A new twist to the music business in Canada

Musicians1938 (1024x766)

An article in this morning’s Calgary Herald about live music, government policy and the unintended effects of legislation and government policy prompted me to write once again.  The news story can be found here (see http://www.calgaryherald.com/entertainment/fees+international+touring+musicians+threaten+smaller/8842759/story.html).

What is the story about?

Briefly the story is about small local businesses which book live music acts as part of their ongoing businesses.  These are venues which will occasionally (or regularly) book live music acts from outside the Canadian borders, but whose primary business is not music (i.e. bars, clubs, coffee shops, restaurants, galleries, music retailers, etc.).  According to the article each venue must pay a $275 per person application fee for all persons connected to the band and a $150 work permit fee for each person approved for a temporary work permit.  In this story those interviewed expressed concern that this new legislation will affect their businesses.

On the surface the new fees may not seem like a lot.  Let’s create a very simplistic model to use for economic comparisons to see if this is true or not.

The framework.  Fire code for the venue that we will use for comparison purposes indicates it will hold 150 people.  The band that is being booked has four musicians and a sound person, all originating from a different country.  Assume that all applicants were approved. This would mean that the bar (we will use this as an example, because it is easily understood) must pay $2125 in fees before the band even gets on the stage, for their one night gig.  Let’s say the band is just starting to receive critical notice, so travelling to build an audience is a very good idea and it also works for both parties.  Because of that, the band charges an appearance fee of $3000 (or alternatively $600 per person connected to the band).  Although I have no idea what numbers are like in this business, this would seem as if it should be reasonable.  I base this on the fact that the band will need to pay for hotels, equipment, traveling costs, management, taxes, food and drinks on the road, along with the apartment/condo/house that each person maintains at their home base out of this amount and that they will not play every single night so it will need to compensate accordingly.  Based on this model, the total direct costs that the bar owners must pay for the band to perform in their venue is now $5125 each night.

The simplistic business economics of the framework as described above.

As a private business, the bar can do one of two things – they can charge a cover/ticket price, or they can pay the direct costs themselves while not charging a cover.  There are of course advantages and disadvantages to both.

First scenario.  The bar with a stated capacity of 150 the promoter must sell ALL 150 of the tickets or charge a cover fee of $35.00 per person to see this band on a strictly cost recovery basis without allowing for less than a full house.  This would be compared to having to charge $15 with no additional charges or fees, prior to the new fee structure which was introduced by the new legislation.  The bar then can take the full amount of the bar sales in both cases to cover their own operating costs.

Either way, the conclusion in this scenario is that the concert attendees bear 100% of the performance costs, unless it is less successful than planned, which is not factored into this scenario.

Second scenario.  In both cases, the operator charges a cover of let’s say $10 per person expecting some will leave early and others will take their place.  Let’s say they have anticipated based on previous shows and the popularity of the bar, that there will be a lineup to get in, so they can plan for over-capacity numbers.  Here are the numbers that we will work with pre- and post- legislation

  • 200 people attend;
  • each person pays $10 to enter a 150 person venue during the course of the night;
  • while there, each person buys five drinks each at $5.00 per drink.

Using gross numbers (before any operating costs are removed) what this means is the operator receives $2000 as cover charge/ticket price and receives $5000 bar sales for a grand total of $7000 that night.

Pre- new legislation economics in this scenario.  The venue booking this act must still pay the act $3000 which means that the venue’s margin to work with for operating costs (to cover staffing, lease, alcohol and power) that night is $4000.  This means that most likely the ownership group probably will get something out of this – depending on what their operating costs are.  It was probably a reasonable business decision to book this act.

Post- new legislation economics in this scenario.  After paying the act which performed $5125 which leaves $1875 net to pay the operating costs.  To me as a former business owner this seems like an amount could potentially be too narrow to work with to allow a profit given what probable operating costs are.  It might be leaving too little margin for error here.  The ownership group might have think twice in the future, just in case a bad storm happens or a competing act is announced for the same night reaching the same demographics.

Net margin to the operator (before operating costs) in the second scenario is $4000 vs. $1875

Third scenario.  The numbers using the same formula as the second scenario with a slight change

  • 200 people attend;
  • NO cover/ticket sales;
  • while there each person buys five drinks at $5.00 per drink.

Using gross numbers again the operator takes in $5000 in bar sales.  The band requires either $3000 or $5125 just to go on the stage as described above.

Pre-legislation economics in this scenario – the operator might be able to cover the operating costs with the $2000 net after paying out the band.  Based on my limited knowledge of this business, it probably would be a slim margin night, maybe not even enough to cover the costs.

Post-legislation economics in this scenario – before getting on stage the numbers are already negative.  There is no money left to pay for operating costs.  The business will now go bankrupt if this continues in this manner, unless they have extremely deep pockets and a dedicated ownership group that is willing to bankroll it regardless of what it makes.

Net margin to the operator (before operating costs) in this scenario is $2000 vs. definitely negative income.

What does this mean to the Calgary live music scene?

It probably means (based on economics alone) that many of those bands from other countries will rarely come to the smaller venues.  The exception will be if it is a big-name touring stadium act that people don’t mind paying significant amounts to see perform in huge venues and then buy merchandise after the show is over as well.  There is enough margin in these mega-shows that an additional $3000 (or whatever) is not going to mean a huge difference to the bottom line.  It is the smaller shows that will be affected most.

It also means that the smaller venues will find it more difficult to draw acts to fill their venues because the local acts are ones that they have seen more than a few times before.  So unless these local acts have a large following one will see drift in terms of “bums in the seats” (to use a theatre term).  The potential outcome of this might also be that we will see the closure of some smaller venues which were marginal for whatever reason as the economics no longer make sense to stay open for business.

What to do about it?

One of the most effective ways is to express their concern to their local MP as the legislation affecting this issue immigration and temporary foreign workers.  When communicating with your MP, also communicate with the Minister of Employment and Social Development – Jason Kenney whose portfolio this falls under.  When you are at it, one might as well communicate with the opposition critics whose portfolios incorporate this file– John McCallum (Liberal); Lysane Blanchette-Lamothe (NDP) and Maria Mourani (Bloc Quebecois).

Or alternatively one can sign the online petition that was started today as a result of the Herald article.  You can find it here – see https://www.change.org/en-CA/petitions/canadian-government-to-charge-international-touring-artists-425-per-band-member-per-performance-in-canada-previously-a-1-time-150-fee