Music to your wallet?
With the popularity of British festivals such as Glastonbury and ‘V’ soaring, does the space offer an investment opportunity?
David Glick, founder of Edge Group, an investment boutique for the entertainment industry, thinks so. Glick says that over the last decade there has been a cultural shift, proving people value experience over product.
Research from the Performing Rights Society for Music, the UK association of composers, songwriters and music publishers, found in 2008 revenue from live music overtook recorded music for the first time in history.
According to Glick, because of the digital music age people do not care about the ownership of music anymore; now it is all about the experience of going to a live music event.
Chris Mayo, investment director at Fund Intelligence, can see the upside.
“Festivals are growing and are in demand, so I imagine they would have a lot of upside potential. The number of festivals around the country has been growing over the years, advertising and the internet is involved and you see festivals like Glastonbury being sold out every year. So I can see why people would want to look into them as an asset class,” he says.
How to invest?
Paul Bedford is the investment director of UK investment and advisory group Ingenious, which offers two VCTs that invest in live music, including some of the UK’s biggest music festivals. He said music festivals have good investment potential, more so than concerts and tours.
“With touring you can make money, but you do not have an asset. We make good profits on the festivals every year, but we have this asset we own and there is a very liquid market there,” he says.
The Ingenious Live VCTs, which were launched in 2006 and are now called Ingenious Entertainment VCTs, allow investors to invest in a whole portfolio of music festivals, including Creamfields and Oxfordshire’s 1980s music festival, Rewind.
Bedford says the festivals in the Live and Entertainment VCT’s made net trading profits of £2.3m in 2009, £3.2m in 2010 and are anticipated to make profits in excess of £4m this year. The VCTs have varying equity interests in live events, but typically have an interest representing 20% to 30% of profits and/or losses.
He says: “Profits are strong and we are building up a significant ‘back end’ asset value in terms of our ownership of these brands, which can ultimately be sold for significant multiples of earnings.”
Bedford says Ingenious is targeting returns of between £1.15 and £1.20 from a £1 investment. With the inclusion of the 30p tax relief for coming in to the VCT, this works as a projected return of 13% per annum, or 64% over the five year minimum holding period for a VCT.
The minimum investment is £3,000 and the maximum you can put in is £200,000 in any one year.
Raising the bar
Bedford said the two most important factors when investing in festivals are genre and location. It is also important the festivals have a good pool of talent to attract punters and are value for money.
He says: “It is a crowded marketplace out there, so you have to know something has its own unique identity and attracts its own unique audience.
“A festival is a mini holiday. People will not accept what was offered five years ago. If you raise the bar people are willing to pay.”
Bedford says the best festivals to invest in are those where there is potential for growth and where a brand can be extended. This could be internationally or through a product, such as DVDs, CD compilations and merchandise.
A festival that can grow into a chain, for instance, can be very profitable. Bedford believes that deals such as on talent, security and infrastructure, also mean the marginal cost of holding two festivals is cheaper than staging one.
It is also not expensive to extend the size of a festival if there is demand to increase its capacity.
This was the case with the three-day UK festival Creamfields, which has risen from a 30,000 capacity each day in 2009 to 40,000 in 2010 and 50,000 this year.
He says: “The thing about a festival is once you get over the breakeven number then you are making good profits per individual coming in. The marginal cost of those extra people coming through the door is incredibly small.”
Bedford points out that another major benefit of music festivals today, which helps increase profits, is tickets are sold online. Many festivals used to rely heavily on walk-up, which is when a number of tickets were sold on the day, but because of modern technology this is no longer the case.