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Lawrence Gu

LYV AT A GLANCE

P/E ► -1.58   EV/EBITDA ► -11.0   ROA ► -8.1% AVG ROE ► -45.7% AVG Debt to Equity ► 4.46 AVG Current Ratio ► 0.825 AVG Interest Coverage Ratio ► -4.94 LOW

 

 

 

 

 

 

Live Nation, Inc. (NYSE: LYV) is the world's largest live concert producer, by market capitalization (458.19M).^[1][2] As a producer, Live Nation acts mainly as a live music promoter and venue operator, not an owner of music.

In 2008, over 52 million individuals attended approximately 22,000 Live Nation events in 33 countries worldwide.^[1] Of these figures, the majority of Live Nation's revenues (53%) were based in North America, with 31.8 million individuals attending 10,291 events.^[3]

In the first quarter of fiscal 2009, Live Nation reported a 22% drop in North American concert attendance.^[4] Consequently, CEO Michael Rapino stated during the company's 2009 first earning call that Live Nation's new strategy is to drive more dollars per attendee primarily by increasing the prices on the most popular merchandise sold at concerts, and cutting down on the least demanded products.^[4][5]

On February 10, 2009, Live Nation and Ticketmaster Entertainment Inc. entered a definite agreement to an all-stock merger.^[6] In a joining of the two largest live entertainment marketing and ticketing companies, Live Nation will purchase Ticketmaster for $400 Million USD in stock to form Live Nation Entertainment.^[7] The merged entity is targeted for the latter half of fiscal 2009, and as of May 2009, more than 50% of Ticketmaster's lenders have given approval for the merger.^[8] Henceforth, Ticketmaster plans to become an indirect, wholly-owned subsidiary of Live Nation.^[6] This merger is still under the investigation of the United States Department of Justice Antitrust Division, and on March 20, 2009, both companies announced to have received a Request for Additional Information.^[9] According to a paper by the American Antitrust Institute, the main concerns of the merger to the U.S. Department of Justice are the fears that Live Nation Entertainment will be a vertically integrated enterprise that will seriously deter entry into the market, and that the new entity will be able to dominate both as a seller and as a buyer.^[10]

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

Live Nation Revenue and Net Income^[11] -- 2004, 2005, 2006, 2007, 2008

Excluding the impact of acquisitions, 97% of Live Nation's revenues fall under its three largest business segments ("North American Music", "International Music" and "Artist Nation").^[1] The revenues from these segments increased from $3.1 billion to $3.7 billion (compound annual growth rate of 10%) from fiscal years 2006 to 2008, respectively.^[1] The $3.1 billion to $3.7 billion revenue increase occurred despite a net loss from $54.9 million to $320.2 million for the same fiscal years, respectively.^[1] Furthermore, in the first reporting quarter of 2009 alone, Live Nation reported a net loss of about $103 million.^[12] Therefore, despite consistently increasing revenues, Live Nation continues to incur greater net losses. This is driven primarily by an increasing amount of debt through Live Nation's acquisitions, the economic downturn that affected ticket sales in 2008, and the introduction of a new ticketing platform that increased administrative expenses (see Key Trends and Forces).^[13]

Q1 2009 Summary

Live Nation reported $499 million of revenues in the first quarter of fiscal 2009, a 3% increase over the prior year on a constant currency basis.^[14][15] The per head spending increased by $3.06 per attendee in reportable segment North American Music, and total revenue per fan (or attendee) increased 5.7% to $66.48 per attendee (see Key Trends and Forces).^[15]

Business Segments

Live Nation changes its reportable segments often, making it difficult to track how segments' revenues truly improve from year to year. For example, in 2007, Live Nation reported six operating segments: "North American Music", "International Music", "Global Artists", "Global Digital", "Global Theater", and "Other" (primarily motor sports events).^[17] However, in 2008, "Global Theater" joined "Other", "Global Digital" became what is "Ticketing", and "Global Artists" became "Artist Nation". Yet again in the first quarter of 2009, "Artist Nation" was erased by distributing its revenues between "North American Music" and "International Music". As of the first fiscal quarter of 2009, only "North American Music", "International Music", "Ticketing", and "Other" exist. ^[18] For the purposes of reporting a full year's worth of revenues, the reportable segments of fiscal year 2008 ("North American Music", "International Music", "Artist Nation", "Ticketing", and "Other") are used.^[1] Note below that percentage of net income by reportable segment is not applicable due to net income loss.

2008 Live Nation Revenue by Segment^[19]

North American Music (53% of Revenues)

North American Music primarily refers to the promotion of live music events in the United States and Canada. North American Music generates revenue primarily through the sale of food and beverages, parking, premium seating, venue sponsorships, ticket rebates or service charges earned on tickets sold through third party ticketing agreements, and through Live Nation's internal ticketing operations (note that ticket sales revenue are reported in North American Music, but ticket service charge revenues are reported in Ticketing).^[20] By decreasing the operating cost per attendee and talent cost (fee paid to the artist at the venue) in owned and/or operated amphitheaters, North American Music increased attendance by 3.8 million ticket sales (14% increase) to 31.8 million ticket sales since 2007.^[19] However, it is important to note that the number of events also increased during fiscal year 2008 from 10,251 to 10,291 events (40 events in owned and/or operated amphitheaters), so increased attendance is partially offset by increased operating expense due to a greater number of venues.^[19]

In 2008, Live Nation signed an exclusive booking arrangement with Ocesa, a division of Grupo CIE, which has one of the largest theater promoter and producer presence in Mexico and Latin America.^[19] The revenues in Latin America are reported in North American Music, not in International Music.

International Music (28% of Revenues)

International Music primarily involves the promotion of live music events and music festivals in regions not covered by North American Music. Note that all United Kingdom theatrical venue operations are not represented in International Music, and are instead covered in Other. Like North American Music, International Music generates revenue primarily through the sale of food and beverages, parking, premium seating, venue sponsorships, ticket rebates or service charges earned on tickets sold through third party ticketing agreements, and through Live Nation's internal ticketing operations (note that ticket sales revenue are reported in International Music, but ticket service charge revenues are reported in Ticketing).^[20]

The health of the International Music segment is best measured by the number of confirmed events and attendance of owned and/or operated third-party venues, as revenues converted into U.S. Dollar basis for reporting is highly susceptible to fluctuating exchange rates.

In 2008, International Music increased attendance by 1.5 million ticket sales.^[19] Similar to North American Music, these increased ticket sales are partially offset through the increase of 1,309 events to a total of 4,203 events (45% increase since fiscal 2007), which increased operating expense.^[19] The increase of venues is heavily fueled by Live Nation's international acquisitions, which include the operating company that manages and holds lease for Heineken Music Hall in Amsterdam, Mirage in Dubai, Way Out West in Sweden, to name a few.^[21]

Artist Nation (16% of Revenues)

Artist Nation (previously Global Artists) primarily contains the production and/or promotion of global music tours, as well as other services provided to artists by the Artists Services Division such as the sales of merchandise, artists' fan websites, VIP ticketing, broadcast/digital media rights, recorded music distribution, and sponsorship/marketing services. Note that in the March 31, 2009 Fiscal Quarter, reportable segment Artist Nation no longer exists, and revenues generated from this former sector has been distributed between North American Music and International Music.

In 2008, Artist Nation increased its revenue by $90.7 million (16% increase) compared to fiscal 2007, but its direct operating expenses also increased $73.1 million (14% increase) compared to fiscal 2007.^[22] Live Nation claims that the 16% revenue increase was partially offset by a decline in the volume of global tours, as well as the incremental revenue of $150 million from the 2007 fourth quarter generated by Live Nation's acquisitions of Signatures SNI, Inc. and Anthill Trading Ltd.^[22] Live Nation also claims that the $29.8 million increase (61%) of general and administrative expenses compared to 2007 was primarily the result of increased salary for additional headcount and consulting expenses related to these acquisitions.^[22]

Ticketing (1% of Revenues)

Ticketing (previously Global Digital) manages Live Nation's online and wireless ticket distribution activities, as well as internal ticketing operations. The main source of revenue from Ticketing is the service charges earned from online tickets sold directly to customers in North America. It is important to clarify that sales from tickets in reportable segments Ticketing and North American Music are not double-counted, as Ticketing pays North American Music a ticket rebate equal to the amount North American Music would have received if sold by an outside ticketing agency. Only the remainder of sale, the service charge, is reported as revenue in Ticketing.^[23] That a significant proportion of sales generated by Ticketing is surrendered to North American Music suggests revenue is not the best measure to compare segments' health. Instead, this measure is typically judged by the number of tickets sold through internal ticketing operations, number of unique visitors to Live Nation websites, and the overall number of customers in Live Nation's database.^[24]

For example, Ticketing posted a $11 million revenue increase (97% increase) in fiscal 2008 compared to fiscal 2007, primarily due to increased ticketing revenue from "internal ticketing operations" as all existing "internal ticketing operations" have been centralized in 2008.^[25] However, these figures are shadowed by the more than doubled general and administrative expenses in 2008 ($18 million increase compared to 2007).^[25] Live Nation claimed increased salary costs related to the building of the new ticketing platform completed in late 2008 to be responsible.^[25]

Because measures claimed by Live Nation that are used to measure the health of Ticketing such as number of unique visitors or Live Nation websites are not provided, the use of revenue to base this segments' financial standing is not likely representative of performance.

Other (2% of Revenues)

Reportable segment "Other" primarily consists of Live Nation's United Kingdom theatrical venue operations, and other businesses. Performance in venues represented by "Other" are difficult to measure as change in aggregate revenue and attendance do not reflect change in Live Nation's acquired interests. For example, Live Nation sold the North American theatrical business in 2008, the motor sports business in 2008, and Phantom: The Las Vegas Spectacular in 2007.^[26][22]

Perhaps a better measure of Other's health is a comparison of the number of events and attendance at United Kingdom theater promotions. The number of United Kingdom theater promotions increased by 257 events from 2006 to 2007, but sharply dropped by 746 events from 2007 to 2008.^[26] Consequently, attendance at United Kingdom theater promotions dropped from 949,000 in 2007 to 239,000 in 2008.^[26] This occurred despite an increase in total operating income from -$146,000 (loss) in 2007 to $12,446,000 in 2008.^[22] Live Nation attributes the loss in attendance for United Kingdom theater promotions as a result of reduced participation in theatrical productions and touring theatrical shows.^[27] Live Nation attributes the higher total operating income due to reduced productions and the sale of Live Nation's interest in the production of Phantom: The Las Vegas Spectacular.^[27]

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.^[28] The company also had an EBITDA/interest expense ratio of 2.4, mostly perpetuated by its thin operating margins.^[28] 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.^[29]

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.^[28] 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.^{[30] [31]}

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."^[32] 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.^[33] 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.^[16] Furthermore, concert attendance in North America dropped 22% in the first quarter of 2009.^[4] 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.^[33] 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.^[4]

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.^[34] 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.^[35]

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.^[36] Jam Productions have booked with such performers as Frank Sinatra, Dolly Parton, Billy Crystal, Michael Jackson, and U2.^[37] 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.^[38] As of September 2008, SMG manages 216 arenas and other venues on behalf of municipalities across the country.^[39] SMG is not a publicly traded company.

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.^[43] 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.

References

1. ↑ ^{1.0 1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8 1.9} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1", p. 1
2. ↑ Yahoo Finance LYV
3. ↑ Live Nation (LYV) Form 10-K Fiscal Year 2008, "Item 7", p. 46
4. ↑ ^{4.0 4.1 4.2 4.3} Live Nation Plans to Boost Revenue Through Beer, Merchandise Sales (LYV)
5. ↑ Q1 2009 Live Nation Earnings Conference Call
6. ↑ ^{6.0 6.1} Ticketmaster (TKTM) Form 10-Q Fiscal Quarter March 31, 2009, "Note 1", p. 5
7. ↑ Ticketmaster, Live Nation agree to merge
8. ↑ Ticketmaster says lenders approve Live Nation deal
9. ↑ Live Nation and Ticketmaster Entertainment Receive Second Request From the U.S. Department of Justice Regarding Proposed Merger
10. ↑ [http://www.antitrustinstitute.org/archives/files/TICKETMASTER%20Revised.4.28.09_043020092221.pdf Commentary: TICKETMASTER – LIVE NATION An AAI WHITE PAPER]
11. ↑ [1] Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7", p. 45
12. ↑ Live Nation (LYV) Form 10-Q, Fiscal Quarter March 31, 2009, "Note 1", p. 21
13. ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7", p. 48
14. ↑ Live Nation (LYV) Form 10-Q, Fiscal Quarter March 31, 2009, "Item 1", p. 1
15. ↑ ^{15.0 15.1} Live Nation Reports First Quarter 2009 Results Showing Company On Track To Deliver 2009 Plan
16. ↑ ^{16.0 16.1} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7", p. 51
17. ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2007, "Item 1", p. 5
18. ↑ Live Nation (LYV) Form 10-Q, Fiscal Quarter March 31, 2009, "Note 11", p. 18
19. ↑ ^{19.0 19.1 19.2 19.3 19.4 19.5 19.6} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7", p. 128
20. ↑ ^{20.0 20.1} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1", p. 6-7
21. ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7", p. 47
22. ↑ ^{22.0 22.1 22.2 22.3 22.4} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7", p. 60
23. ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1", p. 7
24. ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7" p. 49
25. ↑ ^{25.0 25.1 25.2} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 7" p. 61
26. ↑ ^{26.0 26.1 26.2 26.3} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 6" p. 51
27. ↑ ^{27.0 27.1} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 6" p. 63
28. ↑ ^{28.0 28.1 28.2} Lower Fair Values for Ticketmaster, Live Nation
29. ↑ Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1A", p. 23
30. ↑ Live Nation, Ticketmaster Begin Defending Merger
31. ↑ Live Nation to buy Ticketmaster, faces scrutiny
32. ↑ Cronin, Anne. "Advertising and consumer citizenship: gender, images, and rights." 2000. p. 51
33. ↑ ^{33.0 33.1} Live Nation (LYV) Form 10-K, Fiscal Year 2008, "Item 1", p. 4
34. ↑ Live Nation 1Q loss widens as attendance drops
35. ↑ Live Nation (LYV) Form-10Q, Fiscal Quarter March 31, 2009, p. 20
36. ↑ Jam Productions Ltd.
37. ↑ About Jam Productions
38. ↑ American Capital Strategies Ltd. (NASDAQ: ACAS) Form 10-K, Fiscal Year 2008, "Item 1", p. 7
39. ↑ Wall Street Journal, September 12, 2008, Section B6
40. ↑ Live Nation 2008 sales
41. ↑ PS&E 2008 Sales
42. ↑ SMG 2007 Sales
43. ↑ Ticketmaster (TKTM) Form 10-K, Fiscal Year 2008, "Item 6", p. 30
44. ↑ Live Nation 2008 sales
45. ↑ Ticketmaster 2008 sales