With all due apologies to Charli XCX, the 2024 concert season should have been called “VIP Summer” for the amount of upsells US theaters did.
At Live Nation Arenas, VIP club revenue increased 19% and VIP ticket revenue for major festivals increased more than 20% in the third quarter. Earlier this year, VIP/premium deals accounted for 9% of Live Nation's total theater business, but “should be 30% to 35%,” CEO Michael Rapinoe he told investors in February.
Arenas where Live Nation controls the food and beverage experiences have the potential to deliver more fan spending. Converting a grassy area into a VIP club provides a 20% to 30% return on investment, Rapino explained. At the Northwell at Jones Beach Theater, for example, Live Nation upgraded the 15,000-seat venue from non-premium offerings to three premium tiers. Of the 40 US theaters in its portfolio, the company could “Jonesify” half of them, Rapino said during an investor call on Wednesday (Nov 13).
Diving headfirst into VIP pricing is sure to help Live Nation's bottom line. The company believes the premium offerings can add $200 million in adjusted operating income annually, according to its investor presentation. This year, net VIP spend per fan will have grown by 20% per year since 2019, well ahead of overall net fan spending growth of 8% per year.
From exclusive lounges to fan meet-and-greets with artists, the concert business has been better than other segments of the music industry at filtering customers according to their willingness to pay. VIP status has become standard practice at music festivals to separate people who can afford a $400 ticket to camp out on a grass field and those who can afford luxury accommodations, food and drink, and transportation. The old Sphere in Las Vegas takes customer segmentation to a new level: Tickets are relatively expensive for a single concert without factoring in travel and lodging — which Live Nation bundles with Sphere tickets through Vibee, an experience company destination he founded in 2023.
It may be ahead of other music companies, but Live Nation is simply following practices familiar to companies like airlines, which charge more for early boarding, and theme parks, where paying a premium allows you to spend less time in the queue for rides. Insurance companies offer multiple tiers of service that include add-ons such as “accident forgiveness.” Everywhere you look, there's an expensive option that's out of reach for most consumers, but worth the value for others.
The surge in sales now extends to VIP levels in music streaming. Last week, Tencent Music Entertainment (TME) announced that it has 10 million Super VIP subscribers representing 8.4% of its 119 million subscribers. Super VIP, launched in the first quarter of 2022, provides benefits such as better sound quality, priority access to music content and tickets to live events. Costing five times the normal subscription level, Super VIP subscriptions helped TME's average revenue per user increase by 5% over the previous period. This success with VIP pricing is likely a harbinger of things to come. A single level may not provide the kind of profitability that investors are now demanding.
“I think Spotify and the labels, a long time ago, realized that this 'one price for all' thing takes these companies off the ground, but ultimately it's not sustainable,” says the strategic pricing consultant Rafi Mohammedwho adopts a strategy he calls “good-better-better” and encourages companies to create more valuable levels of products and services for subsets of customers who are willing to pay extra. “If you're a company and you're not doing it, you're doing it wrong,” he says. “There will always be higher quality people who are willing to pay more for a more enhanced experience.”
With the current music streaming model relatively unchanged for two decades, music companies are increasingly engaging in the kind of customer segmentation taught in business schools. Companies looking to deliver strong, sustained growth are looking for ways to deliver more valuable — and more expensive — experiences to those customers who are willing to pay for them.
The labels are looking for a high level of streaming subscription that would bring in bigger royalties. Spotify's VIP level – for lack of a better term – seems almost inevitable at this point. In September, Universal Music Group (UMG) COO (then CFO) Boyd Muir said the company was in “advanced talks” with the streamer about a premium price tier that offers a better user experience than typical subscription plans. CEO of Spotify Daniel Ek lifted the veil on a pending VIP program in July, saying it would “probably” cost $17 or $18 a month and give subscribers “much more control, much higher quality across the board and some other things that I have.” I'm not ready to talk yet.”
UMG said internal market research shows 23% of subscribers would be willing to pay more for a VIP experience. But Will PageSpotify's former chief economist isn't sure Spotify is ready for a VIP level. “He has to walk before he can run to a VIP platform,” he says.
Since the days of pre-Spotify subscription services like Rhapsody, the base price of $9.99 (US) has only recently increased, but it hasn't kept pace with inflation. Spotify launched in the US in 2011 and didn't raise its individual premium price to $10.99 until 2023. If the price kept pace with inflation, that $9.99 tier would cost $13.50 by the time it takes effect the price increase. While video-on-demand streaming platforms like Netflix have steadily raised prices over the years, music platforms like Spotify have shied away, keeping their prices unchanged for fear that higher prices will stunt their growth. “I'd love to see the industry earn its stripes in showing pricing power before it gets to base two, which is market controlling power,” says Page.
Meanwhile, the music industry has other ways to cater to VIPs, including a new line of “superfan” platforms and vinyl records. Vinyl mimics a VIP strategy by increasing fans to an expensive physical item via low-value online streaming. And just as movie studios use a so-called “window” strategy by releasing movies in theaters before streaming platforms, artists and labels are increasingly selling vinyl LPs ahead of their dates – a strategy that has been largely absent from music since in 2016. Page, artists and labels are missing a big opportunity by not using vinyl to create a VIP release window.
“In America alone, vinyl is going to be a billion-dollar business,” Page says, “and the people who can sell it are the types of artists that would appeal to a VIP strategy.”
