(Photo: Doug Kuntz)
Below is an article from an in-depth package in the new issue of Billboard examining Hurricane Sandy's enormous economic impact on the music business. You can buy this issue -- which also features a cover story on Alicia Keys, lyric videos as a revenue stream, Taylor Swift's big sales for her "Red" LP and more -- right here or a yearly Billboard subscription here.
Hurricane Sandy slammed the Eastern Seaboard of the United States, affecting the entire music industry--just like every other business in the region--as it tore through one of the most important music centers in the world, spreading its tentacles all the way out to other music hot spots in Los Angeles, Nashville, London and beyond.
The after-effect of the hurricane has been felt by every part of the music business, like small indie labels, distributors and retailers in the downtown New York area that still didn't have power four days after the storm hit. But it also extended out to artists and executives from other parts of the country unable to leave or visit New York or New Jersey.
For the live sector alone the loss is significant-likely tens of millions of dollars-in terms of property damage to venues like the flooded Nikon at Jones Beach Theatre in Wantagh, N.Y.; marketing and promotions costs that cannot be recouped; lost or delayed profits (and agency/management commissions) from canceled or postponed dates; and the considerable manpower involved in rerouting, rebooking or flat-out losing shows.
Still, the live industry is in some ways counting its blessings that Sandy came as the bulk of touring activity slows toward the least active period in the year.
Live Nation Entertainment lost "less than a handful" of shows, according to CEO Michael Rapino, who added that most of those would be rescheduled. "Thankfully, it was a Monday, Tuesday in the fall, the slowest time of the year for live shows," Rapino wrote in an email.
Still, many dates were lost, and more than a few won't be rescheduled. For Live Nation, that includes Journey at the Barclays Center in Brooklyn and Pretty Lights at Bryce Jordan Center at Penn State University on Oct. 30.
AEG Live, the second-largest promoter in the world, has an active schedule in the area most affected by the storm. "[Sandy] will have an impact on our budgets and earnings, if even in the short term, since we average a couple of hundred shows a week in those markets that have had to hunker down while the storm passes through," AEG CEO Randy Phillips says.
AEG Live's busy New York office, run by senior VP Debra Rathwell, closed on Oct. 29 and remained so as Billboard went to press. "The city is trying to fight its way back and get some events under way," Rathwell wrote in an email.
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AEG's Starland Ballroom in Sayreville, N.J., was damaged, and three shows at the Best Buy Theater in Manhattan were postponed (at press time, the Best Buy venue was set to reopen). AEG Live Northeast VP Mark Shulman says that AEG and others presenting entertainment in Manhattan were in contact with the New York Police Department regarding when it would be safe for employees and fans to ramp back up-and at press time, that moment hadn't yet arrived.
One single cancellation is a nightmare for booking agents, who spend hours routing tours strategically and efficiently and coordinating marketing with promoters and venues. Now they're faced with myriad routing issues as they effectively do the same work twice, in many cases.
And remember that image of the crane suspended 87 stories above Manhattan? "It's hovering over our building on West 57th, so we can't even open," Agency Group managing director Neil Warnock says. "We're running our administration for New York out of Los Angeles and London. We're just making sure we have solutions and not problems, making sure we're on top of accounting, finalizations of everybody's accounts as they're playing shows, getting contracts out and going forward."
When ticket prices, talent costs and marketing expenses are taken into consideration, $10 million-$20 million isn't a hard number to reach in terms of assessing damages, and the financial hit is probably much bigger. So who gets hurt? "Everyone's going to take a hit, but it's part of the business," says Paul Bassman, president of Dallas-based entertainment insurance firm Doodson Insurance Brokerage. "That's why we're here."
Perhaps the biggest impact comes in the transportation area, as travel in the region became a nightmare, affecting acts that weren't scheduled to play in the stormstruck areas or perhaps not even on tour. Acts that might have intended to fly are turning to the touring industry staple: the tour bus.
"We have heard from several of our clients who are not currently on tours, and were scheduled to fly into the Northeast within the next 48 hours," says Trent Hemphill, president/CEO of Hemphill Bros. Coach in Nashville. "With so many flights canceling, they have requested transportation from us for personal travel. We have also heard from a Broadway tour that was scheduled to fly, but have now reached out to us and scheduled a bus as an alternative."
Besides property damages, which are typically covered by property insurance, promoters and venues are looking at the prospect of millions of dollars in lost marketing and promotion expenses in some of the most expensive media markets in the country. For them, and artists, profits could also slip away, or at least be deferred until a later date. Most venues don't carry insurance for loss of revenue due to a weather cancellation, Bassman says, though policies differ widely. "Some venues may carry 'loss of utilities' coverage. However, there are so many different kinds of insurance coverage. It just depends on what they carry," he says.
Force majeure, or "act of God," clauses in contracts cover stakeholders on both sides of the talent buyer-entertainer equation. "Depending on how it's worded, something like this would typically invoke the force majeure clause, and the [promoter] would not have to pay the guarantee to the artist," Bassman says. "But [the promoter] would still be out all kinds of money for marketing and promotion, not to mention lose out on the profit potential for that show."
A touring artist may carry tour cancellation insurance, so if the show were canceled due to a weather situation, the losses would most likely be covered, Bassman says, depending on how the act is insured. "If the show cancels in a force majeure situation such as [Sandy], the artist won't keep the deposit, they would have to give that back to the promoter," Bassman says. "But the insurance policy would pay the artist in full. If the promoter has insurance, they're covered. However, most promoters in the U.S. don't carry that kind of blanket coverage for all of their shows. Many U.S. promoters are willing to take a chance: 'If we lose a show or two, it's not a big deal. It happens.'"
Phillips says tours carry cancellation insurance based on weighing the cost of maintaining that type of insurance versus "'self-insuring' by rescheduling or postponing performances to mitigate the financial impact of the initial cancellation," he says. "Generally, we all carry some type of 'catastrophic event' insurance, since it is more cost-effective and more difficult to invoke."
AEG Live doesn't carry "a broad omnibus policy that covers every show we promote in every venue," Phillips says. "My business affairs department has been working on exactly what the potential insurance claim would be over the weekend on a show-by-show basis. The nature of our business makes it difficult to maintain a one-size-fits-all insurance policy."
Still, big companies like Live Nation (which carries a global policy for all shows and more for specific tours and events, according to the company), AEG Live and Bowery Presents, the three most active in the New York/New Jersey area, are "well-insulated" from devastating weather events, Bassman says. "It's the one-time promoter that's going to get crushed."
Bassman is scheduled to be a speaker at the Billboard Touring Conference Nov. 7-8 in New York, which is teed up for a record run. Though "conference insurance is relatively inexpensive," Bassman says, the confab isn't expected to be affected by Sandy. While the news reports look bad, the region and the industry is sturdy, and Bassman isn't ready to predict a Katrina-level event. In fact, the benefit concerts and events that are sure to follow in some ways provide a boon to the live business starting with NBC's concert featuring Jersey natives Bruce Springsteen and Jon Bon Jovi and Long Island's Billy Joel.
Did you or anyone you know suffer losses in Hurricane Sandy? Tell your story in the comments below; here are ways you can help or get help.