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WIKI ANALYSIS
Live Nation Entertainment, Inc. (NYSE: LYV) is the world's largest live concert producer, by market capitalization.[1][2] As a producer, Live Nation acts mainly as a live music promoter and venue operator, not an owner of music.
Live Nation produced nearly 22,000 concerts for 2,000 artists in 42 countries during 2009. In 2009, over 52 million fans attended Live Nation concerts and the Company drove over 70 million unique visitors to its website.[3] Globally, Live Nation owns, operates, has booking rights for and/or has an equity interest in 142 venues, including House of Blues music venues and prestigious locations such as The Fillmore in San Francisco, the Hollywood Palladium, the Heineken Music Hall in Amsterdam and the O2 Dublin.[3]
On February 10, 2009, Live Nation entered into a merger agreement with Ticketmaster. The merger closed on January 25, 2010 and Ticketmaster became Live Nation's wholly owned subsidiary.
Company Overview
Live Nation primarily generates income as a concert promoter through ticket sales, and as a venue operator through the sale of food and beverages, parking, premium seating, venue sponsorships, and ticket rebates earned on tickets sold by third party ticketing agreements.[1] In addition, Live Nation owns every type of venue categorized under the live entertainment industry, except stadiums and festival sites.
Business and Financial Metrics
First Quarter 2010 Results[4]
Live Nation reported revenues of $723 million, down 6.8% from revenue of $775.6 million in the first quarter of 2009. The company reported a loss of $0.70 per share, missing EPS estimates by $0.46 and missing revenues estimates by $149 million. Live Nation reported adjusted operating income of $1.4 million, down 84.8% from the year-ago quarter, and unadjusted operating income of -$84.9 million, down 36.8% from -$62 million in the first quarter of 2009.
With the completion of the Ticketmaster merger, Live Nation is focused on streamlining its combined merchandise businesses to drive profitability.
Business Segments
Live Nation changes its reportable segments often, making it difficult to track how segments' revenues truly improve from year to year.
North American Music (61.4% of 2009 revenue)
The North American Music segment involves the promotion of live music events in Live Nation-owned venues and in rented third-party venues and the operation and management of music venues primarily in the United States and Canada, as well as providing various services to artists. Live Nation promoted approximately 9,500 North American live music events in 2009, including artists such as U2, Jonas Brothers and Nickelback. While Live Nation's North American Music segment operates year-round, it experiences higher revenue during the second and third quarters due to the seasonal nature of shows at our outdoor amphitheaters, which primarily occur May through September.
Live Nation typically books performers, arranges performances and tours, secures venues, provides for third-party production services, sells tickets and advertises events to attract audiences. Live Nation earns revenue primarily from the sale of tickets and pays performers under one of several formulas, including a fixed guaranteed amount or a percentage of ticket sales or event profits.
As a venue operator, Live Nation contracts with promoters to rent venues for events and to provide operational services such as concessions, merchandising, parking, security, ushering and ticket-taking. Live Nation generates revenue primarily from the sale of food and beverages, parking, premium seating, rental income, venue sponsorships and ticket rebates or service charges earned on tickets sold through phone, outlet and internet by third parties under Live Nation's ticketing agreements or through internal ticketing operations.
International Music (36.7% of 2009 revenues)
Live Nation's International Music segment involves the promotion of live music events in Live Nation-owned venues and in rented third-party venues, the production of music festivals and the operation and management of music venues outside of North America. Live Nation promoted nearly 4,400 live music events internationally in 2009, including artists such as U2, Madonna, AC/DC, Coldplay and Depeche Mode, as well as several large festivals in Europe, such as Rock Werchter in Belgium, Lowlands in the Netherlands, and Reading and Leeds, both in the United Kingdom. While Live Nation's International Music segment operates year-round, it experiences higher revenue during the second and third quarters due to the seasonal nature of international festivals, which primarily occur June through August.
Ticketing (1.8% of 2009 revenues)
Live Nation's Ticketing segment involves the management of ticketing operations and online and wireless distribution activities, including the continued enhancement of Live Nation's website, in addition to management of its information technology operations in North America. Through all of its ticketing services, Live Nation sold 12.6 million tickets in 2009 in North America, excluding 2.5 million tickets sold at venue box offices.
This segment derives the majority of its revenue from service charges earned on tickets sold through internal ticketing operations and from sponsorships. During 2009, the tickets sold by this segment primarily represented those tickets at owned venues in North America. Ticketing pays Live Nation's North American Music segment a ticket rebate equivalent to the amount that they would have received had the ticket been sold by an outside ticketing agency. The remainder of the service charge is retained by Ticketing.
Key Trends and Forces
Live Nation's Debt-financed Acquisition Strategy is Threatened by the Economic Slowdown
In 2008, Live Nation had over $850 million of debt, nearly six times its EBITDA.[5] The company also had an EBITDA/interest expense ratio of 2.4, mostly perpetuated by its thin operating margins.[5] The total indebtedness for borrowed money in fiscal 2008, including redeemable preferred stock, aggregated to about $925.7 million, with $42.3 million in outstanding letters of credit.[6]
With such large amounts of debt, most of which were perpetuated by Live Nation's aggressive affinity toward acquisitions in previous years, the strain of the recent economic downturn places Live Nation at a competitive disadvantage compared to competitors with less debt, forcing Live Nation to sell several owned venues, some at a loss, to pay off debt. Live Nation reported a net loss on sale of operating assets of $1.1 million in 2008.
Live Nation's substantial indebtedness places the company in an especially vulnerable position as Live Nation's ability to obtain financing for future working capital and achieve flexibility in reacting to changes in the industry become more difficult due to the financial burden Live Nation has undertaken in 2008. Because Live Nation's balance sheet has become too unhealthy to accommodate additional debt-financed investments, the proposed merger with Ticketmaster can help Live Nation service its massive debt load through Ticketmaster's ability to generate free cash flow.[5] The estimated value of the proposed combined business, Live Nation Entertainment, is $2.5 billion and will save the combined entity about $40 million annually.[7] [8]
Live Nation's Main Audience is the "Notoriously Fickle" Youth Demographic, a Market Hard to Target Consistently
Although youth markets tend to be less price elastic than those geared towards older age groups, the youth is a difficult market to target consistently due to their "notoriously fickle" and "eclectic taste in media."[9] The success of Live Nation's concerts highly depends on its ability to anticipate the tastes of these consumers four months ahead of time, which is the average time between booking the performer and the performer's first event.[10] For example, an artist that has experienced severe decline in popularity within the four month block due to public dissension will not only influence other performers' reputation within the concert, but also decrease overall attendance.
As Concert Attendance Drops, Live Nation Strategy Shifts to Increase Revenue per Fan
The average attendees per event in 2008 was 2127 attendees/event, compared to 2329 attendees/event in 2007, a 202 attendees/event drop. Furthermore, concert attendance in North America dropped 22% in the first quarter of 2009. Because concert attending is considered a luxury good, the economic downturn of 2008 has made it less affordable to attend live music events. Live Nation's launch of its new ticketing platform in December 2008 addresses this issue by primarily selling tickets to the remaining attendees to events at most of its owned and/or operated venues in North America, so that Live Nation can collect customer information in its database to extract greater revenue per attendee through the sales of merchandise, parking, food and beverages.[10] The database is capable of this by providing queries for selling and managing ticket inventory online, at Live Nation's box offices, through its phone center, and at other retail outlets. Live Nation's primary online ticketing website, www.livenation.com, is then designed to promote ticket sales for live events and to disseminate event and related merchandise information online, based on the information provided by the database.
Besides increasing prices on food and beverage, CEO Michael Rapino stated during the company's 2009 first quarter earnings call that Live Nation plans to drive more dollars from each fan by reducing the items sold and focusing on the profitable points of sales, providing food and beverage selling services directly to patrons in their seats, and adding new products through the use of bundling.
As a result, although overall attendance dropped in the first quarter of 2009, revenue per fan climbed nearly 6 percent to $66.50 per attendee.[11] Furthermore, since launching the new ticketing platform in December 2008, Live Nation has sold 4.4 million tickets globally, including 4.2 million tickets sold in the first quarter of 2009.[12]
Live Nation's Revenue is Highly Dependent on Weather
Live Nation's cash needs vary greatly from quarter to quarter due to the seasonal fluctuations of outdoor venues that are highly susceptible to inclement weather. Therefore, the months of fairer weather (May through September) are of particular importance to Live Nation as outdoor venues that seat more customers are used. For example, amphitheaters are generally outdoor venues with between 5,000 and 30,000 seats that are used primarily in the summer season.[1] Festival sites are lower cost outdoor locations that are also used primarily in the summer season, and have capacities that range from 10,000 to 120,000 customers.[1]
The result of unexpected poor weather on the event's date can lead Live Nation to reschedule an event to a different date or venue, which increases costs and decreases attendance. If those options are not possible, Live Nation will refund all tickets for the event, and therefore will severely reduce net income.
Competition
Because of the company's size and diversification of business, Live Nation faces two main types of competition that affect different business segments; those that compete with their "Ticketing" business segment, and those that compete with all other segments.
Companies that Compete with LYV Business Segments "North American Music", "International Music", "Artist Nation", and "Other"
The live music industry is uniquely dependent upon personal relationships with artists, agents, and managers who secure Live Nation's rights to live music tours and events. Because there are only a finite number of these contacts, Live Nation competes with a number of major national and international live music promoters and venue operators.
- Anschutz Entertainment Group - AEG (not a ticker symbol) is a music and sports entertainment promoter and a subsidiary of The Anschutz Corporation, a holding group of investment vehicles for the diversified interests of Philip F. Anschutz. AEG owns or operates several venues, including the Staples Center, the Home Depot Center, and the XL Center. Anschutz Entertainment Group operates under a number of different names including AEG Live, Concerts West, and The Messina Group. The Anschutz Corporation is not a publicly traded company.
- Jam Productions - Jam Productions, Ltd. is one of the largest live entertainment producers in the United States, offering concerts, special events, theatrical entertainment, and touring exhibitions.[13] Jam Productions have booked with such performers as Frank Sinatra, Dolly Parton, Billy Crystal, Michael Jackson, and U2.[14] Jam Productions, Ltd. is not a publicly traded company.
- Palace Sports & Entertainment - PS&E is a holding company formally owned by Karen Davidson, widow of the late billionaire William Davidson. PS&E owns The Palace of Auburn Hills, a sports and entertainment arena that hosts live music, the Detroit Pistons, and other entertainment events. PS&E also owns Michigan's DTE Energy Music Theatre and the Meadow Brook Music Festival, as well as the Detroit Shock of the WNBA. Palace Sports & Entertainment is not a publicly traded company.
- SMG - SMG Management, Inc. is an international live events promoter company that manages venues such as convention centers, exhibition halls and trade centers, arenas, stadiums, performing arts centers, theaters, and specific-use venues such as equestrian centers throughout North America (mainly in the US) and in parts of Europe. SMG is an affiliate of American Capital Strategies Ltd. (NASDAQ: ACAS), and in 2008, American Capital reported the fair value of SMG at $228 million.[15] As of September 2008, SMG manages 216 arenas and other venues on behalf of municipalities across the country.[16] SMG is not a publicly traded company.
| 2008 Sales ($M) | |
| Live Nation | $4166.8[17] |
| PS&E | $170.0[18] |
| SMG Management, Inc | $158.2 (2007 sales in $M)[19] |
| Anschutz Entertainment Group, Inc. | N/A |
| Jam Productions, Ltd | N/A |
Companies that Compete with LYV Business Segment "Ticketing"
In the online ticketing environment, Live Nation competes with major online event sites and ticketing companies that provide event and artist information, sells tickets, and other online services such as fan clubs.
- Ticketmaster - Ticketmaster Entertainment, Inc. an international ticket sales and distribution company. Ticketmaster acts as a ticketing agent, by providing mainly online services such as ticket sales and resales to prospective attendees to arenas, stadiums, and theaters. In 2008, Ticketmaster reported a revenue of $1,454,525 and a net loss of $1,005,499.[20] On February 10, 2009, Live Nation and Ticketmaster publicly announced that the two companies are to merge to form Live Nation Entertainment. The merger is under the scrutiny of the U.S. Department of Justice due to anti-trust concerns.
- Tickets.com - Tickets.com is an international ticketing company that provides online services to individual consumers as well as business-to-business ticketing services that allow entertainment and sports organizations to sell tickets to individual consumers under their own brands. Tickets.com is owned by Major League Baseball Advanced Media, L.P., a subsidiary of Major League Baseball. Tickets.com is not a publicly traded company.
| 2008 Sales ($M) | |
| Live Nation | $4166.8[21] |
| Ticketmaster Entertainment, Inc. | $1,454.5[22] |
| Tickets.com | N/A |
References
- ↑ 1.0 1.1 1.2 1.3 Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1", p. 1
- ↑ Yahoo Finance LYV
- ↑ 3.0 3.1 Live Nation 10-k 2009
- ↑ LIVE NATION ENTERTAINMENT REPORTS FIRST QUARTER 2010 FINANCIAL RESULTS
- ↑ 5.0 5.1 5.2 Lower Fair Values for Ticketmaster, Live Nation
- ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1A", p. 23
- ↑ Live Nation, Ticketmaster Begin Defending Merger
- ↑ Live Nation to buy Ticketmaster, faces scrutiny
- ↑ Cronin, Anne. "Advertising and consumer citizenship: gender, images, and rights." 2000. p. 51
- ↑ 10.0 10.1 Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1", p. 4
- ↑ Live Nation 1Q loss widens as attendance drops
- ↑ Live Nation (LYV) Form-10Q, Fiscal Quarter March 31, 2009, p. 20
- ↑ Jam Productions Ltd.
- ↑ About Jam Productions
- ↑ American Capital Strategies Ltd. (NASDAQ: ACAS) Form 10-K, Fiscal Year 2008, "Item 1", p. 7
- ↑ Wall Street Journal, September 12, 2008, Section B6
- ↑ Live Nation 2008 sales
- ↑ PS&E 2008 Sales
- ↑ SMG 2007 Sales
- ↑ Ticketmaster (TKTM) Form 10-K, Fiscal Year 2008, "Item 6", p. 30
- ↑ Live Nation 2008 sales
- ↑ Ticketmaster 2008 sales
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