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

Okay. Great. So we have with us today Joe Berchtold, President of Live Nation. Before we get started, if you want to ask a question, please use the Ask a Question feature and I will try to get to it.

So Joe, I thought I would kick things off. We are only a few weeks past your Q1 earnings, but the interim period has seen a real acceleration in U.S. tour announcements and festival on sales. So maybe to start, where do things stand? I mean reopening domestically? And how much of the increase in activity we're seeing is a direct result of easing restrictions on things like masks and gathering?

No. Every week is just more and more good news. That's the great thing for us. And yes, you're right. It's the -- as the vaccination levels have risen, no surprises, vaccination levels have risen, case levels have declined. Obviously, U.S., U.K. leading the path, but then even Europe starting to ramp up and really getting things going, which is great to see. So as a result, as we were long talking, we wanted to get going in July -- maybe mid-July depending on the exact market, a little later in Europe. But what we're seeing is just a ton of affirmation that we're going to be able to do that. And as that affirmation is coming from the government that, yes, you're going to be able to gather, yes, it's going to be safe to do so, we particularly are focused outdoor still for the summer with the amps and the festivals. Everything that we're putting on is just selling incredibly well. Almost every festival is having a record of some sort. Last week, it was Lollapalooza, ACL, BottleRock all going on sale, flying out. So you're seeing 2 things. One is an acceleration or an increase of everything that we thought we might be able to do for '21. We're certainly much more comfortable and see a bigger pipeline and level of activity in '21 than we thought a month ago. And as we talked at earnings and just as we're continuing to see, what we're putting on sale for '22, and we're still in the early rounds of that, is also selling incredibly fast. And one of the things that we're noticing is that it's truly every genre, right? You've got Garth Brooks is selling on stadiums in half an hour record times, like 1,500 transactions a minute, an incredible pace that we figured out how to drive the Ticketmaster, sell through those stadiums. You have Bad Bunny with Latin, who has the biggest on-sale day in 3 years. You've got Astroworld with Urban. You've got pop shows going up. You got EDM going crazy with things like Electric Daisy. So it's every genre and we're seeing more fans crossing over into more genres. So there's no doubt that in the past month, the good news has led to more opening and more unlocking of the demand.

And that demand, that's extending even into some of the on sales that we've seen come up recently for some of those 2022 shows as well?

Absolutely. Those are the ones that I was referencing. The big tours will still be largely in '22. Just from a lead time perspective, those tours need to get their production together, to get the team together, to prepare. Those are the big top-level arena, stadium tours. Those are, by and large, really get going in '22, maybe a few late '21. But because of the lead time and the preparation for them, they're going to be more of a '22 timing. What we're seeing in '21 is out of the gate. Every day more amphitheater tours getting announced, more festivals going on sale. And then as we get into the fall, we expect to see some arena tours. Those arena tours are probably not going to be the highest production relative to what you will see getting into '22. Again, just from a lead time factor. But even there in the fall, we're starting to see more people come. I just saw this morning, Florida Georgia Line announcing their arena tour. More people are looking, how do I jump in? I do want to -- I know that '22 is going to get crowded, how do I jump in and actually get into '21 now to get some activity going.

Got it. And maybe can you update on the status of the operations abroad, in particular, for the U.K., which I think is your biggest market outside the U.S., but maybe for some of the smaller markets you operate in as well?

Yes. The U.K. is -- I'm not going to get the exact date right, but I think it's June 25 or June 21 is their final all-clear date. All signs point towards the full reopening as of that date, which means it's full speed ahead for our festivals and our outdoor season in the summer in the U.K. Europe has picked up its pace a lot. Now if you look at the vaccination level per day, it's really ramped up. And you've got some countries that are starting to get to pretty sizable vaccination levels. We expect that, again, over the next couple -- we always said they were lagging in the U.S., U.K. by a few months. But that means that by the time we get into the really late summer, early fall, we hope to be able to get back and have some more scale activity going on there as well.

And for some of the markets, maybe where the situation is a little bit even further behind that, like South America, are those markets where you primarily are operating more in their summer or their winter, what's sort of the schedule over?

Yes. I think that most artists are going to focus their out of the gate probably on markets where they're confident as they're planning today, they're going to be able to go on. So they're more likely to start in early '22 on the big tours to start in the U.S., the U.K. or even Europe. And then it will be focused on getting to some of the Latin American markets and the Asian markets probably later in the year, just to let this play out more because they don't need to rush to start there. So they're more likely to say, let me start in the markets that I got the confidence in. And then they'll catch up, right? Every place is -- all these markets are going to be able to catch up. It's just a matter of specific timing.

Got it. Well, there's obviously a fair amount of pent-up supply given touring has been suspended since March of last year. Can you walk through some of the logistical challenges or even opportunities in relaunching? So how do you think about spreading out these shows over the next 24, even 36 months?

Yes, yes. It's obviously a great -- it's a great feeling to have this challenge relative to the challenges we had a year ago. Ramping up is a lot more fun. So first and foremost, as we -- because I know labor is always a discussion. One of the things that I've been delighted with is we had to unfortunately furlough a large portion of our staff. But the turnover of the people that were furloughed was only a couple of percentage points higher than the rest of our staff, which has always been a below industry level turnover. So we actually -- the people that we furloughed by and large stayed around, over 80%. And then when we call them, I was worried that when we started calling them back because we were providing health care, we find out the ones that weren't really coming back but wanted our health care. And that -- over 90% of the people we've wanted to bring back from furlough have come back. So I've been very happily surprised and it's been great to see as we're ramping back up that we have the core staff that we need to do the planning and the preparation. And then right now, it's just a massive rubik's cube with logistical challenge of how do we route the shows, who gets priority. You've got first, second, third, fourth folds on buildings. So there is a lot of that setting that complexity in motion right now. That's what our [ motors ] are great at is in working it through. I think it's why in part we're starting to see some of the tours go out now. You wouldn't normally see in May a lot of tours for '22 being announced and go on sale. But by doing that, we're spreading out more of the on sale process. So obviously, The Weeknd who went on sale in February got routed and then Bad Bunny. And now others are getting routed for '22 on both the arenas and stadiums. And then so they get set. And then the other ones can follow from there. So it's a logistical challenge, but it's -- the good news is we actually have more time than we normally do. Because we don't -- in 2019, when we had 100 million fans, we effectively have the same logistical challenges to a large extent. But we actually started it later in the year. Here, we have the benefit, and we started it back in April, May. So we've got more time to get all of that planned and prepared.

And should we think about the level of supply as potentially being elevated not only in '22 that's spilling over into some of the out years, like 2023 as well?

Absolutely. We believe this is the start of a -- going to be a multi-year run of extremely strong supply, which because it's a supply-driven market, means extremely high demand. When we've talked about the 45 tours that would be logically on cycle, we never believed there would be 45 tours happening in '22. It's not -- there is certainly room for growth and the capacity exists for growth, but you'll run into just limitations on routing, you'll run into some limitations and the -- and you have some short-term limitations on things like road crew, buses, stages. So you've got some limitations. Now those all get worked out over time, just as we've been able to grow the business from 40 million fans 10 years ago to 100 million fans in 2019. The market can handle that growth as long as it happens at a reasonable pace. So there can be a nice uptick in activity, but because we need to work through that additional 80% of tours, that's going to be a multiyear cycle to work through that.

Got it. Maybe related to this, non-concert events, right? If you think about family or arts content, that's also been unable to tour. You have a lot of exposure to that through Ticketmaster, which is the vendor in those venues. How do you think about the supply of those acts that might be coming through from now until the end of 2022 relative to a normal year?

Yes, I haven't gone real deep, but the trends macro, the $1.6 billion of pent-up savings, the need to socialize and get out, the parents who haven't done things for their kids would tell you that the Disney on Ice and the Harlem Globetrotters and all of these family shows were going to have elevated demand relative to what they historically have. I don't know what the show count does. But if I were betting, I would bet that -- those been historically sell out the arenas they played in. I would bet they'll have an elevated level of ticket sales for those events. They're priced that are reasonably approachable price and there's a lot of pent-up demand. So no question, great for Ticketmaster. As we look to 2022, we expect that nice uptick in activity. And is also is going to benefit, we talked over earnings, we've already added 5 million net new fee-bearing tickets to our platform. So the more that we add then that gives us obviously even further room for growth, and we'll grow for those new venues as well.

Joe, I just want to follow up on the point you just made about the 5 million fee-bearing tickets. We did notice that in your release. And account wins or new clients isn't something you've kind of historically highlighted. So we did wonder if this sort of signals a greater opportunity kind of post-pandemic to gain market share in the ticketing space. And what's driving that?

We believe, and certainly, feedback from a number of our clients would indicate, Ticketmaster continues to further distance itself from competition because of its capabilities. Because of Ticketmaster's scale, we've been able just to invest more than anybody else in continuing to advance the technology. And we have clearly made a jump in terms of using digital ticketing over the past year. NFL is the greatest example. They were the early adopter and leader in this. They were about 50% pre-pandemic and 97% over the past year done with digital ticketing. And as we've continued to develop tools that help the buildings prepare the shows, price the shows, market the shows, manage the shows, as we've enhanced the consumer experience, we've unlocked the ability to do things like order from your app to pick up food at the venues. All of that has continued to further differentiate Ticketmaster and what it can bring to clients as a partner to help them sell tickets.

And how about developing a global architecture for Ticketmaster? This was something you touched upon at the Liberty Investor Day last year. Can you talk about what types of functionality having that singular tech stack across all regions might open up?

Yes. Well, first, it's part of how we get to our lower cost structure. And then secondly, because the U.S. market is such a large portion, historically, what's happened is you get a lot of investment in the U.S. market to continue to improve the functionality. You get less investment internationally. And then it takes a while to bring whatever you're doing in Ticketmaster in the U.S. to the rest of the market. But they still account for 1/3 or so of your ticket sales. So it's a large portion you're not moving to as quickly. If you want to simplify, Ticketmaster is really focused -- from a consumer standpoint, I'm doing a couple of things. One is, how do we continue to drive conversion, eliminating friction and having the best possible sell-through? And then secondly is how do we use the platform to continue to have new effective ad units that we can sell, that we can further monetize the platform and the fan process through the platform? Well, now if we have a single global platform, everything that we do in the U.S., we're going to be able to replicate to those international markets more quickly. And the more that we can do that, it obviously helps Ticketmaster in terms of how it leverages and monetizes the platform. But it also becomes important when you're competing for clients to have that latest capability that you can deliver for them as well.

You touched on this just a second ago, but we've come to this period where consumers have massively accelerated the types of transactions they do on their phones. Will this finally translate to fans ordering food or beverage or parking on their devices at your venues? And if that's the case, how should we think of the impact of that potentially to per caps?

Yes. I always think about it fans. Fans ultimately do what's in their best interest, right? And so if they perceive value in ordering from their phone or buying parking or doing anything else from their phone, then they'll do it. If they don't perceive any value, then they won't. And you're not going to trick them or game them anything long term into it. So it's our job to make it very easy to do. And then my expectation is that there will be a lot of order and pickup because it eliminates the friction on the line, right? I mean, if you have a good job with your phone and that is an offer, and you walk up and you got 20 people deep, you're saying, "No, no, no. Okay, I'll just order the beers now, I'll order the burgers now. Okay, they're ready in 8 minutes." I mean we're so used to this now with Postmates and Uber Eats and everything else right? Okay, I'll just order. I can use the restroom, I can do whatever. Or I can order from my seat before I go, and it'll be there and pick it up. So if we do a good job, fans are adopting because you reduce friction. If you reduce friction in any environment, then you drive increased use. So for me, it's that simple. And as we talk about how we get to 35 as the next step in our per caps at our amphitheaters, to me, this is clearly part of it. It's increasing the opportunity to buy and reducing the friction in doing so.

Got it. You've spoken recently about how the downtime over the past year give you the opportunity to recreate what you call sort of Live Nation 3.0. 1.0, I assume is everything up to Ticketmaster. 2.0, everything to the pandemic. Can you maybe discuss some of the key changes that you made? Or maybe the question should be asked, kind of what are the bigger opportunities that the past year has kind of awarded you?

Well, a lot of it is organization. A lot of it is how you prepare yourself to go after opportunities. And then there are some singular specific opportunities. But the exercise of reducing our cost structure by a couple of hundred million is not just the reduction in cost. It's the reduction of calcification, the elimination of complexity where you let it build up over the past decade. We were on such a run from 2010 to 2020 in terms of the double-digit growth that we were driving the business. Whenever you get into a discussion, well, should we make this change, you're always, okay, but what's the downside risk for this year because we're running so fast. It's more important to continue to drive growth. When we stopped and we took the opportunity and said, okay, no, how do we really make sure we're running ourselves on an optimized basis? So the globalization of Ticketmaster that we just talked about is an example of that. On the concert side of the business, we separated the promotion side of our business from the venue management. We created a single, called Venue Nation, took all of our buildings that were in our concert business, which was our amphitheaters and larger buildings, combining with our theaters and clubs, hired some new people. And now we have a set of people dedicated, focused on just how do we best run those venues, totally separate vertical, bear the distribution platform, if you will. Whereas the [ tuning ] people or the content people. So we've done similar to whatever major studio has done during this time and then we separated the content development from the distribution side and how we run those because we think the singular focus can be more effective than how we had it before. And then we've been obviously focused on what are the new products? How do you develop new ways that we can extend the relationship with the fan base? So we talked about the streaming and buying Veeps, a great streaming business that we think can be an additional revenue stream for artists that helps us build. We've talked about NFTs and how we can use NFTs to create digital memorabilia since you lose the ticket stub with the visual ticket, creating some form of digital memorabilia we think will be important. So those are specific examples. But I'd say the broader thematic to that is having a set of people, they're thinking about how do we make sure we're using technology to continue to enhance the experience and what we can offer fans and what we can offer the artist. And that becomes its own separate dedicated focus. That doesn't get lost in a big concerts organization. That's just running with 2 missions of booking tours and making sure we're selling more beer. But now we've got some different pieces of the organization. They're looking at all the different discrete opportunities. And so we expect that is going to be a good part of how we continue to drive that growth.

Got it. On a podcast recently, I think Michael teased the idea of some new products you could roll out for fans. I think he mentioned subscriptions or memberships. I don't know if there's anything additional you can say on that. And then with subscription, I think in the past, I remember you saying one of the key challenges to that was the risk to ticket brokers would pile into offerings like that. Is that still a factor? Or is technology kind of improved to the point where you can handle something like that?

I think technology is the unlock to subscription. Because if you're only dealing in paper tickets, then you don't have the identity, you're not going to have a relationship. If you look at every successful subscription membership program, they all are rooted in some level of a relationship with the individual not just firing it out into the general ecosystem. So digital ticketing no question is the unlock to the subscription. And then the question becomes, what's the value proposition that you offer? Just offering a value proposition of, hey, if you subscribe, you don't pay a service fee, that's just changing $1 for another. That's not increasing the benefits or increasing the opportunities. So -- and we were ready to announce what subscription offers are going to be. But you can imagine a lot, what do people care about. They care about access to tickets. They care about certainty of the experience. They care about getting the perks and the benefits, right? Why do we have airline loyalty? Well, for some people, it's the miles. For a lot of us, it's the, oh, if I'm loyal, that means I get to get on early. I get -- I know I can have overhead space for my bag. I know I'm not going to have to get go through the pain of the onboard process, my bags come out faster at the end, right? A lot of it is, what are those incremental pieces that add up to create that loyalty. So that's what we're working through now. But you nailed it, the digital ticket is the key.

Got it. And then maybe to touch upon Veeps, which you just talked about a second ago, I think at one point, you had say or maybe Michael said it, you didn't know yet whether it was a feature or a business. And you have rolled out Veeps technology, I think, to a number of venues. Can you say what type of buy-in you're getting from artists? And then I guess, how do you plan to market and price these tickets? And are the economics here kind of similar to your traditional promotion business?

Yes. It has been the Wild West over the past year in the streaming. Lots of people have different views. Clearly, the very largest artists have been successful and I'm going to do a big production, I'm going to stream it, and I'm going to have a large number of Rabid fans globally buy that stream. That's a limited number of artists that can do that. So as we looked at it, we said, we work with 3,000 artists. How do we create something that can be a value and an incremental revenue stream to the large number of artists that we work with, that we operate with at scale. So how do we use our scale? So our view on the business model was to say, all right, we can -- where we can compete is we can create this as additional value for the artists who works with us, does their tours with us, create more revenue means we can pay them more, it means we can continue to drive higher market share on the touring side. And how do we do that? Okay. Well, one of the things we're going to do is we're going to have a lower cost structure in our streaming than others. Because by wiring the buildings, we can reduce our cost of capture, if you will. So our production costs are going to be lower than the person that needs to roll in separately every time and capture that or needs to set up a separate event. It doesn't leverage the fact that the show is already happening. And then we're going to use Ticketmaster as a distribution platform, as a marketing and distribution platform to help lower the cost of acquisition because we already have a location that has very high traffic of people that are passionate about that given artist. So we're going to leverage those 2 things to have a lower cost, more efficient platform that we can do at scale, that we can have as an offer to the artists that we work with and create an incremental revenue stream for them. Well, they love it, right? I mean who wouldn't love just when you say to them, hey, we're setting up and we're going to make it super easy for fans that can't make the show but want to be able to see a live stream. Why don't we do one on each time zone on your tour, maybe the opening night, maybe the closing night and create some incremental revenue for you? Great.

And probably a pretty decent marketing vehicle as well potentially?

Yes, absolutely.

You touched a little bit about the venues before. It does seem like you've been more active on this front. Recently, you announced plans for an amphitheater in Bend, a music dedicated venue at Houston. So it seems like a continuation of a strategy, which is really picking up momentum in '19 that got put on hold by the pandemic. Can you discuss what are the ambitions that Live Nation has for owning and operating kind of more venues? What economics are you trying to get access to outside of just promoting?

Now we love the venue management business. It's part of why we separated out the Venue Nation team so that we can have more focus on that. I mean, at some level, it's easy, right? We've talked for the past several years about a priority of driving our per fan economics at the buildings we operate on. The more that we can drive them up, and I think they're up 50% over the past 5 or 6 years or from $18 to $27, $28. When you drive your performance to that level, when -- and you're looking at venue opportunities, venue opportunities are simply what's my ROIC of doing the project. So if you can drive your R up by 50%, and you have a lot more -- where the ROIC crosses a threshold and you want to do that. So there's been a big unlock in terms of the range of opportunities that we have. And so we're pursuing them. And we think that's a great long-term way to continue to create more value and continue to grow the business.

And in most cases, are you partnering with a local jurisdiction? How does it often work in terms of the model there?

Yes. It depends on the type of building. On amphitheaters, a lot of those are in partnership with some form of a municipality. They tended to be the ones that own that space. They're looking to create more activity for their local citizens. And so we come in generally some sort of RFP and ultimately agree that we're going to operate it, have it with some long-term lease and we figure out different situations, different split of the capital to outset it. And then when you're talking about things like the 5,000 seater, the terminal in Houston that we announced, that's usually done more in partnership with some local developer. We're usually a piece of an overall development. We're generally -- we've become an anchor right? So in the old days where you'd have a department store as an anchor when you were trying to do something. Well, now our buildings can be great anchors. You do 5,000 people. It's a big draw. It gives you some ability to build out around that. So we're tending to work with the local developers. And again, it's all long-term deals for us to go in and operate it.

Got it. I want to touch upon sponsorship. I think you noted recently your commitments were up double digits relative to '19 or going into '20 prior to the pandemic. I wonder if you could just expand on this. Is this kind of driven by new sponsors? Is this increased inventory for prior sponsors? Any color would be great.

The sponsors, the brands haven't wavered in the past year. Again, you learned things over the past year. Some pleasantly surprised you, some disappoint you. The number one that we long ago talked about was the level of fan commitment where they just kept their tickets. But the other that was almost as impressive was there were a lot of opportunities for sponsors to say, hey, just give me back my money. We're not -- obviously, you're not going to deliver much assets this year. And that wasn't the dialogue at all. The dialogue was almost all saying, Okay, we'll either add a year or move more into '22. Or what are the assets you can create? And that was one of the things behind streaming, was making sure that we were coming up with assets to deliver to sponsors. So I think what we're seeing in '22 is a combination of a few things. One is that some of those things that we pushed from 2021 into '22. There have been a handful of new sponsors. We just announced today or yesterday, some new sponsorship for our festivals in the U.K. that is major sponsorship. But it's, by and large, it's those big multiyear, multimillion-dollar multi-asset sponsors that are driving that growth.

Got it. Joe, you are taking on the CFO mantle in addition to your current duty soon. So I figured a capital allocation question is fair ground now. Maybe you can just discuss priorities for Live Nation coming out of the pandemic. Maybe talk about what the right leverage level is for the business going forward?

Yes. We're a growth business. We're going to continue to focus on being a growth business. We talked about having a multiyear run. We're confident in that. If any of you guys in terms of the models you've built about our AOI growth over the next few years, if you look at where our leverage is naturally over the next couple of years just in terms of where we're at as a multiple of AOI, it takes you back to 2013, '14 levels pretty quickly. So we don't feel like we have the need for a big pay down. I think if you -- I know people like looking at it just as what's your debt to your AOI or free cash. But if you then factor in, the fact that our cost of debt has gone down dramatically over the past 7 or 8 years, and you really look at it from the old interest coverage standpoint, you'd see -- we don't have -- we don't really have any issues in my mind in terms of the level that we're at now. We'll grow into it further, much as we've grown into it and fairly delevered by 2019. So we were in as good of a position as you can be in when all this started with a pretty conservative balance sheet. So we'll continue to focus on growing the business and reduce our leverage by increasing our AOI and free cash generation. And continue to invest our dollars that we're generating and revenue-generating CapEx and tuck-in M&A as we go along.

So on that point, if I go back to '19, Live Nation made acquisitions in Southeast Asia, Nordic, South America, Europe, U.S., Canada, Australia. You have one in Mexico that didn't go through. But are these all active markets for M&A as we move towards reopening? Or are there regions where you're more focused?

100%. We're -- it's a global business, right? I mean it's more global every day. It is -- the social media platforms have truly democratized and globalized demand. So you can Billie Eilish anywhere in the world and she'll sell out tomorrow. So at our scale, we know that part of what we have to do is continue to develop new markets. Now we've done a lot of that by getting even more micro-targeted market in the U.S. and in Europe, as we've talked about, where we're continuing to unlock because we're focused on really, what's the driving distance. And a person that is going to a show at the forum in L.A. is going to be different than the person who goes to a show in Orange County, is different than a person who goes to a show in San Diego. And looking at it on a much more targeted market. There's more for us to do that in the States and in the Europe for sure. But Latin America is extremely attractive, no doubt. Mexico on down. Now it's all very challenging there right now. But this will play itself out. And we'll be talking a year from now about they've gotten through that. And what are the great plans for what the shows you're bringing into Latin America, in the latter part of '22 or '23. So that's just timing. That doesn't change our fundamental strategy.

Got it. We only have about 2 minutes left. So I'm not giving you nearly enough time to probably answer this question, but NFT is a big buzzword these days, got some attention on the earnings call. What is the NFT opportunities, is it bigger at Ticketmaster, is it bigger at Live Nation?

Yes. NFTs, I'll give you my quick version. We don't look at NFTs in terms of what's the bubble opportunity that we can try to get before that. That's not our case. Our gig again is we're scale, we work with 3,000 artists. We work with thousands of Ticketmaster clients. We want to have NFTs be able to be digital memorabilia for any event using Ticketmaster as a platform to sell them. And obviously, from the concert side, with a focus on -- for our venues and for the artists that we work with, what are the opportunities. So you have a digital ticket and you're going to see the Grateful Dead at Madison Square Garden. With that digital ticket, would you like to pay $5 to have a NFT that is, call it, the poster for that show? Or maybe you're a big fan and you want to pay $500 for the serigraph the 1 of 100 or the $5,000 for the 1 of 1, the original, right? It's the same as art in my mind. So I'm not talking about crazy pricing. I'm talking about pricing that is affordable and reasonable. Every artist can do it differently. Some will just want to do it simple. Get it out, low price, get another incremental revenue stream. It's the same with streaming, it's just another incremental revenue stream. Others will want to get super creative, and that's fantastic. And they'll have a higher price point or they'll have a wider variety of price points. So we see it like merch, like other form. It's a digital memorabilia. We think that's here to stay. We think the ability to have that on my screen, if that screen because I'm not going to ticket stubs anymore. I was just rotating through the 30 shows I went to last year and bringing back some memories. That's a great opportunity. Not trying to, again, tell you we're selling things for millions of dollars. I just think it's a real incremental opportunity for us, for our artists that we work with and for Ticketmaster's other clients.

Got it. Okay. All right. We're out of time. I think that's a great way to end it. Joe, thanks so much for being here. Appreciate it.

All right. Thank you.