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

My name is Ryan Sundby. I'm the analyst here at William Blair that covers Live Nation. With us today is Live Nation's Chief Financial Officer, Joe Berchtold. As most of you know, Live Nation is one of the largest live entertainment companies in the world. They put on more than 40,000 shows and tracking more than 100 million -- or almost 100 million fans prior to the start of the pandemic. Additionally, they are one of the largest global ticketers in the world. They span across 40 countries, 14,000 clients and generate more than 30 billion in annual GTV. Before we get into our chat, I have to inform you that you can obtain a complete list of disclosures and potential conflicts at the William Blair website. Lastly, the breakout session for Live Nation will be in the Mayor Room on the second floor.

So with that, let's get started. So Joe, pre-pandemic, you had nearly 100 million fans attend your shows. I think a month -- a couple of months ago at your Analyst Day, you talked about 125 million is the next target, and maybe seeing the concert TAM expand from $25 billion today to $40 billion over time. This is a growth stock conference. I think people like those numbers. So maybe you could talk us through how the global touring industry has evolved over time, and where do you see the biggest growth coming from, from here?

Sure. Well, first of all, I just want to get rid of this almost 100 million. So that's our objective this year is almost -- more than 100 million would be a much better headline than what you're saying. Yes, look, this is a -- we're very fortunate. We're in a growth industry. We have a lot of secular tailwind in our industry. We've had it for the past 20 years. We've had a true globalization of our business. The digitization of recorded music has democratized distribution. And so historically, when I was growing up, listening to music, acts would break in London, L.A., New York, get to secondary, tertiary markets over the following years maybe. Well, now with the digital distribution platforms, it's global. Everybody knows the same artist. And because of the social media platforms, the TikToks, the Instagrams and everything else, the artist has a global following. So Olivia Rodrigo is just as big in Milan to Buenos Aires to Seoul as she is in -- yes, yes, as she is in L.A., New York or London. So you've got a true globalization that has taken place. And as the global economy has shifted from goods to experiences, you have another tailwind. So what it's created is very much of a supply-driven market that when we're able to bring the artists and the music, you've got latent demand on a global basis. So as we look at our TAM, and I guess TAM has been in the press a lot lately and getting a lot of what's your TAM? What's everybody's TAM? So everybody -- and by the way, you can make your TAM as big as you want. Just declare a number, right? It's irrelevant. A TAM in our mind is a piece of business that you have the ability to compete in and compete in successfully and build your sales, right, and build your market presence. That's a relevant TAM. So I'm not going to sit here and tell you that our TAM has recorded music or our TAM is theme parks because we're in live music. Those aren't relevant TAMs for us, but again, you can throw that term around. But -- so we actually spend a lot of time thinking about what is our market today and what can our market be if we continue to be successful. And the concert piece of our TAM, which we think is about $25 billion today, we absolutely believe that can grow to $40 billion over the next several years by continuing to bring supply to that latent demand in more and more markets. And in some of our more developed markets, what that has translated into is what we call our hyper local strategy. So historically, you'd have a great promoter here in Chicago, they'd be focused on Chicago, but they didn't really think about -- and you gave him a territory because it sounded better to give somebody a territory. But they didn't really focus on St. Louis, Minneapolis, Madison, other major cities that are reasonably close by. They say off we go in Chicago, everybody will come see Springsteen in Chicago. We don't need to go to all those markets. We know people don't actually travel like that in general to see a show. So as we started getting much more focused and say, no, no, there's -- any place that is a city large enough to have an arena today or that we can put one like Austin, that we put an arena in, those are all markets that we need to be focused on those markets. And a couple of years ago, Austin had no concerts because they didn't have an arena. We built an arena. Now they hold 70 concerts a year. So we're continuing to focus in on those opportunities in, call it, our developed markets. And then in new markets, it's how do we continue to open up new areas? So moving into Mexico with OCESA, pushing through much greater in Latin America. Latin America has huge opportunities, right? A number of cities there that have 1 million-plus or 2 million-plus population is a great opportunity for us to continue to bring more artists into those markets, which then drives and builds the TAM to the $40 billion that we've talked about.

That's great. Okay. Clearly, COVID had an impact on live events. And now we've got macro recession fears eating into discretionary income. Can you maybe just talk a little bit about where you are in terms of recovery for COVID? Are there demographics, are there markets, are there geographies that aren't fully reopened yet? And then on the macro side, could you maybe talk us through what you're seeing there in real time in terms of kind of the consumer response?

Yes. In terms of the markets, if you look at U.S., U.K., Western Europe, 100% back in terms of show activity, ticket sales, attendance, per cap, across the board. It doesn't seem to be demographic, genre or anything else constraint. In Asia, you have Australia and New Zealand fully opened. Because Asia has been more uncertain and given the lead time associated with bringing tourists to any given market, I would say it's slower this year that you'll -- because we're not -- everybody looked at it and said, "Well, I can go tour U.S. I can tour Europe. I know those aren't going to be a problem. I might as well start there, and then I can get to Asia later." So you'll see the pickup in Asia towards the end of this year. But that's the only market that I'd say isn't really operating at full speed. In terms of the latest -- I'm not going to get into every 2 weeks now, we're starting to give new data. But in general, we haven't seen anything that gives us concern from consumer behavior, consumer demand. At the high end, you still have a big shift to market-based pricing in the tickets while the secondary continues to grow rapidly. So you're seeing no softening in the high end, strong arbitrage, which is a buffer against the high-end demand. On the bottom quartile, if you want to call that, we just had a very successful concert week, where we sold over 2 million tickets, same number of tickets as we sold during our concert week in 2019, difference being this time, we sold them for $25 a ticket. Last time, it was $20 a ticket. So we're seeing still solid demand on, call it, the more promotion-oriented. And then across the board with our per caps, we're not seeing any softening there. So we're not seeing any issues at this point in terms of the consumer pullback. Obviously, some of the pressures that have existed have now existed for a handful of months. The survey results that we get continue to be very positive about people's commitment to wanting to go to the live events, to want to go to concerts. I see a lot of surveys. You guys do a better job than most, but a lot of surveys, they go out and they ask the population or -- I mean, I love these headlines. Are you going to a concert this year? And 70% will say no. So the headline will say, people not going back to concerts because of fill in the blank, COVID, recession, inflation, pick your favorite catastrophe of the week. What they're missing is that 5 years ago, 10 years ago, 20 years ago, 70% of the population wasn't going to concerts. So it's -- again, it's very interesting and wildly irrelevant. When you ask people who go to concerts or inclined to go to concerts, what's your behavior going to be? What are your priorities? Where are you cutting back? With that group, which to us is the relevant group because those are the ones that are going to spend on us, that group is extremely committed and will continue to be spending as a high priority on going to live events.

Okay. It sounds like the shift back towards experiences is certainly strong and the powerful force there, okay. You mentioned per caps, and this is something we've seen across a number of industries, whether it be movie theaters or theme parks. And you guys have clearly been making progress on your per caps before. But can you talk to us when we see a 30% step up there, how sustainable that is? And what's changed within the company in terms of thinking about driving per caps higher?

Yes. I think the first thing I always look at when I see these sorts of shifts and where we've seen the market even on a macro basis, you get [ whip side ] and the closing trade and then the reopen trade and everything else is I think it's always important to put things in context, in the context of what was happening before. If our per caps were flat and then all of a sudden jump, you say, "Wow, that's probably not sustainable," right? If you see people on a relatively consistent trajectory, then you say, "Oh, okay, then maybe that is sustainable." So I'd go back and we declared 7 or 8 years ago that continuing to improve the experience at our shows is a high priority, changing our mindset to be hospitality oriented. And what are all the steps that we need to take to give everybody who goes to a show every opportunity to spend every dime that they want to be able to spend at that show? And we made progress taking that from $18, adding on a couple of dollars a year pretty systematically. And then it jumped. And it's jumped for a handful of reasons. Some of it is a structural onetime. We shifted from -- we shifted to all cashless. Before -- in 2019, we were running probably around half cashless, half cash. And at that time, we saw that if you spent and purchased on a credit card, you tended to spend more money, bought more items, bought more expensive items. We didn't know if that was self-selection or if that was somehow because of the credit card usage. What we've discovered over the last year is actually no, it's because of the credit card usage. And when people use their credit card, they spend more than when they spend their cash. So that's a structural onetime increase. Last year, we had some benefits because we didn't have the level of promotions that we had. But we believe that if we look at the growth that's occurred, that growth is going to be maintained. And that's not saying that you're going to grow at a 30% growth rate, but that saying that we see nothing that would give us any reason to believe that the growth that we deliver this year is going to be temporary and is going to be going backwards.

Got it. Okay. Can you talk about then maybe how that influences how you view owning and operating venues? So I think today, you own 320 venues. That accounted for about 40% of fan attendance pre-COVID. You're going to add 20 more this year. But can you talk us through what you're looking for in terms of what you want to own, you want to own it or just operate it? What are the benefits and disadvantages there? And then maybe the capital needed for that.

Yes, as you said, it's about operating. It's about being able to be the one that provides the hospitality, first and foremost. And secondly is the one that can control the sponsorship and the connectivity between the brands and the fans at the events. And then where you are between operate and own is a pretty broad spectrum because I can go in and lease and just take a finished building. I can lease and take a building that I need to put in a bunch of capital into. I can go into -- I can build the building, I can take a dirt lease from a municipality to go build an amphitheater. So it's a pretty broad spectrum that's all going to be situational in terms of what does it mean to operate. But our focus on operating on some level is pretty simple. And as we focused on per the last part of our conversation, on our per caps, our on sites, if you double that, well, the return portion of your return on invested capital goes up a lot. So if your return goes up and your invested capital stays flat, well, there are now a lot more projects that are going to be the threshold to create value for your shareholders to go do that. So all of a sudden, I'll go back to the TAM, right? Your TAM explodes because the portion of the market that is addressable for us where we have the ability to successfully compete goes up substantially. So we look at now that venue operations as a core business, as a core skill that we have that we think we can drive a lot of shareholder value with. And so we're much more focused on it. It's not a -- and this isn't a big shift. This is an incremental. As you said, we're already up 325 venues that we're operating. So it's not like we're just declaring we're going from a 0 capital model to all of a sudden, right? We have a lot of amphitheaters. We've had a big amphitheater network for some time, a big theater and club network, a handful of arenas. So we're continuing to pursue all the opportunities because we just create more value doing it that way.

Got it. Okay. Another TAM for you here. Second side here of the flywheel is ticketing with Ticketmaster primarily. Clearly, the clear leader here in the U.S., but just at your 2 largest GTV quarters ever in the company history in Q4 and Q1. Can you talk about on the primary side with confirmed show count up so much and tickets sold up so much, has that increased visibility because you're just selling further out? Or is it increased volume on the platform where you're maybe unlocking that latent demand you talked about?

Oh, it's absolutely increased volume. You had some increased -- if anything, you had -- because you had more sales early on, for our concerts, right, those -- a lot of those happened last year, a lot of those were rescheduled. So what's been going on over the last 4 or 5 months, if anything, is the opposite of that. So the strength of Ticketmaster's performance is we've got more concerts, more people going to shows. And Ticketmaster have been continuing to successfully compete in the marketplace and build share.

Okay. And then on the secondary side, that's been growing even faster than primary, which I think is not what you'd want to see over the long term. I guess that speaks to strong demand, but when do you think that starts to balance or even shift back towards the opposite way?

Well, the past 5 years, every quarter, I thought that was the quarter that we finally had succeeded. And when I looked at the numbers back in January, and we had moved 70 -- $500 million across 70 million tickets back to the artist side of the ledger and taking that out of the arbitrage. And then we did our market analysis to see what was going on with secondary, I figure well secondary has to have gone down with that big of a shift that fast. And no, lo and behold, it was growing even faster. So inherently, because we price tickets is a little bit of a trailing indicator, and even when we use market-based pricing, we're still making sure we're not going to the same top take dollar as secondary. We're always chasing that. And as long as we continue to see such inelasticity of demand for the best tickets, the secondary is continuing to outpace. It's in concerts. By the way, the same thing, try buying a ticket to the game tonight in San Francisco, right? Those prices are insane. It's the same thing. The people with money are looking for those great experiences, and they are paying whatever it takes for a very scarce commodity called a good ticket.

Yes. Okay. So last quarter, 72% of attendance came through the gate on a digital ticket. That's up from 33% in 2019. So huge gains, right, on the digital ticketing front. I know not maybe all geographies and venue types and all that were open in Q1. So one, is that a good number to kind of think about across your broader network? And then two, can you talk a little bit more about the benefits that will accrue to Live Nation from moving towards the digital ticket?

Yes. Yes. COVID accelerated digital ticketing, no doubt about that. Because all of a sudden, all the teams, all the buildings that were nervous about saying, can we force people to use digital tickets? The season ticket holders want to have their paper ticket. People don't want to do it on their phone. It's too complicated. All that went out the window when they decided they had to do contactless. So even the Super Bowl this year, which was one of the things that, that would be the last to fall because everybody wants that commemorative ticket on their lanyard was all digital. So I think that philosophically, the concerns have gone away. Now it's just executional. You got to get the right equipment in place at every venue to be able to be contactless. I think we end the year at 80%-ish run rate of digital ticketing and then just the final pieces will fill in over the couple of coming years. But it's -- we've shifted to a digital world. It's absolutely fundamental in terms of thinking about our continued shift to more of a direct relationship with fans on our behalf, on the artist's behalf, on the sponsor's behalf, it has tremendous implications for our ability to sell tickets to upsell, to drive on-site per caps, to deliver more ad units, if you will, to sponsors and advertisers. We're looking to do more with fans and more with fans they know are relevant for them. So it is no doubt it's transformational to the ticketing industry and really to the live events industry in terms of if you're a team, you've really been a B2B operator. You haven't known who your fans are when you really break it down. This gives them that connection at a whole another level.

Yes. Okay. With more than 10,000 ticketing clients, clearly, you're going to have some big wins and losses from time to time. I think last year, you added 17 million net new ticketers, 8.5 million so far this year. Can you talk a little bit about what it takes or what opens that door to winning new business? And then when you do lose an arena-type business to someone else, what's been the factor there that's kind of kept that from -- or allowed that to happen?

Yes, it's a competitive business. Everything is a competitive business. People will ask me all the time, what about competition? Yes, competition. Everything -- every business has competitors. We always have, we always will. Some will come, and some will go. Some will be rational, some will be irrational. But you're always going to have competition. And yes, you know what? The world is harder today than it was 10 years ago and a lot harder than when I started 35 years ago and probably going to be tougher 10, 15 years from now. So you should assume that with competition, and then you'll only be pleasantly surprised. But I think one of the things that's made a real difference with Ticketmaster is past few years and one of the resets we did with that business during COVID is to say we really have to be a product-driven business. And we reorganized around being a global platform, product-driven business with the philosophy that if we create the best products, then we're going to win. And I think that it's proven out empirically as again, I don't -- yes, you're going to win one here, lose one there. In the scheme of things, that shouldn't be what your obsession is. Your obsession is, give me the tally, wins and losses, 17 million tickets won. That's the equivalent of, depending on the arena size, 40 to 50 arenas. Okay. That's a pretty good net. Other people take out ads for 3 weeks when they win one arena. So we added 40 to 50 equivalent over the course of last year. That's pretty good. It's because we had superior product and particularly internationally, the digital ticketing that we talked about. That's what ultimately is going to matter. And then, I don't know, do you lose one because somebody's brother-in-law was in the wedding of a sales guy. Fine. Those things are going to happen in life. But if at scale, we're continuing to add, we're continuing to build great product and we deliver results and we sell tickets effectively for our clients then Ticketmaster will do okay.

Got it. So sponsorship and advertising is the third side of the flywheel here. You've done a great job growing that business, but it's still a relatively small piece of global...

Huge TAM. Big TAM, big, big TAM.

Big, big TAM. $40 billion TAM. Again, let say you've locked in 90% of your kind of budget for the year. You've had huge increases in those that spend more than $1 million. As we look at how does music take more share of that TAM, what is it? Is it getting that $1 million spend to $2 million? Is it more content and more live places? Is it more online content? How do you keep growing sponsorship and advertising from here?

Yes. I think a few things. One, and not to keep going back to it, but digital ticketing is huge. The ability to let brands not fire and forget a message, but to actually create a direct connection. And if I'm Hilton, I don't want to just have some generic ad or some generic activation. At the amphitheaters, I want when you show up, if you're a Hilton Diamond member to get a text message that says thanks for being a loyal Hilton member, please go to the VIP Club on us. Thanks for being a Hilton Blue member here on the lawn, here's a free lunch here on us. Deliver value, deliver a connection, build that loyalty, create the why is it that it matters to me that I go and achieve this level? So those things are going to have real value. And if it's real value for a sponsor, then it's -- that's revenue. That's, to me, the definition of a revenue opportunity for us. So part of it, again, you can simplify it to creating new ad units. I think it's even more create new ad platform if you want or really when you think about that digital ticket. And then what our team spends a lot of time doing is thinking about, well, how are we -- how do we expand our relevance to more brands, to more categories, more industries. We didn't -- we're different than most. We don't just have -- we don't have 18 minutes of ads, 30-second ads every hour, right? We're not that type of business. So there was no official 5G provider for our amphitheaters until we came up with that in working with Verizon. There was no augmented reality for our festivals partner until we came up with that with Snapchat. So our limitation on many levels is simply what's the creativity of our team to work with brands to come up with ideas on how do they want to be relevant and add value to the concertgoing experience or to a live event more broadly via Ticketmaster. So that's the -- we come at it from a very different lens than most advertisers, which is also why I think that we're just -- we're less susceptible to the short term I'm just going to do less spot buying on this platform. We're not about a short-term spot buy. We're about more of a brand-driven, what is the relationship we're trying to create with consumers, and we had the benefit that most of what we do is on a multiyear basis. So we don't have someone calling us every month. Well, we got to cut the brand budget for the quarter for the next 3 weeks, shut it down. We don't have those sorts of conversations.

Okay. You touched on Latin America a little bit earlier, but between Rock in Rio and now OCESA, you've really bulked up your scale there. OCESA is still a new deal, and we haven't really seen things open up all the way yet. So can you maybe talk us through what you're getting with OCESA? And then bigger picture, how big could Latin America be for you relative to maybe where it is today?

Latin America, we'll be talking about North America, Europe and Latin America, right, as our 3 key regions, 3 biggest regions, I think, pretty quickly. Mexico, OCESA brings us instant scale. So now we can have artists touring and doing Latin America tours as Coldplay is right now. So getting to that scale level unlocks a whole another level of, okay, I want the -- so now it's going to be okay, I'll take the U.S. first leg, the Latin America leg, the Europe leg, the U.S. second leg, the Asia leg. Now you're talking on a truly global basis with artists about all the legs they're doing, and it's now a viable another region for us to be able to tour in given the number of markets that we can operate in. So tactically, we will -- we'll bring a lot more tours to Mexico and then through the rest of the markets. They have Ticketmaster down there, but they have an old version of Ticketmaster. They have a version of Ticketmaster that can't do platinum tickets, which has been a huge driver for Ticketmaster this year. It's a platform that can't do upsells, which is getting to be a very important driver here in North America. So you do all of that, that's going to grow that business. We'll bring our sponsors down there. They have a tremendous relationship with a wide range of Latin artists. Latin music is exploding here in the U.S. So we'll be able to benefit from bringing some of those -- leveraging some of those relationships and growing our show count here in the U.S. So there -- to start with their very well-run business, Alejandro and that team have done a great job building an A-quality business, which makes it much, much easier for us to tap into and grow from there.

Okay. Well, maybe a minute left here, we can close with a hard hitter. So Joe, what is your guilty pleasure artists? I think DraftKings had Harry Styles as a favorite. And then maybe any closing comments around what you think.

I will say that I probably have seen One Direction in concert more than any other tour, which is solely because I had at the time a 15-year-old daughter, who thought that Harry would fall in love with her if he only met her. So I think we went to 15 One Direction shows. But personally, I'm a big country music fan. I spend my drives listening to country music. And I don't find a lot of other folks that are quite as excited about that as I am.

All right. Well, anything else to share with the room?

No, thank you. I appreciate the time. Thanks, everyone.

Thanks, guys.