The COVID-19 pandemic pushed the music industry to experiment seriously with virtual concerts.
Historically, musicians and their managers have been careful about challenging the traditional concert model that became their main source of income as revenue from album sales disappeared.
Is the current surge of virtual concerts here to stay or will it be abandoned as soon as large in-person gatherings are permitted again and the novelty of concerts in Fortnite wears off?
For the middle tier of recording artists, virtual concerts are shaping up to be a worthwhile part of their business portfolio, generating healthy income and engaging a geographically dispersed base of core fans. For the top tier of artists — those who perform in stadiums and arenas — the opportunity cost of virtual concerts doesn’t make financial sense to do very often once in-person concerts return. That said, a couple such performances each year can unlock a lot of the untapped potential revenue from fans who can’t attend their normal concerts.
Virtual concerts are having their moment
There’s no opportunity cost to trying a virtual concert during a pandemic. Artists aren’t performing, touring, shooting videos or even doing in-person sessions with songwriters. With everyone stuck at home, fans will forgive a disappointing attempt at performing online and artists have time to experiment. Live Nation, the dominant concert promotion and venue management company, has even converted its site to curating a schedule of virtual performances.
Virtual concerts have been growing in three formats: video streaming platforms, within the virtual worlds of video games and virtual reality.
Concerts via video
Most virtual concerts in the last three months have been performed over general purpose social media, livestreaming and video-conferencing platforms:
- Instagram has been the venue of choice for casual performances, with many musicians big and small — including Chris Martin and John Legend — performing under the #TogetherAtHome hashtag. These performances don’t generate direct revenue for artists but keep fans engaged with their music. Producers Swizz Beatz and Timbaland launched a livestreamed rap battle show over Instagram using a tool called Verzuz that generates hundreds of thousands of viewers.
- Concerts by everyone from Lady Gaga to the Dropkick Murphys have become common over livestreaming platforms like Twitch and YouTube, with fans able to comment in the feed on the side of the screen (and send tips or donations to the host user).
- The pandemic’s favorite video-conference platform, Zoom, is being used for private concerts and for public ones. Fans.com, for example, hosts concerts over Zoom calls where fans are featured in the corner of the main stream in a “Fans Cam” thumbnail.
Then there is a crop of streaming platforms specifically built for virtual concerts. These aim to craft a more comprehensive concert experience and they have a stronger focus on generating revenue for musicians. For virtual concerts to play a role in the music industry beyond an occasional marketing tactic, they need to generate meaningful money.
Veeps and Moment House are among the startups tackling this market. Artists using Veeps sold hundreds of thousands of tickets (usually priced $10-$20) over the last three months, according to the company’s chief product officer Kyle Heller, whose co-founders include members of the band Good Charlotte. Both Veeps and Moment House, a new platform that has been beta testing concerts since just before the pandemic, make money by adding a 15% fee on ticket sales at checkout. Moment House calls the performances on its platform “moments” to create a blank slate in consumer expectations of what the livestream will be like and encourages artists to experiment.
Stageit is long established in the space, having hosted virtual concerts with artists including Jason Mraz and Trey Songz since 2009. Attendees can send money as tips to the artist using a virtual currency that is pegged at $0.10 per unit. (Tipping is the leading monetization method on popular livestreaming platforms in Asia like Tencent’s.)
Concerts within games
With the virtual worlds of popular video games becoming massively popular spaces for socializing, musicians have also turned to performing as avatars within them. Fortnite’s February 2019 concert with Marshmello attracted 10 million attendees and awoke the music industry to games as venues. Fortnite repeated the trick again this April with five concerts by Travis Scott that collectively drew 27 million attendees. These were experiences designed and marketed by Epic Games, the company behind Fortnite, and the company is continuing them on a regular basis like this past weekend’s concert with Diplo.
By performing within games, fans can interact with the setting of the concert, with other attendees’ avatars and potentially with the artists’ avatars. The temporary merging of interest areas — a favorite musician and a favorite game — makes the concert a more unique experience than a livestream video concert and makes it a compelling experience not to miss for the subset of the artist’s fans who are avid players of the game. The music industry woke up to the reality of how massively popular video games are across every demographic group these days.
Pop star Charlie XCX and leading pop producers Benny Blanco and Cashmere Cat DJed within a user-organized music festival called Square Garden in the hit game Minecraft in April. To put Minecraft’s popularity in context, the majority of 4-14-year-olds in both the U.S. and U.K. are active users. In July, there will be another music festival inside Minecraft (self-organized by users without the gaming company’s involvement) called Rave Family Block Fest, featuring more than 850 artists (including Galantis and Steve Aoki) over 4 days.
Concerts in VR
It’s tough for the 2D portrayal of a concert over a video stream to replicate the immersive feeling of attending a concert. That’s where virtual reality hopes to provide a more realistic experience. This remains more an aspiration than a current reality, however. The market of VR headset owners remains small, the visual fidelity of VR experiences isn’t photorealistic and VR headsets are still too heavy to comfortably wear for the length of a typical concert (especially if you’re dancing).
- The startup Wave recently raised $30 million to expand its virtual concert business in this direction though. The team produces concerts where the artist wears a motion capture suit and their movements are reflected in real-time by their avatar on stage at the virtual concert venue. The concerts are streamed on YouTube and Twitter but Wave has a beta app for select VR headsets through which users can attend its virtual concert venue in VR. Wave put on a high-profile benefit concert with John Legend last week that was brief — just 20 minutes — and included a livestream in the bottom-right corner of him in the studio with the motion capture suit.
- Facebook’s Oculus Venues app features concerts like the one this past Wednesday with Lauv. The concert experience in Oculus Venues merely puts you seated in a movie theater watching a recorded 2D video of the artist performing. You can watch with other people’s avatars sitting in the seats around you and talk with them but it’s an underwhelming experience.
- Melody VR has a library of concerts recorded by numerous 360-degree cameras that fans can pay (typically $9.99) to watch. Aside from switching camera views, the concerts aren’t interactive or social experiences though.
The business of concerts
Concerts typically generate most of an artist’s income, whether they are world-famous or a new indie band. Tours follow the release of a new album and last a few months to a couple years depending on the scale of the artist’s fame and corresponding tour size. Concerts were a $27 billion industry globally in 2018 ($21 billion from ticket sales, $6 billion from sponsorships) with 19% of ticket revenue generated by the top 100 grossing tours in the Western music market.
Among those 100 top-grossing tours each year, gross revenue per show grew from $861,887 per show in 2015 to $1.29 million to 2019. That’s more due to the average ticket price increasing 23% from $78.30 to $96.17 than from the 15% increase in tickets sold. Venues also sell an average $29 in concessions per ticket holder and musicians can make a lot of additional revenue from selling sponsorships to brands and merchandise to fans.
As a rough estimate, 30%-50% of ticket revenue goes to ticketing platform’s fees, taxes, songwriter royalties and venue fees, leaving say $774,000. Then the promoter gets another 5%-15% of the remainder; we’ll say 10%, which drops us to $696,600. Of what’s left, the band has to pay for the crew that travels with them (sound engineers, lighting crew, backup singers/dancers, catering, etc.), hotels and transportation for all the crew and equipment. Their agent also gets 10%. That all brings it down to $430,000 or less for the artist; sponsorship and merchandise could add hundreds of thousands of dollars more. The artist has to pay 15%-20% of everything they earn to their manager plus often 5% to their lawyer and/or business manager, so the band members net roughly $360,000 of the ticket revenue to split among themselves from the show. For this tier of artists, private performances for company retreats, university festivals and billionaires’ weddings run $100,000 to over $1,000,000 and have far fewer costs.
Most musicians, even successful ones making a good living off their art, don’t earn anywhere near that much, however. The music company Kobalt estimated there were 15,000 musicians who generated tens of thousands of dollars in top-line streaming royalty revenue in 2018 and 5,000 who generated hundreds of thousands (or millions) of dollars. (Most of those royalties go to an artist’s record label if they have one, and again they have to commission their manager.)
Using that as a rough approximation of the established artists comprising the middle and upper classes of musicians, we can say there are about 14,500 artists outside the superstar tier. Most of these generate thousands or tens of thousands of dollars in ticket sales per show and end up with roughly 30% of that reaching their bank account. Typically, the larger the show (by tickets sold) the better the profit margin. That’s doubly true given that small concerts aren’t likely to have much if any sponsorship.
That said, the financial pressure on a musician isn’t to enable every fan to attend as many concerts as possible. Their manager’s job is to help them optimize for maximum income, within the constraint that an artist’s vocal chords and mental health can only handle so many concerts over a period of time. The scarcity created by a limited number of geographically restricted shows keeps demand and ticket prices high.
Virtual concerts can be a new revenue stream
A lot of fans who are willing to spend money to attend an artist’s show aren’t able to do so.
- The location limits who can attend due to distance.
- The location limits how often a fan can attend. Unless they travel extensively, they can’t see their favorite artist in concert every quarter or every year even.
- Fans with a scheduling conflict miss the opportunity to attend.
These restrictions leave a lot of money on the table. Virtual events can be an additional revenue stream for musicians beyond the COVID-19 era. Rather than cannibalizing in-person concert ticket sales or prices, they can unlock untapped potential earnings from fans unable to attend the in-person concerts or wanting to join more than one show per tour cycle. A virtual concert requires a small fraction of the time and money and middlemen to put on as an in-person concert does, giving far better profit margins to the artists.
The majority of a top-tier artist’s fans cannot afford to spend $95 on a ticket (especially since $10 beers, $40 parking, etc. are additional costs of the experience). Lower-cost online events should be a natural part of an artist’s work portfolio to better monetize their entire fanbase. For mid-tier artists whose normal concert ticket prices are more affordable, geographic and scheduling restrictions still limit most of their fans from being able to attend concerts.
An online show could generate $300,000 in revenue if 15,000 people buy $20 tickets or 30,000 people buy $10 tickets. The artist could sell it out by promoting it over social media and the cost of production crew and equipment would be a fraction of what it required for touring between cities and staffing venues. An entertaining virtual show still requires preparation, but it’s more similar to creating a fun YouTube video than putting on a theatrical production. The artist can keep the majority of the virtual event revenue given lower costs and fewer middlemen to commission.
For a new, up and coming artist with thousands of fans, getting 300 of them to pay $15 for a virtual concert would generate $4,500. Most of that would go in the artist’s pocket. Compared to small concerts that typically net little to no profit for new artists, it’s a meaningful amount of money for a few hours of organizing. Veeps provided the example of one artist who has 250,000 followers on Instagram and typically generates $15,000 in ticket sales per (in-person) concert generating $30,000 from their recent livestream concert.
Rather than segmenting a fanbase by geography, as is standard for touring, virtual concerts are also an opportunity to segment fans by things like interests, age, school affiliation, etc. For example, a concert in a virtual world appeals to fans who are gamers and a concert around the time of the Super Bowl in which the artist chats about football between songs would appeal to American football fans who follow them. These different experiences are more effective at community building among fans due to the shared interests of attendees than concerts where the primary uniting factor is geography.
It remains to be seen whether concerts within video games will develop as meaningful revenue streams for artists or just act as community building and marketing activities. Thus far, such concerts haven’t been ticketed. In-game concerts at the scale of Fortnite’s Marshmello and Travis Scott temporarily drive increased streaming of the artist’s music, although that doesn’t amount to much money compared to a normal concert since each stream generates a small fraction of a penny in royalties and the majority of royalty money goes to collection societies and labels not the artist.
The big financial opportunity for in-game concerts is with the sale of digital goods (related to the artist in some way) that players can buy. A revenue-share on those goods between the artist and the gaming company could be lucrative. In-game purchases are the leading revenue source in the gaming industry and the number of fans who may buy skins and other goods related to musicians they like may surprise many. Loup Ventures estimated that Marshmello’s concert drove an additional $30 million of in-game purchases in Fortnite; the novelty of the first in-game concert and the fact that Marshmello lends himself so well to video game characters (he wears a marshmallow-shaped helmet rather than revealing his face) may not make that representative of future concerts but it shows how lucrative a revenue-share on such sales could be.
Why haven’t virtual concerts thrived before now?
There have been many attempts to develop livestreams or recordings of concerts as new revenue streams for artists in the past but they haven’t become a widespread activity in the music industry. Typically these have come in the form of livestreams of in-person concerts: The event is produced for the in-person audience and not much more captivating to the fan than just watching videos of past performances for free on YouTube. But concerts specifically for online audiences over YouTube and Stageit and other platforms have occurred for years too. By and large, they have failed to captivate enough fans to pay for tickets.
Steve Gottlieb, founder and CEO of the virtual events platform Shindig and former record label entrepreneur who worked with acts like Nine Inch Nails and Ja Rule, says the immersiveness of a live concert experience can’t be replicated in a meaningful way online. While musicians use Shindig for virtual meet-and-greets with fans, he has specifically avoided the platform being used for concerts.
The first challenge is the opportunity cost of doing a virtual concert. For many of the top-tier musicians that people would pay to see, the potential profits from a ticketed virtual concert aren’t substantial enough in the scheme of their business. This has to be evaluated in the context of the limited number of concerts their body can physically perform in a year; artists lucky enough to have world tours already operate near the peak of what their body can handle and require long periods of not performing in order to recover. Part of that exhaustion is the brutal travel schedule though, which virtual concerts don’t require.
Many of those artists would rather just perform over free livestreams on social media to engage their entire fanbase. They may well be able to secure a brand sponsor for a free virtual show that nets them more money than they would earn if it was ticketed.
Many in the industry fear that performing frequent virtual concerts cannibalizes the ability to sell lots of high-priced tickets to in-person concerts. The thinking is that online shows reduce the scarcity of opportunities to see the artist perform. But if the experience of attending an in-person show can be replicated by a virtual concert, you’ve a problem with your in-person show. These are completely different experiences for a fan. When fans follow an artist on Instagram, the more frequent interaction with videos and posts from them doesn’t cannibalize concert ticket sales; it nurtures deeper, more loyal fandom and makes them more likely to spend money on a ticket.
Due to the lack of serious interest from the industry, virtual concerts have not been very compelling and thus have not convinced many people to pay for them. Virtual concerts haven’t been particularly social or immersive experiences, which any good concert should be. They have been simple livestream videos without many features for fans to interact. Managers and executives in the music industry haven’t aggressively tried to figure out virtual concerts before now because in-person concerts continued to be a lucrative business. Don’t fix what isn’t broken, essentially.
Few artists have created the infrastructure to sell something online effectively. It remains uncommon for artists’ teams or labels to do much to capture fans’ contact information and segment messaging based on their interactions and demographics. Artists rarely make use of CRMs of their fans, and almost never have a unified database on who has attended which concert, bought merch, etc. Having analyzed the websites, newsletters and SMS messaging lists of dozens of the top-selling musicians, I found nearly all communication channels to be dormant, and used only to blast generic promotions to all subscribers when used.
Virtual events haven’t been this popular before. Mainstream consumer interest in participating in and paying for virtual events is new, in Western countries at least. Before the COVID-19 pandemic, Fortnite’s concerts hit a chord in an era where we spend an increasing amount of time socializing within virtual worlds. Then the pandemic normalized video-conferencing as our main means of social interaction every day and pushed people to try virtual events because they were the only events to attend.
What makes a good virtual concert
From a product standpoint, a virtual concert platform must provide the same elements as an in-person concert experience but accomplish them differently. That means facilitating interactions between the artist and the fans and between friends in attendance. It must emotionally immerse attendees in the concert enough for them to mentally escape their reality of sitting in their living room looking at a screen.
The product must have social functionality for attendees to have a shared experience through either video-conference or avatars in a virtual world. Attendees must be able to easily switch their attention between the performance and interaction with friends, like with the ability to alter how much their audio is weighted to the sound from the stage versus the sound from the mics of friends.
Attendees need to feel present at an event not passively watching a video; they need to feel part of the crowd and have a feature set enabling them to express clapping, laughter, shoutouts and different moods (like rocking out versus waving a lighter during a slow, sad song).
From a production standpoint, artists need to interact with their online viewers, not just play in front of a camera, and do so in a way that makes each show unique since it’s so easy for the same fans to attend multiple shows. This means talking between songs, responding to fan comments, thanking fans for tips, etc. It means featuring other artists and learning lessons from how YouTube vloggers and social media stars engage fans on livestreams.
That is admittedly extra work; a tour can repeat a show over and over again in each city with little variance because the audience is (for the most part) different each time. As a case study, singer-songwriter Brandi Carlile performed a show on Veeps last Friday in which she engaged with fans’ comments and featured pre-recorded skits with her family, friends and bandmates in between songs. It is exactly the behind-the-scenes, exclusive content fans hope for when promised a premium experience.
Will the (virtual) party last?
Virtual concerts are here to stay, particularly among mid-tier musicians. That said, there will certainly be a decline in the frequency of virtual concerts post-COVID as normal touring returns and the industry’s sharing of best practices for virtual concerts gradually spreads.
Virtual concerts by top-tier artists who have constant demand for in-person performances that net them six or seven figures each will decline the most as normal performance schedules return and the opportunity cost on their time increases. They will likely leap at big marketing opportunities like a concert within Fortnite or a charity concert livestreamed for free on YouTube but not organize their own ticketed virtual concerts very often.
Virtual concerts are going to become a permanent fixture of the industry and a pillar of life among the middle tier of artists going forward. Virtual concerts help them better monetize their geographically dispersed fan bases and the revenue can be worthwhile enough for them to do a lot of concerts (for hundreds or thousands of fans each) that feel intimate due to personal interactions with the audience and vlog-inspired production.
This article was corrected after publication to reflect the fact that both Veeps and Moment House have fee-based business models.