The concert business rocks!

NEW YORK (CNNMoney.com) -- When legendary rock band The Police reunite to kick off the Grammy Awards telecast on February 11, their performance will highlight the best and worst things that the music industry has going for it.

On the one hand, the Police are unlikely to be selling lots of new albums anytime soon. The band broke up in 1985 after finishing the tour to support its popular "Synchronicity" album. And there hasn't been much talk about Sting, Stewart Copeland and Andy Summers recording any new material.

The Police are reuniting to perform at the Grammy Awards, igniting speculation that the group will launch a world tour this year.

A new record by The Police could be a welcome shot in the arm for an industry that, despite the strong growth of digital music sales, is still experiencing a decline in overall music sales. According to the Recording Industry Association of America, music shipments, including digital music, declined 6.1 percent during the first half of 2006.

On the other hand, there are rumors that The Police's appearance on the Grammys is a prelude to a world tour. And that could be a further boost to the one part of the music business that is actually doing quite well, the concert industry.

Concert-ticket revenue from tours in North America hit a record $3.1 billion in 2006, up 16 percent from a year ago, according to figures from Pollstar, a trade publication that tracks the live-events business. Sales from the top 100 tours reached $2.3 billion, an increase of 13 percent from last year.

To be sure, much of the increase can be attributed to rising ticket prices: The cost of a ticket to one of the top tours averaged $61.45 last year, 8 percent higher than the $56.88 average in 2005. But attendance is also climbing, with the number of tickets sold increasing 4 percent last year to 37.9 million.

So while Apple's (Charts) iTunes, which makes it easier to buy songs one at a time instead of full albums, and MySpace, which lets musicians post songs that fans can stream for free, may be eating into record sales, it appears that there is no substitute for physically being in a club, arena or stadium - feeling the rumble of the bass guitar under your feet and singing along with thousands of other people.

Watching a grainy clip of your favorite band on YouTube or seeing a concert in Second Life isn't going to supplant the live concert experience. And this year could be another banner year, especially if The Police do wind up going on tour.

"There is no reason not to expect 2007 to be bigger than last year. We have had record revenues nearly every year thanks in part to rising ticket prices. Having superstar acts like The Police certainly helps," said Gary Bongiovanni, publisher and editor of Pollstar, in an e-mail from the Concert Industry Consortium, held this week in Los Angeles.

But who really stands to gain the most from strength in the concert business?

Bob Kohn, chairman and CEO of RoyaltyShare, a Web-based royalty processing firm for the music industry, said that the artists themselves, along with concert promoter Live Nation (Charts) and Ticketmaster, the ticket-selling agency owned by Barry Diller's Web conglomerate IAC (Charts), could be big winners.

To that end, analysts expect Live Nation, which was spun off from radio station owner Clear Channel Communications (Charts) last year, to report revenues of $3.8 billion this year, up 11 percent from a year ago.

And IAC, which reported fourth-quarter results this week, said in its earnings release that revenue from Ticketmaster increased 10 percent in the quarter while operating profits at the unit rose 14 percent. Ticketmaster accounts for 15 percent of IAC's total sales.

Online auction giant eBay (Charts) has also recognized how strong the live entertainment business is. The company agreed to buy privately held StubHub, a site that resells tickets for concerts and sporting events, in January for $310 million.

"StubHub has been extremely successful in the online tickets segment, and it's a perfect complement to eBay's tickets business," said Bill Cobb, president of eBay North America Marketplaces, in a statement when the deal was announced. Still, Kohn thinks that the big record labels - Universal; Sony BMG, which is a joint venture of Sony (Charts) and German media firm Bertelsmann; Warner Music Group (Charts) and EMI - could also benefit from the boom in concerts.

"To the extent that classic tours generate interest in a band with younger people, it could stimulate a lot of interest in the back catalog for these artists," said Kohn, who was also a co-founder of eMusic, an online music subscription service that was bought by Universal in 2001 and then sold to private-equity firm Dimensional Associates in 2003.

There's the rub though. The biggest-grossing tours of the past few years have tended to be from older musicians that are popular with Baby Boomers. The Rolling Stones had the top tour in both 2005 and 2006, according to Pollstar. Other top tours from last year were by Barbra Streisand, Barry Manilow and The Who.

"There has been a lack of new artists that can fill the arenas. Popular bands from the '60s, '70s and '80s are having successful tours," Kohn said.

So far, that doesn't appear to be a big problem. Baby Boomers seem to be more than happy to shell out big bucks for the most popular tours (the average price for a Rolling Stones ticket, for example, was $136.63 while tickets for Streisand cost an average of nearly $300).

But eventually, more current musicians are going to need to do a better job of luring a younger audience if the concert industry hopes to remain a growth business.

"There is concern about what will happen when all the Boomer bands that are selling the premium price tickets stop touring. We're not there yet but it is an industry concern," said Pollstar's Bongiovanni.

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