In order to justify overpaying independent concert promoters for their companies, Robert Sillerman needed to find someone to buy SFX.  That was always the plan, to find a mark who could be convinced the company was an endless money machine, and must be snapped up.

That company ended up being Clear Channel.

But where was the money?  In order for concert promotion to justify the purchase price there had to be a plethora of new hit acts, that the public wanted to see in droves.  People had to stop going to the movies, stop playing video games and go to concerts. And this seemed especially unlikely as the years wore on and radio itself went into the doghouse and MTV stopped airing videos.

But before those negative indicators truly became clear, to insure profits, Clear Channel had to fill its buildings and corner the market.

There was no choice but to overpay.

You want the best talent, you pay for it.

Suddenly, Clear Channel was paying in excess of 100% of the gross for Jimmy Buffett.  Because if they got him in the shed, they could sell beer and merchandise.  Furthermore, their sponsors would be happy…

This was the world Michael Rapino inherited.  Too many shed shows to satisfy sponsors, meanwhile overpaying talent to play those shows.  And like athletes making deals with sports teams, acts don’t turn down the money.

Meanwhile, the remaining independents are crying foul.  How can they survive giving all the concert receipts to the acts?  Where are they supposed to make a profit?

Needless to say, Clear Channel couldn’t find a profit, it ended up writing off billions on the purchase price before spinning off the company.

Rapino tried to create a system whereby the acts had to share the risk, unless they were guaranteed superstars.

The acts balked.  Because the economy was so good and Clear Channel, ultimately Live Nation, had such an impact on the market, other promoters now overpaid too.  If Live Nation tried to control talent costs, it was fruitless, there was always someone willing to step up and pay.  The casinos didn’t even need to profit on the show, they wanted everybody in the building gambling!

And the public was part of the frenzy too.  Because you just couldn’t get a good ticket.  The press was filled with stories of sold out shows and exorbitant prices on the secondary market.  Reaching its peak with the Hannah Montana fiasco, where moms suddenly couldn’t make their kids happy and wanted the government to intervene.

Of course the government couldn’t understand the business, but pressure had the promoter suddenly coughing up tons of unsold tickets that had previously been held back.  The market was somewhat satiated, but why hadn’t these tickets been sold on the open market to begin with?

The dirty little secret was that by time the on sale for the general public took place, usually only crappy seats were available, all the rest had been pre-sold, to the fan club, American Express…  And then there was the broker problem.  Like day traders in the dot com era, brokers cajoled tickets and offered them at exorbitant prices, making concerts the new real estate.  Yup, it seemed everybody wanted to go and high prices were just the cost of admission to the hippest show in town.

Then Hannah Montana went out paperless and didn’t sell out.

Sure, we can go back a chapter, to the acts caught up in the mania, scalping their own tickets, creating exorbitant V.I.P. packages, trying to beat the brokers and capture all that income for themselves, but the underlying truth was demand was a fiction, it was a trumped up story built by the press and word of mouth.  Most people didn’t want to overpay to see the same acts again and again, they just didn’t want to be left out.

And yes, now people don’t have as much money.  And they’re sick of the exorbitant prices for beer and food that the promoter has to charge in order to make a profit after giving all the money to the act.  And the public is pissed off that Ticketmaster fees are sky high, not knowing that these are kickbacks to the promoter so they can generate a profit.  But the real story is there aren’t enough hit acts to support the system, not at these prices.

Since Napster and the collapse of recording income, there’s little money for investment.  And no one wants to wait, those still at the label want their bonus, they want to make their inflated Wall Street salaries, so there’s no artist development.  Suddenly, it’s almost impossible to build arena acts when the infrastructure demands them.

In the old days, radio was king.  Radio built acts.  Then MTV.  And said acts went on the road and played gigs for…very low prices.

But then Michael Cohl started to buy tours nationally.  INTERNATIONALLY!  And after advancing all that money, prices had to go up.

Isn’t it interesting that Michael Cohl ended up as the largest stockholder in Live Nation.  He devised the 360 system.  Which was all about finding another mark to lay this unprofitable behemoth upon.  But Rapino was afraid of running out of cash, and squeezed out Cohl before he could convince a Telco that concert promotion was an endless cash machine, just like Sillerman convinced Clear Channel.

And now, with the acts getting all the money, the real profit is in ticketing, which is why Rapino broke from Ticketmaster.  But when the Eventim system didn’t work so well and Ticketmaster had little opportunity for growth, the two companies decided to merge.

So the people at the top of the pile could get rich.

Look at the bonus Rapino got upon closing the merger.  Who could generate that kind of money just promoting concerts?

Live Nation was a Wall Street play.  Divorced from the reality of concert promotion.

And then, suddenly, like the sub-prime mortgage mess, the game crashed.  Yup, this summer it turned out people no longer wanted to overpay to see the old acts and there were few new acts worth seeing.

In other words, Live Nation was built on a bubble.

And this bubble not only inflated the cost of beer and pretzels, but talent fees.  And now that the public has declared itself out, nobody wants to take the blame.

The acts don’t want to take less money.  Live Nation just says it’s a few shows away from being profitable.  And the public is asking WHY SHOULD I GO AGAIN?

This summer is not anomalous.  It’s been fifteen years in the making.  There is no support for a business of this size.  It’s gonna have to shrink.  Yes, people want to go see their heart’s desire at a fair price in a small venue.  Sure, they got caught up in the mania of overpaying to go to the big show, but that’s now done.

There’s no such thing as a sold-out show.  You can always get tickets, the brokers are blowing them out outside the venue.  Or Live Nation itself is giving you a deal.  And sure, you want to see GaGa and Swift, but tell me why I need to see the Goo Goo Dolls or Sarah McLachlan or the American Idols?

Idol was a mania.

But that’s faded now too.

Sure, new acts will develop.  But we’re at the end of an era.  We’re in the middle of a giant reset.