The Dave Matthews Band shows how to make money in the music industry.

Commentary about business and finance.
Jan. 3 2011 4:50 PM

Concerted Effort

The Dave Matthews Band shows how to make money in the music industry.

Dave Matthews. Click image to expand.
Dave Matthews

As usual, the list of North America's top-grossing music tours of 2010 was heavy on AARP-eligible best-selling rockers: Bon Jovi, Roger Waters of Pink Floyd, the Eagles, and Paul McCartney all figured in the top 10. But tucked among them, taking in $72.9 million, was the Dave Matthews Band, the '90s-era jam-loving college-town rockers known affectionately as DMB (and less affectionately as "the Dave Matthews Bland").

The band is nothing to sneeze at, of course. It has won a Grammy. Six of its seven studio albums have hit No. 1 on the Billboard charts. Still, compared with the other big touring acts of 2010, DMB is a featherweight—"Stay" is no "Livin' on a Prayer." Bon Jovi (who, to be fair, will not be eligible for AARP membership until 2012), Roger Waters, and Paul McCartney have helped sell 130 million, 200 million, and north of 1.3 billion records, respectively. In the course of its two-decade-long career, DMB has moved a more modest 30 million.

But in an industry busy having its foundations rocked, in a matter of speaking, it hardly matters. Analysts and executives have long lamented that the music industry is dying. That is not quite true—it is the record business that is clearly done for, and in its place, touring stands as the top moneymaker for many industry participants. DMB lives to tour, making them not just popular, but very, very profitable.

When I say DMB lives to tour, I do not jest: Every summer for the past two decades, the band has hit the road. In 2010, that meant playing 62 shows in 50 cities to 1,270,477 fans—more than any other artist touring in North America. The group also took trips to Europe and South America, and there was a Dave Matthews and guitarist Tim Reynolds mini-tour. And the year was hardly unusual. Since 1992, Dave Matthews Band in its various iterations has played a whopping 1,692 shows.

So the precipitous decline in record sales in the past decade has hardly hurt DMB's profitability: The band makes the bulk of its money touring anyway. And it makes a lot of money doing it. According to Billboard Boxscore, between 2000 and 2009, DMB sold more tickets to its shows than any other band on the planet, moving a staggering 11,230,696 tickets. (No other band sold more than 10 million tickets in the same time period.) In the aughts, DMB grossed more than $500 million from touring alone.

On top of that, of course, there are profits from merchandise, records, and other revenue streams. As long ago as 1998, DMB reportedly pulled in $200,000 a day in merchandise sales on tour. Plus, DMB has a reported 80,000 fans paying $35 a year for fan-club membership. And it benefits from a large catalog of cheap-to-produce live-show discs and DVDs. "Without any marketing or promotion, Live at Red Rocks debuted at No. 3 on the Billboard 200 chart and was instantly certified platinum," the band itself boasts of a 1998 album. "[It] provided fans with a high quality and reasonably priced alternative to the over-priced, ill produced, and illegal live DMB CDs."

Part of DMB's success undoubtedly comes from managing its tour so well—because gross ticket sales do not always translate into profitability. Lady Gaga, for instance, was also in the Top 10 for ­2010, grossing $51 million in North America, charging legions of fans about $100 a pop. But the shows proved enormously expensive to put on, what with the army of scantily clad backup dancers and dozens of fancy costumes—including a bra that shoots sparks, a feathered bird get-up, and an enormous wearable gyroscope nicknamed "the Orbit." Add in the fountain of fake blood and the price of flying such nonsense around the world, and extravagance cut into the bottom line. The tour actually lost money at first.

In contrast, DMB's tour seems downright humble. There is food. There is merchandise. There are video portions. But mostly, there are just the jams and the fans—and that's how DMB obsessives like it. Indeed, the band cultivates enthusiasts particularly well, a main secret of its success. It keeps ticket prices low in comparison with other big shows, an average of $58.79 compared with, say, $91.56 for arena-rockers Aerosmith. It offers a high proportion of plum tickets to fan-club members and offers them tons of freebies and special deals online. It also plays a stable roster of songs, but jams or improvises at each gig—meaning DMB fans tend to hit up the tour every year, often more than once. Thus, while even the biggest-selling artists front the occasional flopped tour, DMB never does.

If that sounds familiar—not the music, the strategy—it's because DMB is pulling an old trick, one pioneered by the Grateful Dead, a band beloved of business school professors and folk-lovers alike. As described in the delightful Marketing Lessons From the Grateful Dead,the famed jam band produced only a few well-known albums and songs. But they toured constantly—playing about 200 shows a year from 1965 to 1995. And they courted their fans, treating the concert like a service rather than a commodity, and their fans like members of a community rather purchasers of a product. Lo and behold, the Dead became one of the most successful bands of all time.

In many ways, DMB is their inheritor: a serious touring band that has caringly cultivated a devoted fan base and ended up becoming an industry anchor. Some analysts now believe touring will eventually anchor the whole music industry. In the past 10 years, as record sales have collapsed, the touring business has tripled in size to nearly $5 billion a year in total revenue. (That's mostly due to higher ticket prices, rather than more people attending more concerts.) The year 2010 proved somewhat lackluster: According to Pollstar, the top 50 tours netted $2.9 billion worldwide in ticket sales, down 12 percent from 2009. But the industry expects a stronger 2011, with consumer sentiment improving in the United States and huge acts, like U2, saddling back up.

For the first time in decades, though, DMB won't be there. "[We] wanted to let everyone know that after twenty years of consecutive touring, Dave Matthews Band will be taking 2011 off," the band wrote fans last year. "We feel lucky that our tours are a part of so many people's lives, and wanted to give everyone as much notice as possible." But, it noted, we "look forward to returning to the road in 2012."

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