What does inflation mean for the music industry?
What does inflation mean for the music industry? A case study of music promoter Live Nation and the knock-on effects of large industry players having to service rising debt levels.
Rising inflation rates are a global issue. It is also particularly bad in the UK. A “mini-budget” released a few weeks ago by the UK government raised interest rates and sparked a crisis in the Pensions industry through rising gilt yields and had the knock-on effect of rising mortgage rates for consumers. It is too early to see the extent from the fall-out of this “fiscal-event”, however, leaders are looking to their own industries to try and forecast the effect rising inflation will have on future operations. The same is true of the music industry in the UK.
The music industry in the UK is dominated by several major promoters, particularly AEG and Live Nation. A 2019 Competition and Markets Authority case into a Live Nation acquisition in Ireland, found that Live Nation has a “leading global position in live entertainment” and a “leading position in the Ticketing Services market”. This leading global position caused controversy in recent days when Live Nation’s ticketing arm, Ticketmaster, introduced dynamic pricing engines on all ticket sales, with musicians Paul Heaton and Jacqui Abbott calling it “greed in the industry”. However, Live Nation’s market capitalisation isn’t necessarily an issue for live entertainment. A well-funded and profitable business should mean more and better concerts for consumers. What should be of concern is how healthy the company is in a time of rising inflation rates.
Rising inflation rates impact large organisations through their ability to service their debt. Live Nation’s balance sheet published in June 2022, show liabilities of $8.63bn due within 12 months. With cash and near-term receivables considered, total liabilities stand at $8.50bn. This deficit isn’t of immediate concern, as large organisations can raise capital fairly easily. However, with rising inflation rates, debt levels could increase by around 10%. Faced with rising costs on servicing debt the company will seek to cut costs and reduce risk on their balance sheet. This could lead to a vastly reduced touring schedule for 2023 and 2024 as promoters such as Live Nation need to act like any large organisation and remain solvent. This has a knock-on effect for artists and musicians. Rising inflation rates have already caused musicians to cancel tours. A company with as large a market capitalisation as Live Nation is likely to fuel this trend when it needs to cut costs.
Therefore, large promoters such as Live Nation will have to cut costs to service rising debt levels or risk bankruptcy. This is where global dominance in an industry isn’t helpful to the consumer. If the companies with a capitalisation on our live entertainment need to reduce their output, it means less for everyone.