A new report from Bank of America analysts projects that ‘funflation’ will be driven by live music even as other consumer spending slows down.
According to a new analysis published by Bank of America’s Global Research Analysts, the post-pandemic surge in consumer spending will continue to be driven by live music and related events, even as other consumer spending becomes more reserved.
While many economists are concerned that discretionary spending will drop significantly as consumers spend their “pandemic savings and delayed student loan repayments” resume for core concertgoers, Bank of America’s analysts project a different tale for the live music sector.
“Live entertainment is currently the brightest star in the broader media and entertainment universe,” write BofA Global Research Analysts Jessica Reif Ehrlich, Peter Henderson, David Plaus, and Brent Navon, CFA. “In our view, there are several sustainable and longer-term key drivers that will fuel solid growth for a number of years.”
Chiefly, continued consumer spending shifting toward services and experiences, fueled by the younger millennial and Gen Z population, will drive the continued post-pandemic live music boon, alongside strong pricing power amid increased demand.
The report further cites the “disruption-proof” nature of live events (with virtual and live-streamed events “failing to deliver” a comparable experience), growth in sponsorships and experiential marketing, and the increased global fan awareness driven by social media.
Among the companies that the analysis finds that have exposure to live music events, both directly and indirectly, include iHeartMedia, Endeavor Group Holdings (formerly William Morris Endeavor), Warner Music Group (WMG), Spotify, and Madison Square Garden Entertainment (MSGE). According to the analysts, these companies stand to benefit from overall increases in earnings from live touring talent to partially offset the headwinds within their respective TV/Movie rep business from the ongoing actors and writers guild strikes.
“For WMG and the broader music labels, strength in touring increases fan engagement with their artists, which ultimately drives increased merchandising sales, digital streaming revenues, and album sales of these artists,” reads the report. “Spotify has a virtuous cycle with the concert business as fan engagement drives their MAUs but also leads to music discovery of new artists, which ultimately drives concert attendance. This concert attendance reinforces overall consumer engagement with music, which keeps users on music streaming platforms.”
“MSGE offers an opportunity to own a growth-oriented, pure-play live entertainment company with a strong set of venues in the #1 concert market in the world.”
Further, the report acknowledges the caveat that larger entities and venues have a clear advantage in the live events sector. The analysis describes vertical integration and scale as competitive advantages in the live events business, requiring significant start-up costs and infrastructure, as well as funding of working capital and other production requirements.
“If Live Nation has one or two shows that are not successful, the company has the balance sheet and other presumably profitable events that can cushion this blow. On the other hand, smaller promoters may not have the frequency of shows to recoup one big loss nor the balance sheet to withstand a failed event production.”
“Vertical integration across the value chain is another means to enhance competitive positioning,” they explain, by enabling “larger providers to offer more competitive pricing and even utilize certain business segments as loss-leaders,” knowing they can recoup these values elsewhere in the value chain.
So-called “funflation” and ticket price increases have driven the live event industry coming out of the pandemic, the report concludes, estimating that dynamic pricing will serve as another tailwind to ticket pricing growth and will continue to drive an “increased wallet share of economics” toward the artists.