How good accounting will save the music festival

Music festivals are going bust around Australia. Can better accounting save them?

With a number of high-profile Australian music festivals experiencing financial meltdown in recent years, will these large-scale events soon be a thing of the past? Or can better accounting save them?

When 400,000 people descended on an alfalfa field in upstate New York in 1969, they were witness to one of the greatest moments in popular music history.

An enduring symbol of 1960s counterculture, Woodstock is regarded as the forerunner of music festivals and continues to inspire countless events around the world.

For all its success, Woodstock is famously considered a financial failure. The cancellations and financial collapses that have plagued a number of high-profile Australian festivals in recent years show that money is still a major challenge for these events, demonstrating that good accounting is required in all aspects of business, entertainment or otherwise.

Rising costs present significant hurdles. The fickle nature of fans, who are currently trending towards more intimate music experiences than those at a major festival, has also resulted in declining ticket sales.

Do music festivals have an expiration date?

Dr Warwick Frost, associate professor, tourism and hospitality management, at La Trobe University in Melbourne, says music festivals tend to have a life cycle of around five to seven years.

“Like any business, they are hoping for repeat business,” he says, “but the customer might go once or twice and then look for something different.”

While music festivals all have teams of financial support, such as accountants, Frost notes that many people who launch these events are music fans and passion often gets in the way of rational business decisions.

“An organiser might want to book a band because they love them, but they may not consider who else the band will attract,” he says.

“People may have business plans – and they do have accountants – but a lot of the decisions are made in terms of gut feelings or personal preferences.”

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Budgeting is a challenge in the low-margin business of music festivals, and variations can occur in ticket sales.

“They might budget for 50,000 and only sell 20,000 tickets and this is because you can sign a band six months beforehand and while they might get more popular, their popularity might also decline,” explains Frost.

“There is always going to be that gap.”

Success can also be a challenge for festival organisers.

“These people are typically not from accounting backgrounds,” says Frost.

“They know about music and how the industry works, but when they start getting big they run into issues with sponsorship, which definitely affected Tropfest [cancelled in 2015].

“Suddenly they are running a business with a huge revenue flow and huge expenses. Sometimes you can’t really cut the costs.”

Costly ventures

Music festivals are expensive to stage and the costs are increasing. Big-name musicians are thought to draw larger crowds, but they also come with significant price tags.

While Jimmy Hendrix was paid US$18,000 (equivalent to about US$116,000 today) to play Woodstock, top musicians these days command millions.

Documents from the Australian Securities and Investments Commission reveal Soundwave owed millions to about 50 acts from its 2015 event, including A$2.1 million to Seattle grunge band Soundgarden, A$1.2 million to alternative rockers The Smashing Pumpkins and A$588,000 to goth rocker Marilyn Manson.

Frost says bands’ equipment is becoming more expensive, too.

Related: How good accounting can save the world - including Greece

“There has been a lot of criticism of bands such as U2, for example, because they use more equipment than any band in the world and, of course, there is an environmental cost to that and a financial cost as well.”

Entertainment is only one line in a festival ledger. Venue hire can also be costly. Frost notes the Byron Bay Bluesfest purchased its own 120-hectare site in 2010 to avoid the challenge of venue hire.

While the Byron Bay Bluesfest attracts more than 100,000 people, smaller festivals face challenges in securing venues.

Tara Benney, a former Bain & Company consultant and co-director of Strawberry Fields festival, which attracts 6000 people to its three-day event in bushland a few hours from Melbourne’s CBD, describes the regulatory side of securing a venue as “huge”.

“If you wanted to, you could easily spend upwards of A$50,000 just preparing plans for a permit without even getting one,” says Benney.

Rise of the boutique festival

Strawberry Fields is one of a growing number of smaller, boutique festivals that are blooming across Australia at the same time as many big festivals are being struck by failure.

Now in its eighth year, Strawberry Fields was started by Benney and a small group of friends who just wanted to have a party. In its first year, the event attracted 1000 people.

“It kind of grew from there,” explains Benney. “It wasn’t a grand business venture or a strategically planned approach to growth. It just happened organically.”

Positioned as “an annual celebration of art, sound and creative expression”, the festival hopes to attract 7000 people to its event in November 2016.

Its grassroots approach to marketing includes social media and community radio. The music acts that the festival hosts are popular, but they are nowhere near the bands paid millions by the big festivals.

What is the financial future of big music festivals?

Benney describes Strawberry Fields as less commercial than most music festivals and ticket sales are its key source of revenue.

“We don’t have sponsorship from corporate or alcohol brands,” she says.

Strawberry Fields’ boutique status is among its main attractions as increasing numbers of music fans turn away from large festivals to more intimate events that are often held in bush or farmland environments.

“People are looking for a more personal experience,” says Benney. “They want to relax.”

In comparison, she points to the “long queues and very mixed crowd” that she says usually come with a one-day festival attracting upwards of 50,000 people.

“It’s going to be similar to being in the centre of the CBD on a really busy day,” says Benney, “and I don’t think that’s what people want anymore.”

Big festivals lose their tune

  • The past two years have seen a string of financial failures in Australian music and entertainment festivals, leading to a loss of A$30 million in 2015 alone. In 2015, the Future Music Festival, organised by Michael Gudinski’s Mushroom Group, announced it was financially unviable and packed away its sound stage indefinitely.
  • Big Day Out, one of Australia’s longest-running festivals, went on hiatus in 2015 following reports that the event lost between A$9 and A$12 million in 2014.
  • Tropfest film festival was briefly cancelled in 2015 due to what founder John Polson described as “a terrible and irresponsible mismanagement of Tropfest funds”. The 23-year-old event returned in February 2016, thanks to sponsorship from CGU Insurance.
  • Soulfest announced its shock cancellation in 2015 due to poor ticket sales, despite an A-list line-up of artists including De La Soul, Mary J Blige and Lauryn Hill.
  • The Soundwave music festival has been the latest casualty, collapsing in late 2015 and leaving promoter AJ Maddah’s company in administration with debts of A$28 million.

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