Live Nation Entertainment, Inc. (LYV) Earnings Call Transcript & Summary

Okay. We're ready to get started. My name is Ben Swinburne, Morgan Stanley's Media Analyst. Please note that all important disclosures, including personal holdings disclosures and Morgan Stanley disclosures, appear on the Morgan Stanley public website at morganstanley.com/researchdisclosures or at the Registration Desk. I'm excited to welcome to the conference -- welcome back to the conference Live Nation. To my left is Joe Berchtold, who is the President of Live Nation. Joe, thanks for being here.

Sure. Thank you. Thank you.

Thanks for coming back.

You didn't tell me you get like the screen with all the answers on it. I don't get that?

No, you don't get that, I'm sorry. I want to just -- you guys reported last week. So this is relatively fresh. I wanted to get you to talk first about sort of the 2019 that you guys just reported, AOI growth of 14%, and some of the leading indicators for 2020, which look quite promising, and sort of give us a state of the state on the business.

Yes. I think 2019 was the perfect example of how our flywheel works and the entire system working well together. So we grew our fan base by around 5 million or 6 million fans, mid-single-digit growth in the fan base. And then with that, we delivered double-digit growth. We delivered double-digit growth by continuing to operate our venues more effectively, drive per fan spending at our amphitheaters, theaters and clubs, festivals. We continue to price more effectively, making sure we're getting the market value of the ticket for those artists. And then we're continuing to expand the sponsorship business. Doing a better job delivering a fan on a Wednesday night, those 98 million fans that the brands want to reach out and directly connect with, I think we're continuing to do that more and more effectively, particularly at our venues, where we have some real control over that experience. And then Ticketmaster continues to demonstrate why it's the leading ticketing platform in the world. And whether you're here in the U.S. or internationally, the advances that, that team is making in digital ticketing continues to have venues coming to it and say, we want to work with Ticketmaster, because we think it's the most effective platform to sell tickets. We have artists who are saying they want to work in Ticketmaster's buildings because of that. And so that collectively just all the pieces working together is what is driving our double-digit growth. I think -- and then very excitedly, coming into 2020, we've seen early on even stronger supply and demand dynamics. A lot of artists out there this year, North America, tremendously strong across all building types, stadiums, real growth, arenas, amphitheaters, theaters and clubs. International, after a huge growth year last year, is more in the opposite side of the cycle for the stadiums because the artists are over here but also continuing to see growth in there in the festivals, in the arenas. So gearing up to what we said, we thought it's going to be a very good year, 30% up in terms of our confirmed amphitheater, arena and stadium show count, which is one of our most important leading indicators at this time of the year. And then, we're up about 10% on ticket sales for shows this year. Same time last year, I think we were up about 7%. Last year, we talked a lot about the big pull forward into Q4 on those ticket sales. This year, I think we're feeling it's more balanced, and that's why we indicated we thought it'd be a big Q1 for Ticketmaster, because there remain a lot of those shows -- a lot of those -- the disconnect between the 30%, the 10%, 30% confirmed, not necessarily on-sale yet. The 10% growth in the ticket sales is what's already on sale. So it tells you that you still have a nice volume that shows that the on-sales are taking place as we speak and over the next month.

Got it. Is there any way to put those numbers into context as we think about revenue and AOI growth? Or should we just look at those as qualitative strong leading indicators and leave it at that?

Yes. I think at the moment, we look at it just saying that it's going to be a very strong fan growth year, and then we have every expectation we continue to successfully -- that we continue to successfully build the other pieces of the flywheel. And we didn't give guidance on Thursday so probably won't give it today. But we certainly feel good coming into this year.

So you spent some time on Thursday talking about the business as it might be impacted by coronavirus. I wanted to give you a chance to talk some more about that. Obviously, the stock's been impacted by that. Maybe we could just start with your business in Asia, give us a sense for a size and scale of that business in the context of your portfolio.

Yes. We talked a bit and gave some of those numbers on the earnings call. But our business in Asia, if you look over the next 3 months, is a couple of hundred thousand fans. If you look at our business in Italy, it's roughly the same scale. We said between -- at the time, which were the 2 main hotspots between Italy and Asia over the next 3 months, makes up less than 0.5% of 1% of our fans expected for the year. From an overall timing standpoint, globally, we see about 70% of our fans are June onward. So depending on which version of what you read today, it gives us some comfort that we've got a little time for things to play out. I think probably the most important piece for us though is to remember that we're just -- we're in 100 offices in 40 countries, very diversified geographically. So what we know because the CNN headlines are telling us constantly, there's a hotspot in Kirkland, Washington today. There's this, that you assume over the next few months, they're going to be hotspots. And when those hotspots occur, there will be some impact in terms of quarantines, whatever happens in those markets at that time. I think the 2 things that just give us some level of comfort, as we look macro: first, we don't see this as an existential change in fan behavior. We don't see any drop in fan demand. Bonnaroo sold out today faster than it ever has. Splendour in the Grass sold out last week in Australia faster than it ever has. So the fan demand remains. We know that the artist wants to do the shows. This is how the artists earn their living. So we're talking in the vast majority of cases about an artist saying, all right, if you have a -- if we can't do the show next Saturday night in Seattle, well, when we come back in 3 months -- when do we come back? We're rescheduling that show is the primary focus. And it's just isn’t some market by market. And when you do 40,000 shows across those 4 countries, I think it's our belief that on a macro basis, we're unlikely to see something that is a real disruption at any one time.

And how do we think about -- you talked a little bit last week, Joe, about the impact to the business is really timing versus absolute cancellations. Is that the right way to think about something like this?

I think that's our expectation. And certainly, all the conversations that we're having with agents and managers and others in the industry, the artists are still committed. This is their livelihood. This is what they do. This is what they want to do. As I said, the fan demand outside of very specific markets has not been impacted by this. So it's every expectation that we're going to keep doing concerts and people are going to keep going. And we'll have the odd of cancellations/rescheduling as is required, and we'll obviously do everything working with all the authorities and what makes sense in each of the markets. But we don't see this in any way has any change in terms of how our fan is going to be behaving, not just next month but 6 months from now, a year from now, how are artists going to be behaving. That's what we -- we just have seen nothing that would give us any indication of any change in.

Okay. That's helpful. Thank you. Maybe just stepping back, I wanted to ask you about some of the generational trends that you're seeing in the business. We've done some survey work just showing that how much sporting events are popular with -- or call them the older crowd like us relative to newer customers and another options. What are you seeing in sort of the millennial behavior that's impacting your business?

Yes. I mean I’d start with the most macro, which is this, if you look back over the last 5 years in the U.S., we've had 7% growth in GDP spend on experiences, right? So if you just start with the most macro, we're very fortunate to have just tremendous tailwind there. Not a lot of businesses these days would say they've got a multiyear 7% tailwind, so that's a great start in terms of the general demand. And then when you look at some of the specific supply-demand dynamics, I don't think there's ever been a richer, more vibrant, wide range of artists out there that are touring. Again, you have from the Eagles continuing to tour and attracting you and the others of a demographic...

I am not that old.

To Billie Eilish and Lizzo able because the distribution platforms today are so global that today as an emerging artist, if you can get the right sweet spot and you can you take off, you take off globally. You don't take off in London, New York, L.A., you take off globally from Seoul to Chile to every place in between. And so that demand gets unlocked much more rapidly. So you've got a full diversity of artists that are able to tap into a global demand for that business. And it's part of what again, in our mind, creates this structural supply-demand tailwind that's not just the U.S., which is the 7%, but then add to that what's the incremental international growth. And you really see the limiting factor becomes the how many nights a week can these artists perform and keep their voices more than anything else because of those dynamics.

One of the themes today, Joe, has been sort of companies using technology to better understand their customer and drive the business. Digital ticketing seems like a really interesting opportunity for you guys. I know it's something that's not necessarily new. But how should we -- how should investors think about the benefits to the business in terms of the financial performance as you guys continue to deploy your presence platform?

Yes. I mean when we did that, when we merged Live Nation and Ticketmaster, the underlying logic behind that was the desire or the felt need to shift out of being a B2B business and become a B2C business, just given the technology and inherently the pressures it puts on B2B businesses. So how do you become a B2C business? I think when we merged, we probably underestimated the lift that we had with the Ticketmaster state of technology to get it to a point where we could start doing things that we can today do. But really digital ticketing is about that shift from B2B to B2C, to start to know who are the fans, what are their behaviors, what are their interest and then how do we unlock that value on behalf of Live Nation, how do we unlock it on behalf of the artists, how do we lock it on behalf of the sports teams. Because the more you can unlock for those groups, right, the more than the positioning of Ticketmaster as being the preeminent ticketing company but tremendous value in terms of our ability to market to those fans, how do we price to those fans, how do we market to them, what are the product bundles that you sell to those fans based on their interest, based on their past behavior. Our ability, perhaps one of the soonest, is to work with sponsors. And as sponsors are trying to figure out, first, they've got to move from just [ iron ] and forget advertising to actually something I can measure. And then as we talk to them, it's really about how do you move so you're not just delivering messages but you're delivering a value proposition. It's so much more powerful that when we can work at our amphitheaters now with Hilton and we can say, all right, Hilton, you've got a certain class of your clients, of your customers, let's call them, blue level and above, that you want to acknowledge and reward. When that person walks into an amphitheater now and swipes in on their digital ticket, we can send them a text that says, thank you for being a loyal honors member. It's a nice concert. Why don't you go to the honors bar? We have a nice bar, good set up for you to sit in, nice bathrooms, that you go to when you're recognized. And now Hilton can understand, okay, who's taking advantage of that and what's their behavior? Am I getting more loyalty or what are the different responses that I'm getting? And that's not predicated on, oh, here's another ad unit that becomes a distraction and an irritant. It's the delivery of a value proposition to enhance the experience. So that's the focus now of a lot of that sponsorship team and working with the brands on how do we -- at our amphitheaters, at our festivals, how do we enhance that fan experience, what's the role different brands want to play and unlocking the identity, what's the next step that gives us to really understand what impact is it having.

So when we look at your business last year, I mean, you did nearly $600 million of sponsorship revenue. Are we seeing the benefits of digital ticketing yet in the numbers? Or do you think this is still on the come?

No. This is still on the come. In 2019, with digital ticketing, we rolled out 700 venues. It was really for us figuring it out and making sure the plumbing all worked. And we could do the plumbing. We could do tests. We could run trials. We made sure we could deliver the messages. We could execute on site, all of those pieces. I think in 2020, we're going to see large-scale tests and some real deployments. And then you start seeing the real commercialization. Finished this year, we'll be in 1,400 venues in North America. Pretty much all of the major sports, Live Nation venues. And that will put us in a position for really getting into the commercialization in 2021. So we see this as part of -- as we've talked about our next 3 to 5 years, absolutely part of that unlock.

One of the things we found in a survey, I was a little surprised by this, it seems like consumers preferred digital ticketing. Maybe I'll put it differently, it positively impacts their concert experience. Are you guys seeing anything like that again in sort of your KPIs? Or...

Yes. I mean the pace at which the world has moved to mobile has been astonishing, right? I mean, for a while, we would give some of those statistics because we thought they matter. Now when you have over half of your people buying on mobile, 2/3 or 3/4 of your traffic on mobile, people using digital ticketing, it's silly, because it's just the reality. It is a mobile-first world out there. You need to be designing your websites for mobile, your experience for mobile. There's a huge premium on not just the purchase process, but on how I manage tickets, how I transfer them or resell them, all done very effectively on mobile. So I just -- that's the world we're in, right? Everybody's phone is more powerful than any computer was 10 years ago. So I think as you shift your mindset on the development side to the assumption is everybody's mobile, and those that are on the desktop are the oddities, then that behavior just flows natural.

Yes. There's also a -- technology can also like lower the barriers to entry in the business. What sort of is the competitive landscape that you guys face, particularly in ticketing, where we've seen some new entrants and some sports teams even take equity stakes in some of your upstart competitors?

I'm absolutely a believer that you always have competition, that the world -- the dynamics in the world make it so that there will always be competition in everything you do. So one should never believe I have a moat so wide or a wall so high that others can't get past it. So what that does for us is it makes us paranoid. It makes us believe we need to push ourselves every day to say, how are we making Ticketmaster better and better. Nobody cares if Ticketmaster is large or Ticketmaster is this. All they care about is Ticketmaster is the most effective tool for helping me sell a ticket. If I'm a venue, a team, an artist, is it going to be the most effective tool to sell a ticket? And it's why we continue to invest a huge amount in technology. I think one of our benefits is because we are paranoid, focused on staying ahead, because of our scale, we can just invest more than most and we do. And I think that has led to some of our products that we're coming out with like the SafeTix and the digital -- the present systems. And we're seeing that artists are absolutely saying, I get better data when I go into a Ticketmaster venue. That's what I want to do. And by the way, not even artists that we – that we Live Nation work with, it's artists that other promoters work with because they're seeing that value proposition. So we're going to stay very focused on making sure that every artist and every team can get a benefit from working with Ticketmaster. And that's our obsession. And then others will come along and others will compete on different attributes. And we'll have varying levels of success. But if we take care of the business ourselves, we're confident that we'll be able to be successful as well.

Got it. Last November, at Liberty's Investor Day, you guys laid out, I think, $800 million -- over $800 million of additional AOI opportunities. Can you just talk about sort of the big -- I think, we touched on some of that, but what are the big drivers of those -- that AOI?

Yes. I think the good news for us is as we look at our growth over the next 3 to 5 years, that I believe we'll look back and say our growth over the last 5 years has been very similar to what the growth was over this past decade. We're not pivoting. We're not saying we need a massive shift. We're saying we need to continue to get better at things that we've been getting better at. And again, it all starts with the center of the flywheel with the fans for us. And we talked about if we grow from 100 million fans to 125 million fans and if we're making roughly $10 of AOI per fan right now, well that's $250 million right there, right? So that's a step. And then how are we doing when we have the fans at our venues? Are we doing a better job in terms of selling them more product? And we'll continue to benchmark ourselves against the sport teams. And as they get better, we'll continue to raise our benchmark, and we'll continue to push ourselves. And if we can have those fans that are in our venues continue to want to spend more because there is high-value on what they can spend, then that will be a key part of continuing to grow it. And as we've also talked more recently, as we get better at operating venues, operating amphitheaters, theaters and clubs, festivals, we're going to add more of them because the most profitable fan for us is a fan in one of our buildings that we operate. The more effectively we operate the buildings, the more effectively -- the more the people spend money when they're at our buildings, well that opens up a great return for us to invest in being the operator of more buildings. There remains tremendous arbitrage on pricing. The secondary market, we think, is over $1 million of arbitrage on concerts that are artists that we work with. We look to continue to educate the artists, give them tools, make sure that they are the ones that decide how much of that should be priced into the ticket or what are other tools to make sure it stays with the fans if that's their decision. The sponsorship we talked about, I think that great continued growth opportunities there because we're creating new ad units, right? There's not even limit on ad units as long as the ad units you create are of value to the fan. And if we have that mindset, we can continue to create new ad units, particularly around what gets unlocked with digital and with identity. And we'll continue to do that while we're also introducing new categories. We talked about lifestyle categories on our earnings call. We've talked a lot about the technology categories that have been coming into music over the past year or so. So continue to find those categories. And then ticketing. Again, they’re going to become I think more -- even more effective in marketing as it unlocks identity. And just going after those dozen or so markets that we promote concerts in today that we don't have ticketing continues to offer another level of growth. So I don't think anything that I just said here doesn't feel very similar to what we talk about every quarter in terms of how is it that we've been driving the growth of the business. And we'll continue to do that.

So in the context of the next 3 to 5 years, like the last 3 to 5, maybe doing double-digit AOI growth, which I think is still most people's expectations going forward, the biggest contributor to that has been the concert segment. Do you think that will be the case as you look forward or you look at the business more holistically?

Look more holistically, first and foremost, because the concert attendance is the center of the flywheel. So our success, we will deliver success when we grow from $100 million to $125 million. We're very confident of that. And then the other reason why concerts has been growing so rapidly is because of the other pieces that I talked about, because of the on-site, which is the first piece of how we are successful using the flywheel, and then the pricing. So both of those have given us an additional step in the concerts segment in addition to the attendance. I don't think -- sponsorship has certainly been no slouch.

Yes, that's been great.

It's been growing double digit, high margin business. So most people have been pretty happy with the performance of that. And again, I think Ticketmaster is the incredible story. It's a 40-odd year old technology company from the '80s that I think 10, 15 years ago, most people would've said is a dinosaur and is ready to be shot in the era of Silicon Valley wonder kids. And there's 0 chance we’re sitting in 2020, talking about it being the leading ticketing company with the best technology still. I just -- there is one person in this room that would've said that back then, right? So what that team has been able to do to really rejuvenate that business, I think, is a phenomenal story.

Great. I want to make sure the audience has a chance to ask some questions. So if you do, raise your hand and wait for a microphone. It looks like they do. I've got more, but let's just make sure they get the chance. Why don't we start either side? We can go back and forth.

Vishal, 1832 Asset Management. Can you just talk about the resale opportunity? And how do you think about resale markets and the profitability of that business?

Yes. Resell is a reality in ticketing heavily because of the arbitrage nature of particularly concert tickets but also sports to some extent. We got into secondary ticketing because we fundamentally believe we want fans to always have all their options in one place. And that was part of the Ticketmaster value proposition we wanted to create. We've said that the vast majority of our business is primarily, it's 90-ish percent of our business. So that is what drives us. That is what drives our thinking. The second area will exist so long as artists or teams want to underprice their tickets to try to put some value in the hands of their fans. And we'll support that as long as they want. But we're also supporting artists in every other way. Our main agenda is those -- is content, is those artists and teams. So when we work with an artist, we give them the tools, this is what market price is, you want this. We worked with Pearl Jam and said, we know you want to underprice your tickets. Here are some tools that you can use to make sure those tickets are getting into the hands of fans, and they're going to stay in fans and they're not going to be wildly speculated on in the secondary market. Others who don't want to do any of those, then we're going to have the secondary market be integrated with our primary market so that people have all of their options in one place and it's an easy, transparent experience. So I don't think about it in terms of, oh, no, we're -- we've got a real specific secondary agenda. We have a ticketing agenda. We have a need to solve the fans problem of how do I get a ticket to this show. And we want to have all that together in one place. I don't -- but I don't worry secondary growing, not growing, doesn't -- none of that matters. We start with that content agenda. And then the markets themselves are just -- are the output of the artist agenda, not the other way around.

It would seem that one of the -- -- can you hear me? It would seem that one of the big opportunities is using digital ticketing to drive sponsorship in non-owned venues. Is that a fair assumption? My understanding is that you generally are not generating sponsorship at non-owned venues, and so digital ticketing can massively enhance your TAM. Is that fair?

Yes, absolutely. I think that the opportunity is first in your venues where you can demonstrate it. Because you have more control over the entire ecosystem and you can demonstrate it. And it gives you a fact set from which you can then work with the arenas and others, right? They are the natural owners of their buildings and of what happens in their buildings. So you're showing up saying, I want to do XYZ. We'll share the money. That sounds great. I think it works a lot better when you have the demonstrated success and say -- and here are products we've created at our amphitheaters or theaters and clubs. If we replicate this product in your building, we think it has this value and now we can discuss how to share that value.

Great. If I could just follow up. Is that -- it's -- So you'll have to prove it in your own venues. Is this a 3 to 5 years you can start rolling it out to non-owned venues? Or could it even be more quick than that?

I think it can be quicker than that. I think over the next couple of years, we should be able to demonstrate that.

Go ahead.

Artists have become increasingly dependent on, let's say, doing concerts. Is there -- how do you see the relationship with the artists in terms of that they might take a bigger share of your revenues so that you have to split more profits or revenues with them?

Well, the standard deal is they already take 90% against the guarantees. So there's not a lot more less there for them to get. But our business model is absolutely based on we want to be the ones who will and can pay the artists the most. We culturally start with the content, with the teams and the artists and believe if we make them successful, if we support them, if we pay them, then they're going to let us unlock other pieces of the flywheel. And we're going to capture the value from those other pieces of the flywheel. So we're competing against the market and what the market can pay them but also with the desire and say we want to pay them the most. And we are not the least bit worried about, oh that 90% creeps up for the top artist or anything else because we're making the majority of our money on the other pieces of the flywheel.

I don’t see that they take share of that from the on-site spending or whatever.

No.

We can take one last question here.

How should we think about your relationship with AMEX? And how does the economics on something like that work?

Well, AMEX is, I mean, a big partner of ours with Ticketmaster's major branding partner on the Ticketmaster site and a major payment partner and is also a partner on presales, and one of the assets that they get access to on behalf of their card members is the ability to offer presale access. So I think it's a relationship that's been long-standing. It's been very effective for both of our partners -- for both of our companies. I think they see the access to those presales as an important part of their value proposition for their card members, and we see them as a great long-term sponsorship partner.

Maybe, Joe, just to wrap up. One part of your business we haven't talked about that's important is acquisitions. Maybe just spend a minute on how you guys -- what the pipeline looks like, how you execute that and why it's been a success story?

Yes. And again, this is where we benefit from the fact, we're a truly global business. We don't have big regulatory requirements to go into new countries. There's not big capital bets required in going to new countries. Usually, the best thing to do in new -- whether the new market is Salt Lake or Santiago, is to find a great local promoter. We buy that local promoter or we partner with that person, then we start driving our concert volume into that business. We bring ticketing in. We bring our sponsorship in, dramatically increases the profitability of that business, keep that person who was originally there in for a period of time, give them some of the upside to keep them motivated as a local entrepreneur and grow that business. And it's been a very effective model globally for us. And I think we're going to stick with it as we see many more markets coming down over the next few years.

Great. Well, we're out of time. Thank you very much. Joe, thanks a lot.

Thank you, guys.