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The latest news from Jeremy Larochelle, MBA

Numbers: The Arch-Enemy of Feelings

Jeremy Larochelle

 

 

I currently manage the entire music program for a global brand. As part of my duties, I am responsible for the direction of background music creation for over 30,000 tracks that are cycled monthly across our properties. These tracks are organized in playlists that fire throughout the day to support the experience of each venue. On occasion, we have customers complain that the music is wrong, they would rather hear “their” favorite tunes, etc.

 

… and this is where the fun starts.

 

In an experience-based business, employees can become overzealous in meeting the needs of each and every customer, and with that, they occasionally make a decision to impact one customer without thinking about the others in the group. This is where math helps us find an answer.

 

I was recently in a packed venue of 300 plus. I watched as one customer approached the host demanding they turn the music down “now.” I chose this time to sit back and watch what would unfold. The host turned down the music for this one customer and almost immediately the vibe died. Butts stopped moving in seats and people (including staff) who were dancing around stopped. I decided to step in and offered my take. I started by asking the host how many people were in the room, which was 300. I then explained that we just adjusted the music for less than 1% of the population. You could see the lightbulb go off in their head.

 

Unfortunately, this happens far too often. Especially in service-based businesses where we are bombarded with the famous “the customer is always right” mantra. In all honesty, that phrase should be “the customer(s) are always right.” Very few of us work in a 1-1 business. More often we work in a 1-many business. Adjusting your business or experience because one person screams the loudest is not a good course of action. Sure, you should weigh their opinion. Even share it with the team afterward for review. However, for every one person complaining. There is likely one who is happy, which was the case in my example where shortly afterward another customer walked up and asked us to turn the music up.

 

The Concert Ticketing Theta Paradox

Jeremy Larochelle

 

When you break them down to their basic economic form, concert tickets are just like stocks – a limited commodity that can be traded based on the perceived worth of the market. This phenomenon has become much more apparent after the industry was shuttered for two years thanks to COVID.  Some fans who had purchased seats for a reasonable price (when the market was flooded with options) and sat on those tickets have watched their values go through the roof.  For example, my mom had purchased three seats in the nosebleeds (200 section) to see Elton John at the Amway Center in Orlando over two years ago for just under $400.  She decided to sit on those tickets and when I wanted to join my family for the show a few months prior to curtains, a single ticket cost more than what she paid for three.  I guess you would say the price – tripled.

 

We all know that because there are only “X” amount of seats for a show demand easily takes over price. Scalpers certainly get it and have made a fortune off that supply/demand misbalance for years. This practice has received a steroid shot thanks to technology.  Today’s scalpers use everything from technology-backed brute force to gobble up blocks of tickets to machine learning algorithms that automatically price, buy, hold, and sell tickets. This has increased the speed at which tickets can be turned over and with that, the price usually goes up.

 

Interestingly, similar technology is used in the stock market. Bots and electronic funds transfers allow companies to price, hold, and sell ownership of publically traded companies at blazing speed. Research into stock pricing will reveal that much of this action is the result of consumer behavior. Digital tools such as the Relative Strength Index (RSI) is used to gauge the momentum of a stock while the MACD tells us in which direction the price is likely to go.  Oscillators, moving averages, and overall technical analysis are all used to tell Skynet when to buy or sell stocks. The one thing nearly all of these equations and the technology that fuels them share is they are built on how consumers collectively behave as the availability (or perceived availability) of a commodity changes. The same thing happens with concerts. Ultimately, the price of an event is dictated by how much a cluster of consumers is willing to pay to get in a show.

 

Unlike traditional stocks which can last into infinity if the company stays afloat. Concerts and events have a limited shelf life and as that performance gets closer time becomes a problem.  Once again, we find a similarity between the stock market and the ticket market. This time it comes in the form of options trading.

 

In its simplest form, options trading gives the buyer the “option” to purchase “X” amount of shares of a company before a pre-determined date. The buyer pays a premium for this benefit. For instance, if John thinks Widget Inc’s stocks, currently trading at $50 per share, will trade at $100 per share in two months. He gives his broker a fee (let’s say $200 in this case) for the “option” to buy those stocks anytime between today and a pre-set day two months from now for $50 per share. If the stocks jump to $100 a share, John can execute his option and double his money. However, if that date arrives and John does not execute his option. He will lose the $200 he paid. The impact of that elapsed time is measured by Theta in options trading and it plays a very important role in how premiums are priced.

 

Theta also exists in the ticketing world but it is widely dependent on consumer demand on a show-by-show basis.  If that demand is huge (say a superstar’s farewell performance), Theta can mean more profit for the re-seller. In some instances, it can even push the demand curve straight up as the strike (event) date approaches. Consequently, if that demand is weak, it can reduce the profit for the re-seller, sometimes to the point of a loss if they are afraid the tickets won’t sell before the date and become worthless. After all, it is best to make some money than no money… right?

 

This can be beneficial for fans who live near a venue. For instance, I live just fifteen minutes from where Elton played here in Orlando and I watched ticket prices daily. Roughly two days before the show, I was able to secure amazing floor seats for the single price of one of my mom’s nosebleed seats when she bought them pre-pandemic.

 

The thing to keep in mind is that just like stocks/ options the concept of time until the show represents an inherent risk to your ticket price. If you want to attend that special event, it is typically best to buy tickets as close to their initial sale date as possible (being a member of a fan club can be worth its weight in gold for times like these). Otherwise, you will likely enter the ticketing options game where Theta could become your best friend or worse enemy.

 

Raise The Roof And Get It Down

Jeremy Larochelle

 

While launching our first ship, I was tasked with leading the build of a concert stage and roof for our fly-on act – 80’s New Wave icons ABC Band with Martin Fry.

 

Orchestrating the build of a stage and roof on land is a challenge in and of itself. Many elements come into play. You have to consider space and show needs, budget, safely rigging the structure, and the logistics of moving people and equipment to meet those demands in a typically very tight timeline. Now, imagine trying to accomplish all of those things on a brand new cruise ship launched by a brand new company in a foreign port during the tail-end of a pandemic.

 

I started by investigating the location of the concert and met with our local riggers as well as rigging consultants to see if we could raise a structure ourselves using points on the pool deck.  Unfortunately, the tie-offs couldn’t bear the weight leaving us with the only option of erecting a conventional truss structure and flying a roof with ballast support. This led to new challenges.  We couldn’t float safely with a temporary stage on deck 15 and we had no place to stow it at sea, so the roof needed to be loaded, built, derigged, and offloaded before we set sail. Getting the stage components to deck 15 posed its own challenge. Tight corridors and elevators that are just shy of 1M x 2M left us to cap components sizes, find an alternative to heavy stone ballasts and required a whole lot of travel through the vessel. This concerned our deck department who insisted that all parts be craned on and off to prevent damage to the interior of the ship.

 

Craning a stage onto a cruise ship.

Building a stage on a cruise ship.

Building a stage on a cruise ship.

Cruise ship concert with stage.

Craning a stage off a cruise ship

 

This raised new logistical challenges.  First, we had to investigate pushing the ship’s departure back with the captain, company, and port by at least four hours to meet our project timeline. For those that don’t know. This is not a rubber-stamp request as tides, weather, and port traffic all impact when ships can come and go from the dock. Second, we had to meet with the port agents and a local craning company to discuss crane positioning, the load, lift, and do a risk assessment. All of these items required a sign-off by the captain, company, port, stage, and crane companies before we could move forward.

 

As these clarences moved through their proper channels, other show logistical pieces needed to be handled. The transportation of backline gear to the port, to the ship at dock, through the provision door, and up to deck 15 before the show had unique challenges. We needed to create a timeline to connect those outside the ship (stevedores, port security, etc.) with those inside the vessel (clearance officer, hotel department, technicians, etc.) to move the items from land to the vessel. We then needed to get clearance for backline vehicles and drivers to enter the port and approach Scarlet Lady at the dock.

 

Further security clearance and COVID testing needed to be orchestrated for all individuals boarding the vessel including stage riggers, crane spotters, the band, and their entourage. Inside Scarlet, multiple departments were brought into the project. The deck department to assist with clearing the stage area, helping us protect the deck, filling and draining water ballasts, and roping off safe zones for craning. Security, the clearance officer, hotel department, and ship doctor were prepped for the arrival of local labor, and screening equipment being craned and forklifted onto the vessel. Catering and rider requirements were organized with food and beverage. Sailor Services and crew engagement were briefed on the project to make customers and crew aware of the day’s activities, itinerary changes, and safe areas during crane movement. Accounting was informed of cost centers for each piece of the build. Finally, the technical team briefed on the backline gear, stage set-up, and how to integrate their technical needs with onboard equipment.

 

Due to weather patterns, we didn’t receive the official “green light” to proceed until 24-hours before the concert date, but our teams were ready thanks to over-preparedness.  The crane was in place as the ship docked that morning. However, a miscommunication led to a two-hour delay in getting items lifted onto the ship. Despite this challenge, the build continued moving forward safely and on-the-fly schedule changes led to us falling only twenty minutes behind for our backline load goal and eventually one hour ahead for a completed soundcheck.

 

The show was great. The artists were happy, the organizers thrilled, and excited fans were jumping in the pool during the encore. However, with nowhere to go after the show cruise ship guests remained near the stage as the house lights came on. With time working against us, we went into crowd control mode. I asked FOH to turn off all music and to bring on the brightest white lights we had to demonstrate the show as over to lingering fans. I then used polite, yet assertive, communication to push patrons close to the stage back as technicians roped off the area to create a safe workspace for teardown.  The roofing company began embarking the vessel as local labor pushed road cases back down to the provisioning door. Within minutes, they began tearing down the stage as myself and the deck team roped off safe areas on Decks 16, 15, and 7 for crane operations. The entire derig operation was so efficient that we had craned off the last pieces of stage safely nearly two hours ahead of our load-out end time.

 

This 22 hour marathon day was nearly two months in the making and a huge team effort thanks to our Virgin Voyages team, our friends at the Portsmouth Port, CPS Staging, Imagine Cruising, the band, and their management teams. It was a remarkable undertaking for a new ship under a new brand operating in a foreign market and everyone should be proud of their contributions.  ?

 

The Amygdala – Fear, Pleasure, and Rock and Roll

Jeremy Larochelle

 

In my post Herd Mentality in Entertainment, I discuss how a small piece of our brain called The amygdala (what some call the old mammalian brain) is responsible for our natural mental reflexes to evade predators. This is a key component to my overall concert consumer behavior thesis as it is my belief that this piece of our brain is hard-wired for us to seek out the pack. Ultimately, leading us to copy their behaviors. Regardless if those behaviors are to group together, disperse, or buy another beer.

 

In his book, This is Your Brain on Music, neuroscientist Daniel J. Levitin, Ph.D. goes into depth regarding how our brain is hardwired with (on average) one hundred billion neurons. Each neuron is connected to other neurons—usually one thousand to ten thousand others. Just four neurons can be connected in sixty-three ways, or not at all, for a total of sixty-four possibilities. As the number of neurons increases, the number of possible connections grows exponentially to the point that we will never fully understand what our brains are truly capable of.

 

For us to process a thought, memory, or even the color red the respective neurons need to fire and create that connection to pull the respective data from other areas of our brain. A great example of how this happens musically is when that song (or more likely just a part of it) gets stuck in your head – aka the “earworm.” Scientists believe this could happen because you hear the song and it triggers a set of neurons that continue to fire and get stuck in playback mode. This demonstrates to us that if a certain part of the brain becomes activated it can lead to repeat fire in the neuro-circuitry of that area, which brings me to our good ol’ friend – the amygdala.

 

You see, the amygdala is not just responsible for those survival instincts. According to Levitin, “it sits adjacent to the hippocampus, long considered the crucial structure for memory storage, if not memory retrieval. And experiments over the past decades have shown that it is highly activated by any experience or memory that has a strong emotional component.” You know…like live music.

 

So when you are at a concert your amygdala is fully powered up. Its circuits are firing and with it the likelihood that your need to connect with the pack is increased. You are biologically primed to fit into the crowd and more likely to follow their cues. This is a great plus for ancillary sales such as alcohol and food and probably explains why we all accept the overpriced beer and food while at a concert – especially if those in our row have a beer in hand.

 

However, the neuro-firing of the amygdala doesn’t stop with ancillary sales. Sponsorships benefit from this priming as well. For one, that charged-up amygdala rests near your memory storage so you are more likely to store and later recall brands you see while at a show. Second, as our earworm scenario showed us, all it takes is a piece of one song from that event to trigger those neurons and create an infinite feedback loop that could easily trigger memories of that night including the weather, smells, and advertisements you came across. Furthermore, your brain will likely categorize those brands with the positive emotions that are generated from music consumption – a huge win for advertisers.

 

Live music ignites nearly all areas of our brain. However, the amygdala carries special weight because it also drives us to instinctively follow the pack. In addition, its location near our hippocampus aids memory storage and recall, which is powerful biology that fuels concert consumer behavior.

 

Could the Return to a Pre-Pandemic Concert Experience Take Longer Than We Think?

Jeremy Larochelle

 

The increased speed of the vaccine rollout has given many in the live events industry an overly optimistic outlook regarding the swift return to pre-pandemic packed shows. The primary focus thus far has been on how venues need to adjust to “The New Normal” and if they can balance new health mandates against their already razor-thin margins. While the vaccine may relax some of these mandates and allow operators to increase capacity, it does not address the shift we may be facing in the macro-economic demand curve of live events.

 

In December of 2020, The Washington Post found nearly 12 million renters would owe an average of $5,850 in back rent and utilities by January of 2021. According to Mark Zandi, chief economist at Moody’s Analytics, that could equate to almost $70 billion in unpaid debt – “a painful amount that renters, landlords and utility companies will have to sort out.” The US government has been working to provide relief for this housing crisis. Just last week, newly elected US President Joe Biden extended the federal eviction moratorium, which is set to expire on Jan. 31, through at least March 31. In addition to this pause, US Congress had provided $25 billion in rental assistance through their December 2020 stimulus package with Biden asking for an additional $25 billion in his future bill.

 

These cash infusions will chip away at that growing $70 billion debt, but will ultimately come up short and relief will take time to trickle down to concert fans. Likely falling at a time when venues start to re-open at more profitable capacities. This “perfect storm” could leave venues across the country looking to pack their houses against a large portion of their consumer base conflicted over purchasing concert tickets or catching up on their physiological and safety needs. And as Maslow has taught us many will opt to catch up on those basic needs first.

 

This conflict is not a new phenomenon. There are always demographic segments facing the choice of want versus need. However, businesses usually adjust their marketing approach to capitalize on the segments free of that conflict. This is not the case today where a disproportionate percentage of the entire world population has been shaken by the economic impacts of the pandemic. This leaves venue owners to fight over a very small percentage with the necessary disposable income to fork-over.

 

How can concert promoters face this challenge?  First, it is imperative that the majors such as Live Nation, AEG, and NIVA begin to focus their lobbying efforts on getting that second $25 billion round of housing assistance passed. Without it, the suggested rental shortfall is just shy of $50 billion and growing. This would, in essence, double the time for the collective concert fan segment to catch-up on their basic needs and be able to regularly support live events. Second, the industry will have to accept that the supply/demand curve will shift when we return to operations. With fewer fans with adequate resources to attend shows, the only solution is to reduce the price of tickets. Promoters, suppliers, artists, and managers will have to work together to find that new equilibrium and then adjust as the consumer pool emerges from its COVID-catch-up. Ultimately, we will return to those pre-pandemic levels.  However, it is going to take time and compassion for concert fans to get there.

Are We Facing a Post-Pandemic Concert Venue Consolidation?

Jeremy Larochelle

 

Small concert venues teeter the line between a vital music industry need and a profitability challenge for their owners. They are a keystone to the entire music industry serving as the laboratories where artists hone their skills and are instrumental in building and empowering fan bases that will help push that talent up the pipeline to bigger spaces. Yet they operate within a risky business model that is loaded with unpredictability due to the status of the artists they support and the caps on their income streams.

 

There is no doubt that the major live event brands such as Live Nation and AEG understand the vital importance of smaller venues for their long-term strategy. They need these establishments to survive so future superstars and their fan bases can be cultivated to the point that they can fill their larger (and more profitable) amphitheaters and stadiums. Before the pandemic hit, Live Nation was on a $20 million-plus spending spree in Southern California including the acquisition of Spaceland Presents and their roster of small venues such as Echoplex, the Echo, and the Regent. Pre-COVID, both AEG and Live Nation were actively shopping the smaller cap space with every tool at their disposal.  Their strategies included buying out smaller promoters, partnering with established venues, exclusive promotion deals, and perhaps the most strategic.  Selling and installing their ticketing services into these independent venues, which not only provides the majors with revenue but a treasure trove of data to help focus their future investment decisions.

 

Most independent owners will tell you they do this for the love of music and when you analyze their basic business model. You will quickly surmise they aren’t lying. Profitability is difficult in the under 1,000 cap space. The smaller audience size means that the fixed cost per person is higher. This impinges on the variable costs per customer and leads to reduced profitability per show. Add in the fact that the acts at this level are still building their fan bases and owners face the very real possibility that they will not reach 100% occupancy on a regular basis. This lack of regular profitability leads to less money in reserves for slower times and very little protection from systematic risk such as a pandemic that forces them to close down indefinitely.   We have been witnessing this playout since COVID hit. By June of 2020, 90% of Independent Venue Owners said they would need to close within a few months without government help to sustain their businesses. Many are ecstatic that the US Government could provide much-needed relief soon, but this help may (unfortunately) be too little too late. Especially if there are no further rounds of funding coming down the pike.

 

Smaller cap venues simply do not have the economic resources to support reduced capacity, increased testing and sanitization protocols, state and local shutdowns, and weary public. Unfortunately, this means that we will likely continue to see many of these spaces shutter their doors into 2022, and while that is bad news for fans, independent owners, and the free market. It is a HUGE opportunity for well-positioned majors such as Live Nation and AEG.

 

In the words of Baron Rothschild, “buy when there is blood in the streets.” Unfortunately for the live concert industry, very few are positioned to heed the Baron’s advice. Both Live Nation and AEG have the infrastructure and financial reserves to withstand the COVID pandemic. While LN has a serious advantage thanks to their stock market status. A public company can secure financing through numerous debt instruments outside of typical lenders such as selling bonds or by releasing more shares. They can also renegotiate existing loans more easily thanks to their massive liquidity and the horizon-focused mindset of their investors.

 

Both companies have already reduced their workforce and cut spending at unprecedented rates due to the pandemic. And while this is difficult to swallow now, it does pose the opportunity for them to return to service much leaner and potentially free up capital to allocate towards future growth in the strategically important small-cap market. Add in the fact that both have troves of ticketing data which can be cross-analyzed against economic stricken hotspots, prime tour markets, and real estate prices and we are left with a large probability for future consolidation of the small-cap venue market.

 

There are a few saving graces for independent venue owners.  One is the creation of the National Independent Venue Association (NIVA). This organization burst onto the scene and was key in lobbying the US Congress for relief.  They will need to remain vigilant post-COVID and shift their focus from relief to the defense of a free market for the live music industry. Another comes in those with a true passion for live music.  Be it owners, managers, fans, or even leaders at the helm of these majors. We need people who understand that music was never meant to be corporate. It was meant to be raw, emotional, messy, and a little bit scary.  Only then will the magic present itself.