibly be playing during the event. One after another interviewees appeared on camera to claim that they knew in regards to the bands in question enjoyed their work and were really awaiting seeing them perform live


A few even said they’d already done so. There has been one problem: The bands didn t exist. Kimmel and his team had made them up. The segment was ingenious and uproariously funny playing upon a typical impulse among many music fans to demonstrate that they’ve seen or heard an excellent underground band that no one else has


At the same time though it spoke to a larger truth in regards to the music industry underscoring the level to which it has changed in recent years. Ago the formula for achievement for each band even pedestrian ones was pretty simple: release an album play it at the radio time and again sell millions of copies and then stage a tour during the summer playing in front of sold out crowds every night


Today that might be a tall task for even the main successful bands. What has changed? Download services and online streaming sites that allow people to hear whatever they need virtually whenever and wherever they want. Indeed anyone with a smart phone has access to free music and if we buy music it s invariably songs on an a la carte basis not full albums


As a result consumers are not purchasing and stockpiling music like they used to at the same time their tastes have become more variable and broader. It really is reflected inside the growing variety of music festivals each year featuring multiple acts representing genres around the spectrum including Coachella Austin City Limits and Bonaroo


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As listener appetites become more diffuse and festivals become bigger and more numerous bands have less power than ever before – which is somewhat ironic on account that content creators in other industries like television and flicks are increasingly gaining the higher hand. That s not to say there aren t a comparatively small variety of artists who are capable of operating inside the old business model dishing out a series of hits and packing stadiums around the country


Virtually everyone else is at the mercy of music producers and concert promoters which in today s environment have nearly each of the pricing power. So what does this all mean for the common retail investor and how can you directly cash in on this shift? Live Nation Entertainment: Born out of a merger between Live Nation and Ticketmaster Live Nation Entertainment is the nation s largest ticket broker and has a vested interest in over 100 prominent concert venues around the country including The Gorge Amphitheatre (George Washington) and Verizon Wireless Amphitheatre (Irvine California)


More importantly it partnered with Yahoo this month to stream concerts live tapping even further into to the shift in consumer sentiment toward experiencing live events as opposed to hearing recorded songs from an album. Live Nation is in an excellent position as concerts become more profitable and bands have less pricing power and have to participate inside the big festivals


Apple : It s not a stretch to claim that one of the seminal moments inside the history of music was the day Apple launched iTunes. As alluded to above it killed albums sales and transformed the style a whole generation consumed music not to mention the generations that will follow


While the service s clout has been diminished by streaming services such as Pandora and Spotify Apple s recent agreement to purchase Beats not just will add to its list of attractive hardware offerings (high-end headphones) but additionally bolsters its online streaming capabilities an important step as downloads continue to fall around the industry


Apple makes much of the hardware we use to consume music but they actually have a huge library of songs for getting or streaming. Apple is also promoting its own concerts and content. Expect so much more interesting things from Apple with Jimmy Iovine and Dr. Dre at the payroll


Soundcloud: Created as a way for indie musicians to share music and build audiences Soundcloud has grown to be a formidable force in music with over 250 million monthly users. Despite the fact that it really is still a personal company it boasts a reported $700 million valuation. Look for this company to be acquired by a significant technology or music company


Soundcloud is a good place to enjoy and discover new music and artists. It has global reach and has built a huge engaged music community. The finest part is that the music is free. It really is the future of music where recorded music is losing its economic value while building an audience has become paramount for success


Give away the music and the fans will pay for concert events a la Grateful Dead. Sirius XM Holdings Inc. : Over 25 million people pay Sirius for satellite radio which has its similarities to streaming. Sirius became big from the days when Howard Stern was popular and came to Sirius from traditional radio foreshadowing the demise of radio


Sirius remains a typical offering in most cars but there is more competition now from Pandora and Spotify. What any other players don t have is unique exclusive content. Sirius has worked hard not to be another music company that just offers music content in an algorithm. The massive issue today is content curation which is having someone pick and introduce you to new music


Sirius has a deep bench of DJ s and a huge kind of content choices including exclusive artist content shows and interviews all without commercials. In spite of each of the competition Sirius still has the finest content of them all. Sirius is here to remain despite the fact that they have to work harder for each listener


Between Sirius Apple and Soundcloud you’ve the realm of music at your fingertips. Given the style download services and online streaming sites have effectively neutered the earning power of most bands the music industry s business model of the past has been put to the grave. As technology evolves and summer festivals become even more ubiquitous the obstacles toward achieving true financial independence from music producers and concert promoters will only increase


Still all of this doesn t mean that investors searching for opportunities inside the music industry have to suffer an analogous fate. There s money to be made. But unfortunately for most bands it won t be for any of them. Ross Gerber is CEO and president of Santa Monica Calif-based Gerber Kawasaki an independent investment advisory and wealth management firm with approximately $280 million in assets under advisement


Gerber Kawasaki clients and employees may own positions in various companies mentioned here

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