SPECIAL INVESTIGATION: State of play

Is Dubai's position as the GCC's top events destination under threat?
Analysis, Content production
Analysis, Content production
Analysis, Content production

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Increasing regional competition, anachronistic legislation and a sponsorship market in a state of flux threaten to derail Dubai’s position as the number one live events market in the Middle East. Aaron Greenwood investigates.

Dubai’s reputation as the number one destination for major international concerts and associated events has blossomed in recent years, fuelled by an unprecedented liquidity boom and an overriding sense of optimism that the good times would always last.

Undoubtedly, the global economic recession has proven a wake-up call to these notions, at once exposing many of the cracks that had been plastered over by successive events that were always – at least in theory – bigger and better than their predecessors.

“In a sense, Dubai has become a victim of its own success,” says one well-known industry identity who spoke to Sound&Stage on condition of anonymity.

“The expectation that each new concert or event was going to eclipse those past has created an environment of falsehoods and inflated egos within the industry – not to mention audience numbers.”

“The reality is that even during the boom times, the really large-scale gigs barely broke even, and some didn’t [make any money] at all,” says another.

“The situation has created a rod for the industry’s back in the sense that, internationally at least, Dubai’s reputation as a cashed-up destination for high-profile artists has led them to demand ridiculous fees to perform here, which is obviously unsustainable in the long-term.”

One of the biggest issues to arise from the economic downturn has been the erosion of the corporate sponsorship market, which once sustained many of the major live concerts that helped foster the emirate’s reputation internationally. The once steady stream of sponsorship income helped ease the burden of operating in a convoluted consumer entertainment market arguably unlike any other in the developed world.

“Dubai is a unique market in the sense that in the US or Europe, artists generally tour to promote their latest releases, which leads to increased record sales in one form or another,” notes Dubai Festival City events manager Stuart Every.

“The music retail business is very sophisticated in these territories.

“However, it’s the complete opposite scenario here. The big name artists are looking to generate maximum profits from live performances because they know record sales will be negligible.

“This creates a great strain on the whole events business, but particularly the promoters, in Dubai. It’s virtually impossible to break even without sponsorship with these major events.”

AEG Live Middle East managing director Thomas Ovesen, whose company was responsible for promoting some of the biggest concerts of 2009, including Kylie Minogue at Dubai Festival City and Iron Maiden at the DMC Amphitheatre, concedes a lack of sponsorship dollars is forcing AEG to reassess its plans for the coming winter season.

“There are a number of concerts we’re considering, but the lack of sponsorship income available at the moment is making it difficult to justify some of them commercially,” he says.

“The financial expectations of some of the bigger artists combined with the sponsorship issue means that we now need to pull a bigger gate [attract a bigger audience] than we would have previously.

For example, 12 months ago, we might aim to sell 11,000 tickets to a first-tier gig and cover the additional budget in sponsorship. However, nowadays, we’d have to sell 15,000 tickets to the same gig to justify staging it.

“This scenario obviously makes things much more difficult commercially.”

Anthony Younes, who is the managing partner of Dubai-based promoter, Chillout Productions, says the recession has also forced his company to reassess its plans for the coming winter season.

“The impact of the economic downturn has eased a little in recent months, [but] the overall mood in the market is still sombre,” he says. “I won’t deny that it’s had a negative impact on our plans and the events we had in the pipeline.

“It will take time to revive the old vibe particularly given the general fall in corporate spending… hopefully, we will see positive changes once consumer confidence improves.”

Adding further stress to an already strained events business is the prevailing 10% ticket tax levied against all live entertainment events staged outside Dubai’s free trade zones [freezones] by government body Dubai Tourism, Commerce & Marketing (DTCM).

The ticket tax has proven a thorn in the collective side of the emirate’s events promotion sector for several years and many claim its impact is being exacerbated by the current economic downturn.

While certain promoters continue to lobby to have the ticket tax removed, the DTCM has remained steadfast in its support and implementation of the levy.

(Despite Sound&Stage making numerous interview requests, the DTCM remained unavailable for comment at the time of press).

The fact the tax is waivered for sporting events staged in the emirate is a discrepancy which raises the ire of many in the live events business.

“The conundrum is that there is already an appreciation of the disadvantages ticket tax has on large-scale events, as demonstrated by the fact sporting events are exempt from the levy,” says Ovesen.

“The freezones, such as DMC, also waiver the tax for events that are staged within their boundaries.

“Dubai has changed dramatically in the years since the tax was introduced.

“Back in the day, you might have staged an event for 500 to 600 people in a hotel ballroom. Your revenues would mainly be drawn from food & beverage (F&B) sales – you might charge Dh100 for a ticket but you’d generate three times that amount in F&B spend.

“So paying Dh10 per ticket in tax in this environment was a non-issue.

“But now you are faced with the extreme opposite scenario, whereby you might draw 20,000 punters to a headline concert that costs $700,000 to produce – a figure which represents a direct investment in the Dubai economy.

“In this environment, the ticket tax is not only going to be much bigger than your profit ratio, because of the split deals which international artists now expect, it directly impacts the revenue stream for the artist, making Dubai a less appealing destination for these type of events.

“It leaves the artist to decide whether they should in fact increase the cost of their tickets or stage the concert in another location – Abu Dhabi for example, which doesn’t levy a ticket tax – where they can make more money and charge punters less for the privilege of coming to the show.”

Chillout’s Younes believes the ticket tax “plays a suppressing role overall” in the live events business.

“It will never be a positive contributor to any event given that the tax percentage collected is actually remarkably high,” he says.

“It remains a great concern for all event organisers, especially in the midst of this global financial crisis.”

Sipho Dlamini, chief operating officer of Dubai-based promoter Centre Stage Management (CSM), which is best known for producing the Dubai Desert Rock and Desert Rhythm festivals, says the lack of a digital ticketing system compounds the issues facing promoters.

“It would be hugely beneficial to have an online ticketing service introduced so we would only pay tax on the number of tickets sold rather than the number issued,” he says.

“The crux of the matter is it’s becoming increasingly difficult to commercially justify producing events in Dubai and the costs aren’t coming down.”

At present, promoters must have all tickets printed physically stamped by the DTCM prior to their distribution to the various retail outlets in Dubai, meaning the promoter pays 10% tax on every ticket regardless of whether the ticket is actually sold.

One industry source who spoke to Sound&Stage on condition of anonymity claims a number of digital ticketing systems, which would enable the various governmental departments to monitor ticket sales in real-time and levy the tax accordingly, had been presented, but none had been officially endorsed by authorities to date.

Ultimately, the relatively disorganised nature of the live events business in Dubai means controversial issues such as ticket taxes generate a lot of talk but little action for a variety of obvious, and some not so obvious, reasons.

Unlike major markets such as the UK and US, neither Dubai nor the regional events business as a whole benefits from an organised members body to represent it in dealings with government organisations such as the DTCM.

However, the consensus among those interviewed for this article suggests an organised body could prove a challenging concept not just for the industry, but for the authorities it would potentially deal with externally.

“We could form an industry body to present these issues and represent our interests, but ultimately, would it have a negative impact on our collective position with authorities in the long-term?” asks Dlamini.

“I think the industry might benefit [from the creation of a collective], but there’s always a fine line.

“In saying that, a formal, respectful approach involving key industry stakeholders to the DTCM would be a positive move, in my opinion.

“That doesn’t mean anything might come out of it, but it does mean the authorities might pay more attention to the issues facing our industry as a whole and the commercial benefits we can bring to the local economy.”

Ovesen agrees. “Large-scale entertainment events staged in Dubai have a massive flow-on effect for the emirate’s economy,” he claims.

“If a major concert or event is staged at Dubai Festival City, for example, it generates increased footfall before and after the event in the shopping centre, it leads to increased business for the surrounding hotels and hospitality venues, it provides a boost to taxi drivers, it could even help Emirates with fans flying in from other countries.

“That’s the kind of boost Dubai needs right now and that’s why the ticket tax should be reviewed,” he concludes.

Standing room only

The lack of viable large-scale indoor venues in Dubai is one of the major factors that will restrict the long-term development of the emirate’s live events industry, claim many of the stakeholders interviewed for this article.

With the exception of the recently opened Dubai Palladium, which has a maximum capacity of 3000-5500, depending on seating configurations, there is a dearth of other venues with similar capacity and none capable of accommodating an audience in excess of 10,000.

However, some including AEG Live’s Ovesen, believe shifting dynamics in the Dubai property development sector means it will only be a matter of time before an investor realises the commercial potential of constructing a major indoor venue.

“It won’t be long before there is an arena built in this market that can seat 10,000 people,” he predicts.

“There were a couple of complexes in [Dubailand’s] Bawadi [precinct] that included arenas in their master plans; Dubai Studio City and Dubai Festival City have also talked about building arenas. If you had the money to build, now is the time because construction costs have dropped massively here in Dubai compared to 12 months ago. It makes sense and Dubai deserves a tier-one venue of this size.”

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