As growth slows in large, developed markets, music companies are looking elsewhere for opportunities. Increasingly, companies are targeting superfans, the most ardent and high-spending consumers of music, to deliver these revenue gains.
The Pareto Principle says that about 20% of customers provide 80% of a company's revenue. Whatever the collapse, music companies expect more than a small subset of big spenders. Concert promoter Live Nation wants premium offerings like VIP boxes to grow to 30% to 35% of the amphitheater's business from the current 9%, president/CEO Michael Rapinoe he told investors during the company's Feb. 22 earnings call. Earlier this year, the heads of Universal Music Group and Warner Music Group revealed their desire to offer new types of services and products for the most ardent music fans.
Coming out of the pandemic, people — especially younger consumers — spent money “as a way to make up for lost time” and, later, deal with stress, explained Intuit Credit Karma, a financial management platform. The consulting firm McKinsey & Company calls this behavior “selective bouncing.” According to a November 2023 global survey by McKinsey, 20% of all consumers planned to indulge in out-of-home entertainment such as concerts – less than restaurants (38%), clothing (34%) and travel (28%).
More than two in five Gen Z consumers (42%) spent more on live concerts than they did before the pandemic, according to a September 2023 survey by Qualtrics on behalf of Intuit Credit Karma. This was well above Millennials (34%), Gen X (19%) and Baby Boomers (11%). Last year, music fans paid high prices to see the two biggest cultural events: the tours of Taylor Swift and Beyonce. Fittingly, Swift's The Eras tour was funded by Capital One, and some fans signed up for their first credit card as a result.
A few years after the end of pandemic restrictions, however, consumers have a spending hangover and seem less willing to dig deeper into their pockets. A wealth of data suggests consumers are increasingly being squeezed by high prices — U.S. inflation rose to 3.5% in March from 3.2% in February — and the end of a pandemic tolerance that allowed people to postpone payments for their mortgages and student loans.
Splurging has given way to focusing on the basics. Consumers plan to spend more than usual on staples such as gas, groceries, pet products and food, and health and fitness over the next three months, according to a McKinsey survey in February. Conversely, consumers intend to spend less on discretionary goods: entertainment, domestic flights, hotel and resort stays, home improvement and alcoholic beverages. Luxuries like jewellery, furniture and home decorations have the biggest gap between spenders and savers.
Rising debt is one reason consumers are pulling back on spending. In the United States, the proportion of credit cards and auto loans that are 90 or more days past due is exceeding pre-pandemic levels. Delinquency rates are particularly bad for younger consumers who are more likely to spend money on concerts and entertainment. In the fourth quarter of 2023, the Gen Z delinquency transition rate – transition to delinquency – reached 11.86% compared to 8.53% in the fourth quarter of 2021, according to the Federal Reserve Bank of New York. Millennials' delinquency transition rate rose to 9.56% from 6.53% two years earlier. Offenses by Gen X and Baby Boomers are also on the rise, but fare better (7.01% and 4.78%, respectively).
For many young consumers who have taken on debt, 2024 will be the year to get out. A third of Millennials and Gen Z say they have a shopping addiction, according to a Qualtrics survey of Intuit Credit Karma conducted in February and March of this year. About three-quarters of Millennials and Gen Z surveyed by Qualtrics say they plan to change the way they spend money. A full 20% of them said 2024 would be a “no-buy year,” a recent trend where people vow to spend other than replacing items, and 56% said it would be a “low-buy year,” meaning they would significantly reduce purchases.
Credit card debt is nothing new, however, and some experts believe consumers can take it easy. Although credit card balances increased in 2023, consumers “largely still have the means to pay off their existing obligations,” according to credit monitoring service Experian. In fact, the average FICO credit score improved to 715 in 2023 from 714 in 2022, despite the fact that the average credit card balance increased by 10%. In February, credit rating agency Fitch revised its forecast for real US consumer spending (adjusted for inflation) to 1.3% from 0.6%, largely on the belief that consumers will reduce their savings as ' throughout the year.
Expensive concert tickets and experiences may be out of the question, but superfan spending is also more mundane. Artists regularly release new albums with multiple CD and vinyl LP variants, knowing that their most die-hard fans consider them collectibles (and buy them to help their favorite artists climb the charts). Swift's 2022 album Midnight had 20 different releases in all physical forms. These album sales accounted for 1.14 million of the 1.58 million units sold in its first week of release. At $20 or $30 each, supporting a favorite artist doesn't require debt.
Music is not a necessity like food and shelter, but it has proven to be both recession and pandemic resilient. Regardless of the ups and downs of consumer sentiment, inflation rates, and unemployment trends, people will spend money on music. But broader trends around consumer spending may mean the growth the music business hopes to reap from these superfans may not be as lucrative, at least for now, as they might have hoped.
