How music festivals make money

July 3, 2013: 5:00 AM ET

From Coachella to Made In America, multi-act music festivals are big business. How do they rake in the cash?

By Melissa Locker, contributor

130702163916-coachella-crowd-614xaFORTUNE -- Back in April, more than 150,000 music fans flocked to Indio, Calif., for the Coachella Valley Music and Arts festival. In mid-June, Bonnaroo drew over 100,000 people to Manchester, Tenn., to see Sir Paul McCartney and R. Kelly, among others. Sasquatch brought droves of people to a far-flung corner of Washington State for a long weekend. Every year, more and more festivals seem to pop up in addition to the dozens of music events that already exist. For every Lollapalooza, Austin City Limits or Riot Fest there's a Governor's Ball, which just held its third festival, or Catalpa Festival, which is in its second year.

Why are so many festivals popping up? Because music festivals are big business. Coachella is the most profitable festival in the U.S. Last year it sold 158,000 tickets and pulled in $47.3 million in revenue, according to Billboard Boxscore. That's up from $17 million in 2007. Tickets for the 2013 festival sold out in 20 minutes. Goldenvoice, which produces the festival, expanded it to two weekends last year, a move that was scoffed at, but is now being replicated by other events. Sasquatch has announced plans to expand to two weekends for 2014 after a "highly successful" 2013 edition, which sold out in a record 90 minutes, according to promoters. Bonnaroo also sold out with regular tickets ranging from $224 to $269, and a pair of VIP tickets -- which include parking and camping perks, exclusive lounges and viewing areas -- going for $1449.50.  According to Bonnaroo representatives, the festival has no plans to expand  just yet.

While it's clear that there is money to be made in festivals, for some promoters, there are non-financial reasons to get involved in the festival circuit. For Budweiser (BUD), getting into the festival business was an easy decision. "Our company has had an amazing legacy of being a patron of music," Paul Chibe, Vice President of U.S Marketing at Anheuser Busch told Fortune. The company had a festival in the 1980s called Superfest ,and Chibe wanted to reenter the sphere, which they did last year with their Jay-Z curated Budweiser Made in America Festival, which will take place again in Philadelphia over Labor Day weekend. "I felt like it was important that we reestablish ourselves as a leader in the music industry," Chibe said. "We did it last year in Philly and ended up being a much bigger success than we ever expected."

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"From a financial standpoint we put more in. We didn't make money on it," Chibe noted, but that wasn't the point of the festival. Instead Budweiser saw an opportunity to give back to the community via the Budweiser Made in America's festival partnership with United Way, but it was also a way to connect with consumers on a personal level. "Music is a key part of who people are," Chibe said. "It's a powerful pathway to create relationship with the consumer." He continued, "When people think of great music and the brands that enable it, we want them to think of Budweiser." This year's festival is headlined by Beyoncé and Nine Inch Nails.

This year marks the first year that the Mad Decent Block Party  – a festival that started as an actual block party outside of record label Mad Decent's office in Philadelphia – has charged money and issued tickets for their shows. It's a move that has allowed the festival to expand into a 13-city roving tour with an eye on even more growth. Turning a free event into a ticketed one can frustrate fans, though, which is why Mad Decent has worked with sponsors to keep ticket prices low. "The average price of our tickets is $30, and the early bird ticket was $20. At some of the larger festivals, that would easily be an $80 to $300 dollar ticket," said Andrew McInnes of TMWRK, who helped organize the event. "That's all due to sponsorships. We make an effort to make it affordable."

"People don't mind sponsorship as much as they would have a few years ago," said Sam Hunt from the Windish Agency, which has been involved with booking and marketing the Mad Decent Block Party rom the beginning. "A high ticket price would keep out our core fanbase, but the cheaper the ticket, the easier it is for fans to accept."

Their affiliation with producer/musician Diplo's Mad Decent label helps, as well, because artists like DJ duo Flosstradamus and Baauer of "Harlem Shake" fame are willing to contribute their services at a reduced cost, and the festival's headliner is typically Diplo or his band, Major Lazer. In the past, artists played for free, but according to McInnes, "A ticketed event means everyone gets paid this year." Hunt hurried to add, "Everyone gets paid, but no one's getting rich. "

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It's something that Seattle's Bumbershoot understands well. The festival, which takes over the city's downtown every Labor Day, remains true to its nonprofit core, which dates back to when Bumbershoot started in 1971. "In the '70s and '80s, festivals were the realm of pirates and crazy people, but as time went on in the late '90s and 2000s the rest of the corporate world has caught up and now it's just business," Jon Stone, executive director of One Reel, the producer of Bumbershoot, laughed.

"Bumbershoot pioneered corporate sponsorship in the mid-'80s, but we used sponsorship to keep ticket prices low. If you look at the price of Bumbershoot versus other festivals, we've stayed true to that desire to eliminate economic barriers to entries."

Stone also noted that for Bumbershoot, being nonprofit "is a philosophy, not a tax status." He added, "Economic barriers to entry are real things in the industry these days, especially at larger festivals. That's why we keep ticket prices as low as we can." Stone estimates that ticket sales make up about 60% of Bumbershoot's revenues with sponsorship accounting for 30% and assorted concessions and vendors making up the rest. However, instead of focusing on profits, the organization focuses on exposing attendees to the arts, which was the City of Seattle's mission when they started the festival. As a city festival, they also focus on local talent. "We reserve about a third of our musical programmatic space for local acts," Snow noted. "We want to champion local artists and use the festival to shine the spotlight on local artists."

Among their success stories is Macklemore and Ryan Lewis, who played Bumbershoot's small stages for years before moving to the main stage last year on the strength of their song "Thrift Shop." The group made history when they became the first duo ever to have their first two singles top the Billboard Hot 100 charts. That is definitely good business.

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