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

Okay. Great. So we'll get started. Happy to have back at the conference, Joe Berchtold, President and CFO of Live Nation. Joe, thanks for being here.

Thanks.

So you recently reported results for Q1 that now provides investors a trailing 4-quarter view into your business post pandemic and how that looks relative to 2019. When you look at trends for the industry broadly or Live Nation specifically, what kind of gives you confidence that you can now build off this foundation?

Yes. I think every indicator, short-term, long-term is this continues to be a solid growth industry, solid growth business. I always start looking at long-term trend lines. And if you look over the past decade, this is a business where you've had global fan growth in the mid-single digits. You've had continued pricing. You've had Live Nation continuing to build market share on a global basis, which has translated into a double-digit, pretty solid, consistent business which we think continues on for a long period. If you look right now, you've got a handful of factors that are continuing to drive us in '23 and into '24. The first is just on a macro basis, the consumer spend on experiences relative to goods is still trailing something like 20% relative to prepandemic levels. So as the dollar continues to shift from services to goods, we expect that to be a strong tailwind. And frankly, that kind of 20% number, we think, is stronger than any economic concern. On the economic side, as we talk to fans, they tell us that going back to concerts is one of their top priorities, one of the last things that they're going to cut back on. So we expect that it has a lot of strength through any economic issues. And then we look at it again on a global basis. And if you compare it to even last year which was 120 million fans, up over 20% versus '19, we didn't have all of the world open for the entire year. And we didn't have Europe open until the latter part of the second quarter, never really got Asia much open. So as we said -- I don't remember the exact numbers we said at the end of Q1, but we sit here now, we've sold about 100 million tickets for shows this year. That's as many tickets as we had fans for the entirety of 2019 sitting here in May. We have -- deferred revenue was up 28%, another leading indicator for us of how the fans are going to be this year. And we're already starting to talk and looking to what's going on for 2024. So no sign of any of this letting up.

Okay. I mean you partially answered it, but so two -- well, my next question, so two enduring questions we get from investors regardless of how you might be performing at any given moment of time are what's the sustainability of supply growth and then how might demand respond to a softening economy? And I know you can always provide a 6- to 12-month view based on the pipeline forward sales. But just like longer term, what should investors keep in mind when it comes to the supply and demand points?

Well, I think on the supply side -- I was getting that question in 2011, what happens when the Eagles retire? What happens when the Rolling Stones stopped touring? Well, they're both still touring. But the reality is, today, on the supply side, you're seeing artists able to emerge, develop and build global followings in a way that could never happen historically. I mean we're very thankful for the Spotifys of the world. We're very thankful for the Instagrams and TikToks that let them build global brands. I don't think most of us would recognize -- we certainly wouldn't have heard of 3 years ago a lot of the biggest artists that are out there today, Bad Bunny last year, Karol G this year. You've got a Mexican rapper, who's the #1 artist streaming on Spotify these days. So the global build of supply is happening in parallel to the global build of demand. And again, we saw at K-pop a few years ago, K-pop is as strong as ever. You're not hearing about it as much just because it's continuing to build and well beyond just BTS. But you're getting lots of other sources of music that maybe once were regional are now going global, maybe even regionally were selling out midsized buildings, now they're selling out stadiums. So you're seeing that supply continue to build. I don't see any let up in that. On the demand side, again, Howard Marks said in the paper I read recently, we have to remember on demand that, at all times, you're either in a recession or on your way to a recession. So if you live your life paranoid about the fact you're going to be in a recession, at some point, you're probably right. So you need to figure out what's the strategy you're going to have for your business that you're going to grow it over the next several years; you need to watch all of your indicators, how are the on sales going, how are shows closing, how are the per caps; and you need to be ready to shift tactically if you start to see any softening and any of those signs, which will be temporary, so you don't change your strategy based on the notion of a short-term economic fluctuation. You build your strategy that makes good business sense is enduring and then you adjust as you go along. We're seeing none of those indicators, to be clear. So we continue to look at them every week. We're not seeing them. We're paranoid, so we continue to look at them on a pretty detailed basis. But we're not seeing anything that gives us any pause.

Got it. At earnings, you noted, I think 90 million tickets for shows this year, up 20%. I think before, you just gave 100 million number. I think a lot of that -- or at least at earnings, reflected scaling in your larger venues, some of which we saw reflected in Q1 results. Can you maybe just provide some more color around that kind of 100 million figure or any other kind of forward metrics?

Yes. Again, it has absolutely been heavily driven this year at this point by a phenomenal stadium year for the reasons I talked about. The artists that you have that you didn't hear of 3 years ago were now selling out stadiums and, in tremendous volume, a very strong arena year on a global basis. One of the things about both stadiums and arenas is these buildings have a lot of capacity. And so you're able to scale up on them pretty quickly, which is what we've been doing. They also -- just from the cycle, on a planning basis, tend to be the buildings that go on sale were the most advanced. The productions are larger. The artist has more planning to do. So you get those on sale, and we're just continuing to see they're selling incredibly well.

For Venue Nation, I think you recently noted new venues will host 3 million fans, 1,000 shows this year. Should investors view this as all incremental in the sense that your physical buildout is now creating shows simply where they weren't possible previously?

No, 100%. We've been in venues for a long time. We kind of codified it, called it Venue Nation as we separated it out from the promoting business, give it more focus, make sure we have management that is strong in thinking about the development of buildings, the running of the buildings, which is a different skill set. So we're continuing to do that. But as you said, more and more of a focus as we think about the buildings is how do we use these buildings to really create incremental capacity in the industry. So simple way I think about it is you have a global latent demand business. Because of the reasons we talked about with the artist brands, they're able to build up fan base. Our job is then to work with artists and create the supply. Well, there are some situations where you need that infrastructure in the middle to maximize the amount of business you can do. So I use Austin as an example. Great market, a lot of music demand, not really the infrastructure. So we'd put a handful of shows in there every year. We then worked with Oak View, we put a building. And University of Texas put a building in Austin, a new arena we're putting 50, 60 shows in. So that's a home run. It's great from the simple economics of the building as the venue, but it also drives our flywheel. So a lot of our venue focus now is, whether it's a 5,000 cap theater, an amphitheater, an arena of that level, particularly internationally, how do we continue to make sure we're putting in infrastructure where it can help to build our business.

Got it. And I would assume that by building this out from scratch, that allows you to kind of maybe execute the venues in a way that are more efficient in terms of per caps, VIP offerings?

Absolutely, yes. Huge focus on hospitality, absolutely. How do you create the high-end experiences that fans want, a huge variation. So that if fans want to just be in the building in GA and get a beer, that's great. If they want a more premium experience, we're able to do that. And we're also focused -- we're not trying to compete with the NBA buildings, right? Steve Ballmer can spend however many billions he wants to build his building. That's great, and we'll fill his building. We're not looking to build an arena in L.A. That's not the business. But we're looking at markets that don't have it. We're in the low hundreds of millions. You can build a building and get a tremendous return off of that while still providing a fantastic fan experience.

I mean you mentioned K-pop before and then you just announced an arena partnership in Busan, right? Or -- yes, okay. I guess that would -- yes.

Yes. No, that's another global example of that's when we're operating. Again, also when we talk about Venue Nation, I know some people get concerned about, oh, my God, what's the capital implication and all that. It's a pretty broad definition. So that's an example that I would put under our Venue Nation umbrella, but we're operating it. We're not building it. We're going in as a partner there. And I think it has great opportunity, and we'll continue to build our Asia business.

Got it. Maybe just sticking with Concerts. One of the factors that I think limited on-site spend contribution to AOI last year was inflation, supply chain issues. You indicated a couple of weeks ago, expense growth for your amps and festivals at least should underpace inflation. Can you just provide more incremental detail around that? Where are you seeing that relationship?

Yes. I mean first of all, in our indoor buildings, so far this year, we're actually getting our cost per fan down, so just fighting inflation. We haven't launched our outdoor festivals and amphitheaters really yet. So I'm trying to be judicious not having actually experienced the cost yet. But we're absolutely seeing that the pressure on increases in labor costs are way down. We're seeing in the U.S., certainly the supply chain, with the planning that we've been able to do this year, substantially mitigate the cost increases. Some of the costs and supply chain issues are still prevalent in Europe, in part, a lot of things that we use when we build a festival are unfortunately things that you need when you're fighting a war. So there's more competition for some of that. But in aggregate, when we look at the per fan profitability and how are we getting more money on site, how are we continuing to use pricing to be efficient, how are we looking at sponsorship levels, the per fan profitability of the business continues to grow.

Great. Maybe moving to ticketing. From your results and for our commentary, I think pricing continues to be a nice tailwind. Maybe you can speak to the actions that artists are taking to kind of realize more value out of their primary tickets? Is that a kind of lean in on platinum or some of the tools that you give them?

Yes. I think what ours are generally saying is the increased press and focus on pricing in secondary has them saying, I don't want somebody getting between me and the fan. So I'll take one of a handful of paths. First of all, most artists are saying, I want all my fans to be able to get in the building. So while it doesn't get the press, there's certainly as much focus on what's the pricing to get into the building, the back of the house, how do we keep that affordable for everybody? Absolutely a focus. Second, they're saying, well, then for the front of the house, I don't want these scalpers getting all the money. So either I'm going to get this money through platinum or I want to do something like the Cure did or others are doing, Pearl Jam where I want some sort of face value-only exchange, and I want some control over those tickets. And our job is to say, great. We're providing the tools to do both of those. We want to make sure we're supporting the artists' agenda and what they want. And neither is right or wrong, every artist is different in terms of where they're at in their careers, how they want to interact with their fans, and we'll support them both as it turns out right now, particularly because you have a lot of stadiums, a lot of arenas, you have big growth in the platinum activity this year.

Yes. So since coming out of the pandemic, you've also highlighted new venue client signings mainly in the international markets. I'm interested in the dynamics that are driving that. Is that kind of what you're bringing? Or is that kind of what Michael, I think, alluded to on the Bob Lefsetz podcast about some of those venues in Europe now moving towards the exclusive model.

Yes. Well, I think first of all, it's Ticketmaster just has the best ticketing platform in the world. And we invested a lot during COVID on integrating on a global basis our platform. And I think we're seeing the benefits of that on a competitive basis as we continue to win more business. So a very effective B2B tool working with the venues and a great marketplace to sell the tickets. So I think the combination of those two is leading to a lot of wins in the international market that tend to still be very feature-driven. And then, as Michael said, the venues are realizing, as they're having to put in more money internationally to build their buildings, they need that revenue source. So they're looking to get more of the service fee which often translates into either a higher portion of the allocation or exclusivity. It's -- I mean -- it's -- we talk in general, international is nonexclusive, that's not really true. A lot of international markets are exclusive. There are some -- the U.K. is the biggest example of nonexclusive, but even in the U.K., the venues, they're not going exclusive, they're taking a bigger share. They're seeing that, that's part of the way they cover their costs. And it's all -- we've been talking about this in the press recently, it's all interrelated, right? The artist wants most of the ticket revenue. The artist doesn't want to pay the venue much of a rent. If the -- for the venue to give the artists, the building for no rent, they need to have other revenue streams. They have expensive buildings in many cases. So they need beer money, that's great, and they also need service fees. So the venues are keeping the majority of these service fees, they're ultimately setting the service fees, and they want to work with Ticketmaster because we're going to sell the most tickets and be the most effective at it. But it's not like you have Ticketmaster over in the corner doing all of these things themselves.

Right. I think Latin America was called out as a strong contributor in the first quarter. I wanted to see if you could check on this as a generally, but then maybe specific to the ticketing part of it, where you are in sort of upgrading the TM Mexico?

Yes. OCESA's killing it. It all starts, we've got a great business there that we acquired, a fantastic management team, really the best people, not only in Mexico, but in all of Latin America, I think. And we've done what we said we were going to do, which is we work with them to do the simple thing first, which is just increase the content flow to Mexico. We said for a long time, we didn't really have the motivation to drive putting shows into Mexico when they were friends of ours. Now that we're all under one roof, just helping drive content that way is a quick win. Having them work with our sponsorship team, figure out what either regional or global partners we have that can help build their business is great. And then, yes, upgrading their Ticketmaster platform to be consistent with the U.S. platform in terms of its ability to do dynamic pricing, have platinum tickets, to sell insurance, to do a number of these things I'd say are just starting to bear fruit. It took us a year or so. We're getting most of the features in place over the course of this year. So we'll see some benefit this year, then I expect a full benefit from that next year.

Okay. And then just following up on LatAm, Brazil appears to be a region where you've sort of hit a critical mass. You just launched ticketing operations there. You added a sizable festival. What do you kind of see for that market?