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Summary notes from LYV investor presentations and earnings calls can be found here.

Overview


Live Nation (LYV) is the world’s largest live events promoter and primary ticket seller through its ownership of Ticketmaster.  LYV brings over 500mm fans in 40 countries to 30,000 live events every year.

Live Nation was formed in 1996 as SFX Entertainment and spent the next few years acquiring regional concert production companies, achieving substantial market share of the US concert market by 2000.  At the time, SFX entered into an agreement with Ticketmaster, whereby Ticketmaster would provide ticketing services to all SFX events.  The company was purchased by Clear Channel Communications in 2000 for $4Bn and was subsequently spun out of Clear Channel in 2005 at which point the company began trading as a public company on the NYSE as Live Nation (LYV).

In 2010, Live Nation merged with Ticketmaster, greatly expanding the size and scope of the company and creating a vertically integrated ticketing and live event production business.

Industry


Below is a chart of global recorded music revenues from 1999.  Recorded music revenue declined every year through 2014 at which point growth in streaming revenue brought recorded music revenue growth back into positive territory in 2015.

Unlike recorded music, which went through a period of decline for many years, the global live music industry is estimated at $25Bn-$30Bn and has grown 4% annually from 2007 to 2016.  Live music revenue surpassed recorded music revenue around 2013 at an industry level due to the dramatic declines in recorded music revenue following the advent of Napster.

Despite the stabilization in recorded music revenue in 2015, most artists earn substantially more in live concert events than recorded music.  This is due to live events revenue exceeding recorded music revenue at the industry level, but more importantly, at the artist level, musicians keep a larger percentage of income generated from live events vs. recorded music (where the label keeps a substantial portion of earnings).  Earnings from live events for touring artists generate approximately 80% of their total income.

The growth in live music revenue has been driven by a growing consumer preference for experiences.  For example, millennial consumers, in particular, have shown a growing preference to prioritize spending on experiences over physical goods.  Per Goldman Sachs, millennials spend approximately 7% more on live events vs. the average consumer.  Live music revenue growth has also been aided by greater awareness of live events from many of the streaming technology platforms.  For example, Spotify uses location data of its users to suggest concerts nearby.  Spotify also offers this data to artists to more efficiently market their concerts to fans.

At Liberty Media’s November 2017 investor day, Liberty highlighted the large percentage of the US population that attends live music events, demonstrating strong consumer preference for experiences.

Sponsorship – Goldman Sachs estimates that the music sponsorship market is approximately $2Bn with LYV taking 15% market share in this segment.

Ticketing – Goldman Sachs estimates that the primary and secondary (resale) ticket market is $5Bn, growing at 5% CAGR.

Competition

The live events industry is highly fragmented with LYV holding about 20% market share of the industry.  The next closes competitor is Anschutz Entertainment Group (AEG), which has about 10% market share.  The remaining 70% is comprised of numerous smaller promoters.

AEG focuses more on sports but is still LYV’s primary competitor in the live music space.  AEG owns some of the large music festivals including Coachella.  LYV owns Bonnaroo and Lollapalooza and expanding its musical festival presence is a focus for the company.

Within ticketing, Ticketmaster has the dominant market share in primary tickets, but only 20% share in secondary tickets.  StubHub has 55% share in the secondary tickets market.

Business Segments


Concerts

LYV hosted approximately 29,500 events in 2017 with 20,000 of those events in North America.  The fan attendance was 86mm in 2017.  LYV owns or manages approximately 200 concert venues and has commented that more secondary market music venues are being built in the US and internationally.  LYV has a growing festival portfolio with 97 festivals in 14 countries (as of Feb 2018) with festival attendance of 8mm in 2017, which was up 14%.

The concerts division revenue is comprised of ticket sales for LYV promoted events and ancillary revenue from live events such as concessions, parking, and merchandise.

Although concerts represent the majority of revenue for LYV, much of the live event revenue is hared with artists, so it is the lowest margin business segment.  That said, the concerts division is a driver of of business for the sponsorship and ticketing divisions.

Concerts contributed approximately 21% of Adjusted Operating Income in 2017.

Sponsorship

LYV sells advertising and sponsorships through its 500-person salesforce.  Sponsorship revenues are high margin as a very large percentage of incremental dollars from sponsorships flows to the bottom line.  LYV is focused on growing its sponsorship business as its events and fan attendance continue to grow.

Additionally, LYV fan demographics skew on the younger side, which is attractive for brand advertisers.  “Our research indicates that 90% of brands think that Live Nation can help them reach millennials, and almost 70% of fans say they are more likely to be receptive to brand messaging at concerts.” – 4Q 2017 LYV Earnings Press Release.

Sponsorship contributed approximately 32% of Adjusted Operating Income in 2017.

Ticketing

Having sold approximately 500mm tickets in 2017, Ticketmaster is the largest platform for primary tickets and has a growing share of secondary tickets.  Ticketmaster receives a service fee on approximately 40% of its tickets sold.  The remaining tickets sold on the platform are for season ticket packages, where Ticketmaster does not receive a service fee.

Ticketing contributes approximately 47% of Adjusted Operating Income in 2017.

Financial Summary



Source: 4Q 2017 Earnings Press Release

The concerts division is the lowest margin business segment at LYV since 85% of revenue is paid out to the artists.  Concerts represents the majority of revenues for LYV, but only a fraction of the Adjusted Operating Income.  However, concerts (live events) is the primary driver for the other business segments.  In other words, more live events not only drive concert revenues, but also drives ticketing and sponsorship/advertising revenues.

Opportunities


Growing Importance of Touring

In the late 90s and early 2000s, artists used to generate the majority of their revenue through album sales with only a fraction being generated through touring.  This equation has reversed with artists now generating 85-90% of their revenue from concerts tours, which provides a steady foundation of live events supply for the music industry.

New sponsorship

Streaming viewership of live events is increasing as streaming of music festivals and concerts over Facebook, Youtube, and Periscope become more popular.  The streaming viewership of some of the most viewed festivals now rival NFL football games, which represents an advertising opportunity for LYV.

Spending per fan

LYV is focused on improving F&B at its venues and allocating more capex to concerts to increase on-site spending per fan to its $30 long-term target.  Per Goldman Sachs, fans at professional sports games spend $30+ on-site.

Industry Consolidation

With a concerts industry that is largely fragmented, LYV has the opportunity to consolidate regional and international concert promoters, bringing them into the LYV system, which allows LYV to integrate their ticketing and sponsorship and to bring their scale in artist access to new venues and promoters.

Ticket Pricing and Utilization

LYV management has estimated that approximately $1Bn in value is leaked to ticket resellers, so LYV is focused on optimizing primary ticket prices, particularly when secondary ticket prices trade at a substantial premium to primary tickets.  Additionally, LYV is focused on programs such as Verified Fan, which requires customers to pre-register to purchase tickets in order to avoid computer programs that buy large swaths of primary tickets and then resell them at higher prices.

Additionally, approximately 25% of LYV tickets go unsold each year.  LYV is focused on reducing this gap by implementing more flexible pricing models and increasing distribution and availability of its tickets (for example, by working with Facebook and other partner websites).

Threats


Consumer spending sensitivity

Although spending on experiences is of growing important for consumers, any downturn in the economy which impacts jobs and income levels will have a negative effect on discretionary purchases such as concert tickets.

Seasonality

LYV realizes approximately 80% of its adjusted operating income in the second and third quarters, so poor performance in one of these quarters can affect the entire year’s profitability.