The 3 Keys to Profitable Music Festivals

It's getting closer to music festival season, and this data just changed what I thought I knew about the entire industry.

Jan 18, 2014 at 9:35AM

More than 200 music festivals are held in the U.S. annually in front of millions of fans, and with ticket prices usually fetching hundreds of dollars, there's a lot of money to be made. This week, a few festivals have revealed the artists they've booked in 2014, which begs the question: Do lineups really matter?

After analyzing mountains of data to find an answer, I got more than I bargained for: Three lessons that blew what I thought I knew about music festivals out of the water. 

Digging into the data

Attendance and profit rankings
The largest music festivals are just that: large. New Orleans' Essence Music Festival brought in 540,000 people over a four-day period last year, and stalwarts like Coachella and Lollapalooza typically average over 100,000 fans per day.

10 Largest Music Festivals in the US, 2013
Festival Location No. of days Avg. daily attendance (est.) Pre-tax profit (est.)
Essence Music Festival New Orleans 4 135,000 $6.36M
Electric Daisy Carnival Las Vegas 3 115,000 $9.82M
Coachella Indio, Calif. 6 112,500 $31.23M
Lollapalooza Chicago 3 100,000 $15.30M
Bonnaroo Manchester, Tenn. 4 90,000 $8.59M
CMA Music Festival  Nashville 4 80,000 $400K
*Summerfest Milwaukee 11 76,364 -
**Austin City Limits Austin, Tex. 6 75,000 $11.7M
Firefly Music Festival Dover, Del. 3 65,000 $4.82M
***Burning Man Black Rock Desert, Nev. 7 61,000 -

Sources: Company figures, media approximations, author's calculations and Billboard Boxscore. Revenue was estimated using average single-day ticket prices and company interviews, and costs were estimated by extrapolating data from Forbes to calculate profit. *Summerfest profit estimate not included because its producer is a non-profit and tickets are sold at or near cost. **ACL estimate based on 2012 data. ***Burning Man profit estimate not included (see footnote in next chart for explanation).

Estimating profits isn't an exact science. Most companies only share snippets of information with the media. Still, the figures above help illustrate a few interesting insights below.

Lineup popularity rankings
In the next table, the biggest festivals are reranked by the popularity of their lineups over the past two years. The more chart-topping artists each had in 2012 and 2013, and the more platinum-selling artists it booked, the higher its lineup popularity score.

Largest Music Festivals by Lineup Popularity, 2012-2013
*Attendance, Profit Ranks Festival **Popularity Score Platinum % of Lineup   
6th, 8th CMA Music Festival  11.0 69%
9th, 7th Firefly Music Festival 6.0 16%
4th, 2nd Lollapalooza 5.0 6%
5th, 5th Bonnaroo 4.5 7%
7th, 9th Summerfest 4.0 28%
1st, 6th Essence Music Festival 4.0 24%
3rd, 1st Coachella 3.0 6%
8th, 3rd Austin City Limits 2.5 9%
2nd, 4th Electric Daisy Carnival 2.5 3%

*Burning Man is not included because aside from surprise guests, the festival does not book acts that appear on traditional music charts. **Methodology: Popularity score is determined based the following criteria: A) If an artist appeared in the 10 highest spots of the Billboard Rock, Dance/Mix, R&B/Hiphop, or Country airplay charts when the festival's lineup was released, 1 point is awarded. B) If the artist did not appear in any of these charts, no points are awarded. C) A 2-point bonus is given for every artist in the top 10 of the Billboard Top 200. D) These point values are totaled, and calculated again two months after the festival before being averaged. E) To account for stars who can draw a crowd, an additional 1-point bonus is given for every artist who has gone RIAA, BPI or ARIA platinum at least once. F) Finally, total popularity score is averaged on a per-day basis depending on the festival's length and rounded to the nearest half. G) All data was compiled from 2012 and 2013.

Three lessons I learned

While there's always room to debate methodologies, it's tough to miss the broader relationship at play here.

1. Popular lineups don't always mean bigger festivals, nor do they guarantee profits. 

In fact, three of the largest festivals by attendance  -- Essence, Coachella, and Electric Daisy -- ranked in the bottom half of lineup popularity. 

The same is true from a profitability standpoint. Festivals spanning two weekends typically make more money regardless of lineup popularity. The six-day-long Coachella, for example, made $31 million in estimated profits last year. Lollapalooza, which lasts just three days, earned half as much.

Ticket sales ultimately drive profits, and the more days you can keep customers on festival grounds, the better it is for business. Assuming set-up costs are relatively fixed, the additional expense of adding extra days is minimal. This may explain why Coachella added a second weekend in 2012, why Austin City Limits did the same thing last year, and why Firefly is extending to four days this year.

Of course, if ticket prices are too low, there's less money to be had. Events like Essence and CMA, which charge an average of 60% less than their peers, generate much smaller profit margins as a result. 

So, what else drives crowds?

2. Other factors, like atmosphere and reputation, also affect attendance and profitability. 

Electric Daisy is second in attendance and fourth in profitability, yet tied for last in lineup popularity. According to one Quora user, it's the atmosphere that makes it so special.

What blew me away more than the music...was the atmosphere and the people. They are truly incredible. Everyone is extremely friendly, always enthusiastic and willing to chat, and there is a genuine culture built around unity and friendship.

Likewise, a festival's reputation can also affect attendance and the amount of money it makes. 

Lollapalooza has been around for over two decades, and regularly brings in 250,000-plus over its three-day schedule. It made an estimated $15.3 million in 2013.


Courtesy: Firefly Music Festival.

Attendance and proceeds are less at younger festivals like Firefly, which had 65,000 a day and close to $5 million in estimated profits last year.

SFX Entertainment's (NASDAQ:SFXE) TomorrowWorld and Live Nation's (NYSE:LYV) Made in America are in a nearly identical situation, despite the fact that each books a similar number of elite artists as their larger peers.

This brings me to my next point.

3. There's a limited amount of top talent available in the summer festival circuit.

Whether it was The Black Keys in 2012, Calvin Harris last year, or OutKast this summer, it always seems like the best festival bands are in short supply.

In a way, they are. It's no secret that some artists hate the things. Others simply don't tour that often, or are relegated to one or two exclusive festivals a year. You'll probably never see U2 or Daft Punk at one, for example, and if you do, it'd be extremely rare. 

This phenomenon is even evident in the data. In 2013, Bonnaroo, Lollapalooza, and Coachella each presented 170 acts, 13 of whom were platinum artists, on average. By comparison, Firefly had an identical number of platinum-selling names, but had just 73 total artists booked. 

The future

Where do we go from here?
Most of the biggest music festivals in the U.S. are well established. If there are years when their lineups suffer, attendance and profits should keep chugging along due to reputation, and in some cases, atmosphere.

If the smaller names do decide to get bigger, though, I expect them to follow in the footsteps of Coachella and Austin City Limits. They'll likely expand their roster of lesser-known, lower-end bands while booking a similar number of top-tier acts as previous years. 

As for me, I'm getting married to a Firefly staffer in October, so you'll find me in Dover, Delaware this summer.

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Fool contributor Jake Mann has no position in any stocks mentioned. Jake's fiancee works for Red Frog Events, the company that produces Firefly Music Festival. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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