Music industry decides that all the world's a stage

André Rieu is a former violin prodigy who makes a living by giving waltz music recitals in front of a full-size replica Viennese castle complete with two ice rinks, water fountains and a ballroom dance floor. Last month, the relatively-unknown Dutchman was second only to Madonna in the rankings of the world's most bankable live performers.

Mr Rieu, who plays a 1667 Stradivarius, and his peripatetic orchestra sold tickets worth £19.6m for four performances in Australia of their brand of "soft classical" music, compared to the £27.5m made by the grande dame of pop from three dates of the Latin American leg of her all-conquering Sticky And Sweet tour.

It is a measure of the shifting economics of the modern music industry that the elaborately-coiffed Mr Rieu, whose record sales are a fraction of those of Madge, can give the Kabbalah-loving superstar a run for her money when it comes to generating income from strutting his stuff in front of a paying audience.

Figures released yesterday show that the violinist is part of a dramatic sea change in the way that popular musicians are making their money. Amid renewed evidence of rapidly-declining revenues from sales of recorded music, the live tour has suddenly become the cash cow for leading performers that was once represented by a top-selling album.

Madonna, whose stage show includes a vintage racing car and a Ukrainian gypsy band, topped the list of the highest-earning tour of 2008 with Sticky And Sweet revenues of £193m worldwide. She was followed by Celine Dion on her first live tour for eight years (£162m), Bon Jovi (£121m) and Bruce Springsteen (£114m), according to music trade publication Pollstar. The Police, who admitted their 2008 reunion amounted to a perambulating pension plan, ranked fifth with takings of £83m.

The massive revenues were part of a music touring industry that grew 13 per cent to £2.75bn worldwide last year, according to the American industry magazine Billboard Boxscore. The growth was in stark contrast to CD and digital music sales, which are showing falls of up to 10 per cent in Britain and America over the last year.

Data due to be released later this month is expected to reveal that UK music sales have fallen by up to a third in the last five years to £1.33bn due to the corrosive effects of piracy, fans buying single tracks rather than albums via digital download sites such as iTunes, and heavy discounting of top-selling titles by supermarkets and online retailers.

The result is that performers, whose share of the profits from album sales can be as little as 10 per cent, are increasingly looking to other methods of generating income.

Where once live tours were an arduous publicity exercise undertaken over many months of hotel rooms and sweaty venues to drive record sales, now the tables have turned. U2, who are due to tour this year following the release of a new album, had sales of about £103m from their previous effort, How To Dismantle An Atomic Bomb. The accompanying tour, which ended in 2006 made £268m.

Once spin-offs, from car parking to merchandising of garments (one heavy metal band accessorised their tour with £200 biker helmets) are factored in, it is clear that the "value" in music lies in persuading fans to part with large sums to see someone sing it live.

As one senior record company executive put it: "The real money now lies in the live stuff. If you have a big property like a Madonna or a Kylie or a Police, you want to put them on the road. Unfortunately, the problem from our point of view is that its the promoters and the performers who make most of the money from a set-piece worldwide tour. Not us."

The transformation is driven by that fact that while the price of a CD has remained more or less level in real terms, concert ticket prices have gone through the roof. One study by Princeton University found that prices rose by 82 per cent on average between 1996 and 2004 – nearly five times the rate of inflation.

Even in the middle of the credit crunch, it seems that fans' thirst for seeing their musical heroes cannot be quenched.

In America, the average ticket price rose by 8 per cent to $66.90 (£46) while the most expensive tickets for Madonna's shows retail at £240. Gary Bongiovanni, the editor of Pollstar, admitted: "We've had a better year than we really should have expected, given the economic environment."

It is also an economic reality that is not lost on the artists themselves. David Bowie told The New York Times recently: "Music itself is going to be like running water or electricity. You'd better be prepared for doing a lot of touring because that's really the only unique situation that's going to be left."

Unsurprisingly, it is estimated that the leading acts now make about 70 per cent of their income from touring. Artists can expect to receive between 70 and 90 per cent of the revenue from ticket sales with promoters left to make their income from associated sales of items from T-shirts to food.

This windfall for artists is in no small measure due to the arrival on the concert scene of Live Nation, a company which did not exist four years ago and now acts as the concert promoter and/or recording company for U2, Madonna, the rapper Jay-Z, and singer Shakira.

Billing itself as "the future of the music business", Live Nation is the lead proponent of "360 deals" – the term applied to its tactic of offering performers an all-in-one service by taking charge of making records, marketing them, setting up tours and controlling all other aspects of generating cash in their name from merchandising to official websites. Last year, the company paid £120m up front to lure Madonna away from Warner Music for 25 years and reportedly paid Shakira about £70m to part company with Sony BMG.

Music industry experts say this tactic of seeking profit from the "added extras" of live concerts and merchandise rather than the improbably outmoded notion of selling recorded songs is achieving dominance to the extent that a band with relatively little chart prominence can out-earn a household name such as Duffy.

But in an industry that remains shell-shocked by the internet revolution, the potential for further upheaval is considerable. Live Nation had income of £2.9bn in 2007 from staging 28,000 concerts across 18 countries but made a loss of £8m for the year, largely due to the huge cost of paying its top name performers. The company's shares tumbled by 50 per cent after the Madonna deal was announced.

The result is that both promoters and record companies are holding their breath. They are waiting to see whether the enthusiasm of concert-goers to pay ever more to see the likes of Mr Rieu play the Viennese waltz, or indeed the forthcoming tours by Britney Spears and U2, remains undimmed in 2009.

Top 10 tours of 2008

1. Madonna – £193m

2. Celine Dion – £162m

3. Bon Jovi – £121m

4. Bruce Springsteen and the E Street Band – £114m

5. The Police – £83m

6. Neil Diamond – £65m

7. Eagles – £61m

8. Andre Rieu – £53m

9. Kenny Chesney – £49.7m

10. Coldplay – £49.5m

Source: Pollstar

On the road The economics

While touring is the most lucrative source of income for musical acts these days, it doesn't come cheap, explains James Sandom, the manager of the Kaiser Chiefs.

In late February the band will return from mainland Europe and embark on a 10-date UK tour, finishing at London's Wembley Arena in early March. With tickets costing £28.50 and each venue holding thousands of people, Mr Sandom expects revenue to reach £1m. But 40 per cent of that, £400,000, will be spent by the band in the same period.

"In music there is a strong ethos that you have to speculate to accumulate," Mr Sandom said. "Should we want to make more money we could spend less, but ultimately we want to make the shows an experience that people come and enjoy and want to come again; that is what it boils down to."

Of the £400,000, he says £100,000 is spent on costs such as hotels, transport and catering. The other £300,000 goes on the production of the shows.

"The tour promoter will pay for the hire of the venue and in return they get a percentage of the ticket sales," he said. "In that sense the promoter is taking a risk, because if no one shows up the promotion company will lose out."

Venue aside, bands pay for every other aspect of the show; lighting, public address system and everything you see on stage. Added to those costs are the crew's wages. At full capacity that means 24 people on the road for the Kaiser Chiefs.