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

Good afternoon, everybody. Ben Swinburne, Morgan Stanley's media analyst. For the last time this week, I'm going to read my disclosure statement. Please note that important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures all appear as a handout available in the registration area and on the Morgan Stanley public website. Very excited to welcome back to the conference live and in person from Live Nation, Joe Berchtold, who also has a new title since the last time you were here, CFO. Joe, thanks for being here.

Thank you. I think I'm glad we're doing it not on Zoom this time, but we're here in person. So this is great.

Yes, absolutely. So you made a comment -- I think you made this comment at your last earnings call or certainly in our conversation in the past. Live Nation's strategy is really to try to drive supply and tap into what you call latent demand in the concert business. Can you talk a little bit about what you mean by that? And how you go about driving supply and what that means for your financial growth over time?

Sure. If you look back over the last 20 or so years in the music industry, a lot has radically shifted, right? And there's a lot around the impact of technology and the shift away from the sale of CDs and records and shift to streaming and all that. But it's the same technology that has created the social media platforms, I guess we'll be up in a half an hour or so here -- that have enabled artists to truly become global brands and global brand managers. And so because of Facebook, because of Instagram, because of TikTok now, if you're an artist and when I was growing up, you might have heard of the Clash, if you lived in London, New York, L.A. and maybe it gets to Oklahoma City after 3 years or something. Well, now Rihanna is a global phenomenon to anybody who has a cellphone with social media because everybody is aware of her and their friends are aware of her and they -- so there's a full globalization of demand that has taken place with these artists that never -- just an order of magnitude that never existed historically. And then at the same time, what we've learned is that it really is a hyper-local business. So you've got the global on the one hand, and that's why you see us invest -- buying those assets while you continue to see us making acquisitions going into new markets is to tap in more effectively to that global demand. And then the opposite thing you're seeing us do is the hyperlocal, which is -- it used to be, you just think, well, there's just a handful of the major cities and you put some people in those major cities and you route. Well, the reality is, I mean, if you live in L.A., you're not going down to San Diego for a concert. I went down last week and it took me 4 hours in the car to drive down to the...

It's $500 of gas.

Yes. So it's -- people aren't doing that. So you have to really think of, okay, San Diego is a separate market from L.A. and Vegas is a very different market. Orange County even is a different market. So then and then take that and start to replicate that, and you say we cut it finer and finer, so you're going -- you're unlocking massive new areas of demand. And then our job is just to bring the supply there because that demand exists. So whether -- we're indifferent, whether we're taking the person to Singapore, Milan or Denver, you're bringing the artist and you've got more and more places to bring them, and they've got a lot of desire to go to all these places, a, because they're still making their money on the concert side of the business; and b, because if you think about it from a brand-building standpoint, that live experience is the apex of the brand experience. And so they want to get to as many of these fans as possible. That's why you see -- they can make more money to stay in here in the States than they can probably if they go to Asia because some of the routing is more complicated. You can't drive a bus from city to city throughout all of Asia. But they go there, not just because of the money of the concert but because they're building their fan base. They're building their brands. So their desire to get out and go to more places has continued to increase as we have put in place the infrastructure to take them to more and more locations.

Yes. Another point that you and Michael have reiterated over the course of time has been that you think the value in this business accrues towards the content. And you're happy about that, and you want to drive that. We've had Warner Music up here this week, Spotify yesterday. I think everyone gets the idea that there's real demand for entertainment and particularly music consumption. Why is the value shifting upstream to content, something that is a positive for Live Nation and something that you guys embrace versus maybe taking some of the economic wallet out of your pocket?

Yes. In part, we've always been the transparent player in the industry, right? We've been in the business of settling at midnight after every show, very transparently. All the other players that you talk about aren't necessarily right, have the same history. But what we've said, and we've said this for the past decade is that artists, you deserve to really get the economics for the show. And our deal with them has always been if we'll give you the economics from the show, if we can build secondary and tertiary profit streams off of that platform, well, that's ours. And because our scale in concerts lets us create more and more effective secondary and tertiary profit streams. And then we drive those to scale. Well, then that's how we get our business. So I mean we've said to the extreme, we're happy to give the artist all the money from the show because if that continues to drive more activity, then we're going to make our money off the secondary and tertiary streams. And everything in life, really, you're competing in part with giving the artists what they want and in part with what can the other person provide. And if we're willing to provide it all and we have a scale advantage in our -- in our promotion business, that lets us create more effective secondary and tertiary profit streams, well then that will work out for us in the end. And it continues to align us with content.

So maybe one more bigger picture question. There's a lot of tertiary opportunity or secondary opportunity in venue ownership. So you've talked about Venue Nation. You guys have over 300 venues in the portfolio now. It sounds like you really want to try to expand that over time and expand it globally. Can you tell us a little bit about the vision for the venue ownership model and how you think about the capital needed to deploy to drive that?

Yes. Let me start by saying, I think it's more of a venue operation model as opposed to venue ownership model, which is -- there is a slight nuance there. So our overall view is we look where the profits are made from concerts that we put on, the creation of our secondary and tertiary profit streams that I talked about. So the operation of venue is one of those. And as we look at where those profit streams are, we ask ourselves, where are we more naturally an owner of those profit pools, where do we need to put in more focus. So we're not new to this game. As you said, we're operating 300 venues globally today. So it's not like we're saying, "Hey, we're not in this business. We're going into this business, everybody just hold on and trust us". This is a business that we've been in. We've identified that our economics are better, and we have some leakage when we don't have it. So we'd like to continue to expand it. We do what we do internally, which is we break things into pieces. When we identify there's an opportunity. When we identify there's an opportunity in the hospitality experience on site. We started talking about our average per fan revenue that we got at our amphitheaters. Well, one of the things we did 10 years ago is we hired somebody to run our hospitality, our on-site operations separate from the GM who was more focused on the operational side and somebody who is going to be on strategic. What is it that we're offering our fans, how are we marketing? How are we positioning? How are we pricing it? What are the pieces? So we broke that out. We gave it a lot of focus, and we've been talking every year, we continue to grow at a couple of bucks a year. Well, the Venue Nation is the same thing, which is we've been doing it. We've seen this as an opportunity. We're breaking it out. We're going to give it more focus. Generally speaking, it's operation as opposed to ownership. It's nothing new. On -- and everything that we're doing here is highly AOI generative. So it's not like we're moving into something where we want to go deploy a lot of capital and have a low level of AOI. We're only looking at doing things that have very high AOI generation. And when we do the Austin arena type situation, the one-offs, those situations all have, I mean, pretty straightforward asset-backed financing on very attractive terms that can effectively self-fund. So I don't think this has any massive implications for our balance sheet or any issues like that. It's just -- it's another area that we're now focused on extracting those profit pools.

And I know you're driving AOI, but obviously, you're also putting capital work. You guys seem to be pretty happy with the returns you're getting on that. I mean I'm sure you're focused beyond just AOI at the...

100% Yes, 100%. Yes.

Okay. All right. You guys had -- I don't know if you called it an Investor Day, but an event weeks ago. And you outlined 8 AOI growth opportunities. I can only think in groups of 3. So we try to organize them in 3 buckets by your segments. So for concerts, Joe, tell us your expectation or how we should be thinking about fan growth based on what you guys have seen so far this year? And how you think longer term, you can drive that volume side of the business on concerts?

Yes. Clearly, we've guided the fact that we think we're going to have double-digit growth in our concert attendance this year relative to 2019, which was our previous peak, a very strong year across the board from amphitheaters to arenas to stadiums to festivals. We've already booked over 5,000 shows in those major venues, sold 42 million tickets. So well ahead of where we were in '19, and some of that benefits from timing because more things went on sale a little bit earlier, but all of those indicators are a very strong year. I think as some people heard from a Q1, from a timing standpoint, it's going to be even more Q2, Q3 seasonal because we are really starting our tours later than we started them in '19 given the uncertainty as we were doing our planning 6 months ago. We just said, let's be safer. We know we can get the volume of availabilities, the rooms. We know we can fit in the tours to drive the volume. So let's start it in Q2 to be safer. It turns out we were brilliant. But -- so I don't want anybody when they look at Q1 to somehow to say, but we saw a double-digit growth, but why -- so just so there are no surprises, but continue to see that being very strong. I think if you look at us historically, over a 5-, 10-year period, whatever you want to look at is, and I'll just ignore 2021 for now, it's somewhere between a high single, low double-digit fan growth average, and that's what we expect to be able to continue to do over time. I think it's an industry that is naturally growing kind of mid-ish single digits, and then we're continuing to take share. And that number bounces around year-to-year. It's not going to be linear growth. But I think over time, our equation for how we're continuing to drive it is the market is growing. We're taking share. We're continuing to do more to extract more economics out of the event, and that's how we deliver our double-digit AOI growth on average over time.

Sure. So that was my next question, which is on the revenue per fan, which has been really strong in the sort of, I guess, early parts of this recovery, but it's interesting we had Disney here, their theme parks per caps are up massive in '19. Even the movie theater exhibitors here are seeing -- selling out of popcorn. How do you -- how would you advise us to think about the normalized growth in merge and F&B as you guys continue to grow that side of the business, particularly as we come out of this year. Do you think we're at a new growth rate than we've been historically.

I think we're at a new growth rate. Not -- probably not at a new growth rate. I think if you look at us historically, again, we're not -- the examples you gave are a little bit of a mishmash right? You have some in that example that were probably basically flat forever and have jumped up. And that, to me, is a different scenario than ours is. We've been adding a couple of bucks a year for the last 5 years. So I don't know -- I mean the best predictor of the future is usually the past and past performance. So absent anything else, I would say, no, you expect to be able to continue to grow that business a couple of bucks a year for a period as long as we're telling you that we've got a fair bit of runway, which we continue to see a fair bit of runway. So -- that's more what I see, again, on average. It's not going to be the exact same every year. I was explicit in our -- in one of our earnings call that roughly 1/3 of the growth last year was due to not having some of those lower-priced ticket promotions that didn't have all the same revenue streams associated with them. So you'll have that, you're going to deal with this year. But that's all noise in the -- if you're talking about the fundamentals of the business and the fundamental growth opportunities that we continue to see.

Yes. But in the fourth quarter and now you've seen some really strong per cap, revenue per fan growth and spending growth.

Well, we saw a very strong per fan growth through '21 and that's what we gave in '21. In '22, we haven't had the amphitheater. We haven't had the festivals yet because we're not in that part of the year. So I can't speak yet to what our numbers are. I've got some early indicators, some good early on, early sales of VIP parking and various upsells, but I don't think we've got the numbers yet to have anything truly clear on that side. On pricing, which is the other piece of the -- or one of the other pieces of the overall equation, that absolutely continues to be very robust. February was the biggest month ever for platinum ticket sales, Ticketmaster. We continue to see across the portfolio and our the U.S. concert business as of a week ago, were extremely strong levels of platinum ticket allocations, which is helping us capture the value and the pricing.

So I wanted to ask you next about Ticketmaster. So that's a good lead-in. You guys highlighted a number of opportunities a few weeks ago. One is international expansion of that business. I think you put a $175 million AOI opportunity against that. You've talked in the past, though, that the ticket business overseas, it has some structural differences in the U.S., but maybe expand a little bit on how you think you can grow that business and how the economics compare to the U.S.

Yes. The couple of main differences, first, when you look at international versus the U.S. is in the U.S., the tickets tend to be controlled by the venues and then they have exclusive ticketing arrangements with a provider. In internationally, you tend to have the promoter control some of the ticket and the venues control some of the ticket. So you have 2 different parties involved that you need to negotiate with, which can be good or bad. And also the service fees just tend to be lower. You tend to have closer 10%, 12% service fees as opposed to the roughly 20% service fees that you would average here in the U.S. The big change that we talked about with Ticketmaster is moving to a single global platform. And we finally, over the last couple of years, used the opportunity to really force here is a single platform globally. Let's take all the innovation that we have driven in the U.S. with our scale here in the U.S. and bring that internationally. And I think that was a big part of how we were so successful continuing to add a lot of tickets to the platform over 2021. It's because they see the capabilities of the Ticketmaster platform relative to the competition, and we have an attractive platform. And in addition to it, just being an effective engine to sell a lot of tickets at 10 a.m. on sale, Ticketmaster is getting more and more sophisticated at finding additional ways to monetize that journey while you're buying the ticket. They're creating their own flywheel where it's not just what's the service fee that I get to keep because in a competitive market, right, you're always battling with the venue against your competitors, who's going to pay the venue and so on. So like other businesses, you got the, how do I continue to add more things that I'm monetizing? What are my ad units? What's my ad network? What are my upsells? What's my insurance, how am I selling insurance? How am I using if you guys have been on the site Rock to deliver ads, which is -- which are additional products. The more that the Ticketmaster can do, the more effective it is at monetizing that consumer, the more money it can make, the more money it has to share with the venues, the promoters that's trying to get ticketings with. So it's got its own version of the concert flywheel, if you will, that it can continue to make more money while being a very effective competitor in going out and getting those contracts.

Right. And all of that would apply internationally just...

Yes. And so internationally, it's when you bring in that capability to better monetize that you have in the U.S. and you expand that internationally, well it just gives you -- it's -- so many of the things that we talk about, it's the same general thematic, right? It's -- when we talked about the Venue Nation, I've given the spiel a lot, it's well, obviously, we're in a better position to operate more venues if we're better at operating venues. So when we were making $18 a head at our amphitheaters 6 or 7 years ago versus $37 last year, well, guess what, the R on your ROIC is a whole lot better. And if your IC stays constant, your returns are a lot better and you have a lot more opportunities opened up, and so you can grow that 300 right? That's pretty simple math. Well, the same thing holds true with Ticketmaster. The more effective you get at the overall platform, the overall monetization, the more you can continue to invest and to differentiate yourself.

Sure. The other -- another area you highlighted a few weeks ago is the secondary market and shifting that volume over time back into primary aligning with the content, et cetera. I think you sized it at $100 million. But you and Michael did note that the secondary market has been growing faster than primary. So I guess the question I have for you is, why is that? And why do you think that sort of, I don't know, boomerangs back over time back into the primary?

Well, I think it's a reflection of our economy and where our economy has been headed for certainly very clearly for the last 15 years coming out of the '07 recession, where you really see a further dumbbelling of the economy. And with that dumbbelling, I think that you -- the dumbbelling meets shift from goods-based economy to experience-based economy, be a little extreme. You have very high inelasticity for the best experiences for the best tickets. So even as we continue to put more tickets in platinum pricing and continue to work to capture more of that value, our concerts are still selling front to back. We're still selling the best tickets first and working the on-sale 10 a.m. It's the first rows that are selling, and it's working its way back even as we are capturing more of the money. So and then a lot of those tickets are still -- the scalpers are grabbing and ending up on secondary at even higher pricing. So there's just a real inelasticity of demand that we've seen for the front of house. Now the great thing about concerts is that also has allowed the artists to price the back of the house to be very affordable. So it's very easy to go sit on the lawn for -- as a very affordable event on a summer night for $35 tickets or to go sit in the back of the arena. So I may not be able to afford that front of house for Billie Eilish or the weekend, but I can afford to be there and have that social experience. So we're seeing that kind of dumbbelling taking place with pricing, very affordable and very expensive, coexisting at the same time. And the secondary just reflects that inelasticity. And the artist is, as I said earlier, is a brand manager. So they're just taking it in steps to capture that value. They don't want to be extreme. Harry Styles wants his fans to know they can afford to get a good ticket. And he's willing to leave money on the table in order to have that relationship with his fans. And other artists are saying, that's my money, I want to go get it. So you've got a very wide range. It's going to evolve over time. It's not a single-day event. We've shifted hundreds of millions of dollars already in our concerts from secondary to primary. We're continuing to do that this year. When I tell you, primary tickets are way up. That's a code for -- we're moving a lot of money from secondary to primary with those seats. So that will continue. And then every couple of years, we take stock and we see what's the relative, how much have we shifted versus how much continues to grow in the secondary. But at the end of the day to us, secondary is a service, it's a piece. It's not a stand-alone, certainly with our strategy.

Okay. And I want to make sure we get through a couple more items but just quickly on sponsorship. Can you just remind us about the demand trends you're seeing there and some of the big opportunities you see to grow the sponsorship business?

Well, first of all, we're like everybody else, right? Fintech, crypto, they're very keen to continue to expand what they're doing and to connect with our 100 million fans. We have a great demographic for a lot of those businesses, they're looking to get in and disrupt or establish. So we've got a lot of very exciting conversations with them around how it is they can use our platform to move in. So I think that's a particularly exciting area. Russell and his team have been doing a great job developing assets that are appropriate for their businesses. And in general, they're continuing to break it all down and how do we create more categories? How do we create more assets. A lot of work at Ticketmaster, the innovation they've done around how they're putting ads through the checkout. Some of the advertising networks, you'll see more and more ad units integrated in a way that I think is -- adds value to the fan. And a lot of this now is you can't just throw up your banner ad, right? You can't just throw up your banner at the show. You have to figure out how as a brand are you adding value to that fan experience, whether it's buying the tickets or going to the show, being at the show, where is the value for the fan. And that's what Russell and his team have been great at is, is working with the brands and figure out, given what the brand stands for, what you're trying to accomplish with our 100 million fans, what are the assets we can create. And because we own the space, we can create our own assets.

And I'd imagine the expansion on the venue side is going to help create more inventory for you as well.

Absolutely. We make a lot more in sponsorship when we have a fan at one of our venues versus when we have a fan at a third-party venue.

Okay. I did want to ask you, just as this has been coming up throughout the conference for obvious reasons, Russia, Ukraine exposure for your business? I'd imagine it's pretty...

De minimis. Yes. I mean it's -- we have most of our -- you start in the U.K., our U.K. business is massive. We've got very strong European business, Germany, France, Spain, Italy. The further east you go, it dwindles down, where we have activity certainly in Poland, Czech Republic, some in, call them, the more Western of the Eastern, but we haven't been active in Russia for some time and the other countries around that de minimis.

Okay. I wanted to ask about return to live sort of globally. So obviously, we're here in person in San Francisco. The U.S. market feels like it's pretty good. Shows going on tonight in town. But where are -- are there parts of the world where -- that are meaningful to you guys historically that you look at '22 and it's still a little bit of uncertain?

I would say U.S. -- same story as we've had. U.S., U.K. absolutely open. Europe opening over the course of Q2. At this point, it's probably more driven by what was planned 6 months ago than technical limitations. But it's ramping up over the course of Q2. By the time you get to the summer season, the festivals, I expect that to be flat out. Latin America is actually picking up pretty fast. You have Coldplay and others going down to Latin America. You've got festivals going on down in Latin America. So Latin America, OCESA are popping back probably quicker than I would have thought, but they're doing great. I think Asia Pacific is still the timing question mark. In part because if I'm an artist and I'm saying, okay, I'm doing my come back. It's been a couple of years. I want to start in the U.S. And then I'm going to go to the U.K. and then into Europe and then I'll get to Asia Pacific, right? Oh, I can't, oh, U.S. is -- doesn't have the slots. All right. I'll start to Europe, and then I'll come to the U.S., right? But usually because of what I was talking about earlier where Asia Pacific is sort of a semi-combination of, yes, it's making money, but it's more expensive. It's building the fan base. That's more where they end up towards the end of the cycle as opposed to really have that in the beginning to drive it. So just from a planning standpoint, that puts you later in the year for that market. Obviously, a few of the countries there are China, in particular, is more complicated in terms of the COVID requirements. That's not going to drive it at this point. I think so much is just what's the natural cycle and sequencing of a tour.

And for a typical prepandemic year for you guys, those Asian markets are what?

So I mean, not more than 10% probably.

Okay. For the last almost 2 years now, Joe, you guys have talked about $200 million of OpEx, and now the moment has arrived. And you've always made that comment where you said it's harder to take the costs out and easier to keep them out.

Well, my comment is it's easier to take $1.5 billion out than it is to say, $200 million out because when we sat here 22 months ago and Michael and I said, "All right." I think it was the John Malone quote that he gave us was the -- it's now how long can you hold your breath. And we said, all right, well, we're going to be able to hold our breath because we're going to make sure this company makes it through and we're going to take the steps we have to. And we all took big pay cuts, we took a lot of costs out. Because we took so much cost out, it made it easier to then build it bottom back up as opposed to be -- normally in a company I've been through this too many times. They say, yes, we just took 10% of a cost out of everywhere. Well, it never lasts, right? It's only when you structurally change things, which is hard to do. And we were running flat out for 10 years, and we made the trade-off. I was looking at it and things would drive me crazy. But we go, you know what, at the growth rate we're driving, it's more important to sustain a growth rate than they take out a little bit of cost. When you're stopped, you take out the cost. When you come back, you figure out how you're operating more efficiently. The Ticketmaster is a great example. Going global matters a lot for the future of that business for how it grows for what its capabilities are. It also saves a hell of a lot of money. At the end of the day, we saved our money mainly in 2 places, where we spent it, ticketing and concerts. And how do we run those businesses a bit differently. We talked a lot about concerts. So we talked a lot about Ticketmaster and how that came about, and we went through a lot of the same exercises on the concert side.

Yes. My question was basically, as we see the revenues come back in force this year, we should be seeing those savings show up in the P&L...

100%. 100%.

Okay. Maybe last question, another topic that's come up a lot over the course of the conference here, which is leveraging blockchain. I think you and Michael have talked about looking at that technology, NFTs are a big topic, particularly in the music space, some interesting stuff you guys are doing with Ticketmaster. What should we be looking at from you guys on those technology initiatives for the company?

Well, we're always paranoid about what is the next feature. How does it change things? How does it define it? There's a new -- there's a great new thing every year or 2 in life. At the end of the day, in ticketing blockchain is an infrastructure technology, right? It's a different way of maintaining rights. We've got the same capabilities today with our digital ticketing system, where we centrally manage identity and the transfer of identity and blockchain is a different infrastructure technology to the same purpose. So when and if it is lower cost, more efficient to do it that way, then you do it that way. Right now, it's an energy inefficient, expensive and certainly couldn't handle the Adele 10 a.m. on sale. So will it get there? Will it have some applications? Absolutely. So we'll continue to be very involved. NFTs or the next version, right? It's all versions of the same idea. Most of it forgets how holistically complicated ticketing is. Ticketing is far more than just a right that needs to get managed. It's an on sale. It's marketing. It's the access control. It's a lot of different pieces that Ticketmaster has built over the years. it's the manifest management. It's pricing. It's all of these things, which is -- if ticketing were so easy, right, I assure you Ticketmaster would have been disrupted before we bought it in 2010, and we've been very focused on renewing and improving it since then. So it's just not as easy as I think one may think at first blush.

Yes. And do you think that allowing people, you guys, I think, showcased some sort of NFT digital ticket a couple of weeks ago, it's kind of cool giving people an ability to actually own something digitally. Is that interesting?

Yes, it's a digital memorabilia. I think I hate the fact that I don't have my ticket stubs anymore. When I go to a show, I always had a spot that -- I'd put those up. So to have some digital memorabilia is great. Now is it just -- is it cute? Or is it big? I don't know. I'm not that smart, but I think we should have it. We should have the capability. And if there are some artists that want to be highly creative, that can use our platform to sell it and make a bunch of money, great, then we've just helped them make more money, and our platform has continued to be more effective. And if it's more just a piece of memorabilia, that's fine, too, because that's good for the fans and good for the artists. So our job is to make sure we cover every avenue. We're not always going to necessarily be the ones predicting which of these are massive versus a nice feature.

Well, Joe, we're out of time. Really exciting time in your business, and I can't wait to not talk about the pandemic with you next year.

No, this is great. I'm excited. We're back at shows. Thank you, guys.

Thank you, everybody.