"Funflation" is in full force, according to Bank of America.
Despite the ongoing Hollywood strikes, which could wipe an estimated $5 billion-plus off the US economy, there were still quite a few positives within the entertainment industry this summer as Taylor Swift, Beyoncé, and the box office success of "Barbenheimer" helped lift domestic growth in the third quarter.
According to a recent estimate from Morgan Stanley, the summer's concerts and blockbuster films are expected to add a combined $8.5 billion to US growth in the current quarter.
"Live entertainment is currently the brightest star in the broader media and entertainment universe," Bank of America analyst Jessica Reif Ehrlich wrote in a note to clients released earlier this week.
Ehrlich laid out five catalysts that will lead to sustained long-term growth in the industry: continued spending shifts towards services and experiences; healthy pricing power amid increased demand; positive supply and demand trends as social media apps like TikTok boost global awareness and fan growth; the relatively "disruption-proof" nature of live events as virtual methods remain incomparable; and the advent of experiential marketing.
"Not surprisingly, we believe talent, especially artists that command huge fan bases, will be able to increasingly extract incremental value out of the ecosystem (largely driven by increasing supply and ticket pricing), while venues, which have several independent revenue streams, accrue the most value," Ehrlich said.
She called out several companies that can capitalize on the growth of live events, including Live Nation (LYV), "as they are actively involved in most if not all aspects of the live event ecosystem."
Live Nation CEO Michael Rapino spoke at Bank of America's Media, Communications, and Entertainment Conference on Wednesday and reiterated that live events are products that can't be duplicated and will continue to grow thanks to social media.
"It's that important badge in [a fan's] life to make sure that they can tell people they were at the Beyoncé show," he explained. "Artists and what they're able to drive with that relationship with that fan [through live] is just a bond that we've never seen before — especially with social media."
In addition to Live Nation, Ehrlich said talent agencies like CAA, UTA, and WME, which is owned by Endeavor (EDR), will also benefit given their access to performers who generate significant touring income, along with venue operators like Madison Square Garden Entertainment (MSGE).
Additionally, music labels like Warner Music Group (WMG) and streaming platforms like Spotify (SPOT) should see a boom from increased streaming engagement and album sales as "touring increases fandom."
Live entertainment 'one of the most robust growth engines'
Stills, certain risks remain with Ehrlich warning, "We see the macro environment / consumers’ willingness to spend during a potential downturn and regulatory as the two biggest overhangs in the near term."
Morgan Stanley agreed, writing in a separate note that a lack of "one-off" events like the Taylor Swift and Beyoncé tours, in addition to the "Barbenheimer" debut, could have the opposite effect on the economy in the back half of the year: "The unwinding of these events, combined with the expiration of the student loan moratorium equal 1.4% downside to real [Personal Consumption Expenditures] in 4Q23."
But the live event economy remains robust — and is just getting started, according to Bank of America's Ehrlich.
"The live entertainment industry has been one of the most robust growth engines of the music industry over the past 20+ years," she said, adding that while initially it took a hit from COVID-19, "consumer demand for live entertainment has come roaring back."
"This backdrop has supported supply and demand tailwinds which all appear to be sustainable over the next several years."