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

Good evening. My name is Sherry, I will be your conference operator today. At this time, I would like to welcome everyone to Live Nation's regulatory update call. I would now like to turn the conference over to Ms. Yong. Ms. Yong, you may begin the conference.

Good evening, and thank you for joining us on short notice. Joining us today is our President and CFO, Joe Berchtold; and our Head of Corporate and Regulatory Affairs, Dan Wall. We'll start with comments from Joe and Dan and then answer your questions. We'd like to remind you that this evening's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ, including statements related to regulatory and legal matters, business prospects, new developments and similar matters. We have based our forward-looking statements on our beliefs and assumptions, considering the information available to us at the time the statements are made. Use of the words may, should, continue, plan, potential, anticipate, believe, estimate, expect, intend, outlook, could, target, project, seek, predict or variations of such words and similar expressions are intended to identify forward-looking statements, but are not exclusive means of identifying such statements. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the company's most recent filings on Forms 10-K, 10-Q and 8-K for a description of risks and uncertainties that could cause actual results or events to differ from those expressed in such forward-looking statements. And with that, I will now turn it over to Joe.

Thanks, Amy. Let me get started here. The first thing I want to cover is, as I think many of you know, just a couple of days ago, I was at an investor conference and spoke to some optimism that we might be able to get things sorted out with the DOJ. So I wanted to be transparent on what's transpired over the last 48 hours. Just taking a little bit of a step back. We had a first meeting with the DOJ 3 weeks ago that we found to be very productive, spent a lot of time educating them on dynamics of the industry and talking through specific issues, including take rates at Ticketmaster and our concerts business and the evolution of those take rates, competitive dynamics and so on. We then had a follow-up meeting a week later, which was also productive. During both those first 2 meetings, they said their minds were open. They were undecided on how they wanted to proceed, and they were happy to be engaging. They then agreed that we should have a third meeting this week, which took place yesterday. They continue to tell us that they were open-minded, wanted to hear what we have to say. During yesterday's meeting and to varying levels across all the 3 meetings, we were very clear that we were keen to figure out how to resolve this, that we were open to making changes in some of our business practices and wanted to make sure that we have the opportunity to engage in that discussion. At the latter part of yesterday's meeting, I would say they showed then a lack of interest in engaging on specific practices while continuing to say they hadn't made up their mind what they wanted to do, wanted to digest it, would get back to us. As late as about 3 hours after the meeting yesterday, they indicated to us that they were still taking things through. They hadn't made up any decisions yet. And then half an hour later, we started getting phone calls from reporters that a news -- the press conference was planned for this morning. So I think in hindsight, it is clear that we were optimistic about the ability to settle because we wanted to settle. We didn't see any of the issues to be structural or fundamental to the nature of the makeup of the company, saw them all as discrete business practices, and we're hopeful that because of that, we will be able to reach a settlement. Obviously, that was their agenda, ultimately, and we are where we are today. Let me just restate from our standpoint, we're very pro-competitive. We've operated within the consent decree for the past 15 years. Over the past 5 years, we've had both internal and external monitors. Our external monitors meet quarterly with the Department of Justice and have indicated to us that they have reported to the DOJ that our program for following the consent decree is exemplary, and they believe we've done an excellent job of doing so. We've got a long history of success, but that long history of success, growth of the business is because we compete effectively out in the marketplace. We recognize that one area of disconnect we have from the Department of Justice is, is what that competition means. In our mind, competition is competing in the promotion side with the artist as the consumer. And then that artist very effectively engages multiple bidders to compete for their services. That has proven itself with the facts, with the numbers over time, that the artist takes the vast majority, an increasing portion of the money from the show, and they are the beneficiary of that competition. On the ticketing side, the venue is effectively the consumer. They, too, have benefited from establishing competition. Over time, they have gone from taking the substantial portion to even more of the service fee, which shows that, that competition has been effective. Everybody in the ecosystem is interested in the fan, but that doesn't necessarily translate in every instance that the service fee or the ticket price is lower just because of that competition. The DOJ has a different view in terms of holding us accountable for the service fees and the ticket prices, even though we're not the beneficiary to the largest extent of either of those numbers. We don't make -- we don't unilaterally make the decision on what those numbers are going to be. They're driven primarily by the venues and by the promoter. And even if you took our entire take rate across both ticketing and concert promotion and eliminated it fully, that would have a single-digit impact on the price of a ticket. So we clearly don't agree with them in terms of the fundamental of the assertions that they're making. We're going to continue to operate our business as we have been. As I noted, we've been successful compounding double digits for 15 years. Our plans stay in place. It's not going to impact how we have our teams operate day to day because we believe that we have always operated in a very pro-competitive environment, and we will continue to compete effectively out there. So with that, let me turn it over to Dan to give a few summary comments now on the lawsuit and the process.

Thanks, Joe, and good evening, everyone. So the first thing that I'll cover is just is sort of where we stand procedurally. As you may know, the DOJ filed this case in the Southern District of New York. It is not 100% clear whether the case will stay there for some reasons having to do with the overlap of the consent decree, but that's an issue that has to be worked out over the coming days or weeks. We are, obviously, at the stage where we finally got a look at the complaint. I would say that I didn't find the claims surprising. They were most of the things that we had been talking to the DOJ about for some time. The one significant difference and the one bit of good news in this is that the DOJ did not include any claims about monopolization or attempted monopolization or any competitive of conduct in the secondary markets, which was a very major focus of the lobbying efforts of the competitors that were trying to get them to bring a case. And so we're glad that that's not part of this, and we don't have to deal with that. We -- a lot of people have been asking the question, how can they ask for a breakup on these allegations? And the short answer is because there's no particular accountability at this point in time. These claims are exactly what we expected when we made the statements that we have made over the last few weeks about how the actual claims are focused on discrete practices in the verticals of ticketing and promotion -- and ticketing and concert promotion segments. And to the extent that there's any overlap at all at the -- sort of the intersection of promotion and ticketing. It is exactly the concerns that were considered by the Obama administration 15 years ago and that are covered by the consent decree. And in those circumstances, we just don't believe that there's really any good faith argument to be made here, but that -- there could be a breakup. However, we all know that that's what the most effective way to get the big headlines was, and I think that that's why we're seeing that and it's very unfortunate. People have asked how long this is going to take. The one thing that I will tell you is we will move this along as quickly as we can. One of the reasons that we -- we have added to our legal team, we've added the Cravath firm in New York to Latham & Watkins. It's because we want to be able to move this case as fast as possible. And in antitrust, fast is not necessarily overnight, but we will make every effort to try to get this case to trial if -- in a year or if not a year, 1.5 years and certainly not long after that. And we're committed to the -- putting the resources in to get that done and getting this behind us because we feel very confident about our position on these claims. Last thing I'll mention is there's been a lot of questions about the fact that the DOJ asked for a jury trial. As some of you may know, this is a stunt, a strategy that the DOJ used in the Google Ad Tech case. And it's highly unusual, in that antitrust cases like this are -- historically have always been tried to judges rather than juries because when the government is the plaintiff, it is seeking injunctive relief and all claims for injunctive relief are tried by judges rather than juries. But they tried this stunt in the Google case and they've been fighting over it ever since. It seems like a pretty transparent effort to try to avoid the scrutiny of a judge. And I don't think it's necessarily a smart move because the very first message that you send to the judge is that you don't really want him or her to have control over the outcome of this. And that's not a very smart message to send a judge at the beginning of the case. Whether they can get away with it is complex, and I'm not really in a position to address that now because it may be that they have a limited right to have a jury trial or no right at all or a broader right depending on exactly the particulars of claims. But I will say that I think that if there is a scenario in which they managed to establish the right to a jury trial, that's most likely to result in extra scrutiny from the judge, both at the pre-trial phase and also in considering whether any jury verdict would be allowed to stand. And then finally and most importantly, remedies are never in the hands of the jury. So everything having to do with a breakup or something like that would always be in the hands of the District Court judge, who I think on these facts would be very unlikely to even consider that very seriously. I'll stop there.

Operator, do you want to ask the first question?

[Operator Instructions] Our first question is from Brandon Ross with LightShed Partners.

Maybe you could clear a couple of points of confusion. As you pointed out, most of the issues, if not all of them, in the complaint are intra-division business practices, whether exclusivity agreement or opening up your amphitheaters and -- that have been around since well before the merger took place. Is it possible that in addition to the breakup that DOJ would pursue behavioral remedies such as ending those businesses -- business practices? Or are structural and behavior all kind of mutually exclusive in this case?

So they tend to be mutually exclusive because you don't -- normally don't go structural unless you think that there is an ineffective injunction. But Brandon, I think the important point here is you just go down the list. Everything here is addressable by an injunction, and we don't really need to speculate about it. I mean take, for example, exclusive dealing, which, of course, predates the merger, and it's been in the ticketing industry for 40 years or something like that around here. There's been -- there have been a lot of antitrust cases against exclusive dealing, and they're all in the same way. If the government wins, there's an injunction that's issued that either prohibits or constrains the degree of exclusive dealing. Nobody gets broken up over that. And you could take another practice that they come up with like this kind of auto tack that they came up with our -- on our agreement with Oak View Group. Well, that would be enjoined. We wouldn't be able to continue that agreement. You don't break somebody up over that. So there's a real disconnect here between the specifics of the claims and the rhetoric about structural relief.

Okay. And then just to clarify on the judge versus jury. If it is a jury that's deciding this case, does that throw the breakup scenario out the window? I didn't quite understand that piece.

No. That's not what I meant to say. What I'm saying is -- so the only -- if a jury was allowed, the jury would become the fact finder, what we call the trier effect on a number of issues, not everything, but on a number of factual issues. And then you might have a verdict in favor of, let's say, as faras the plaintiff. There's a remedies phase. The jury has nothing to do with the remedies phase at that point and would have -- you wouldn't be asking a lay jury about whether to break up Ticketmaster. That would be entirely within the judge's discretion, guided by the legal principles that came out principally of the last time the government tried to get structural relief in a monopoly case, which was against Microsoft, where some of you might remember, they actually succeeded and got an order from a District Court judge to break up Microsoft and then it was reversed. And when it was reversed, the Court of Appeal laid out a set of fairly strict rules and serious obstacles that have to be overcome in order to justify a structural relief, and a judge would apply those rules.

Got it. I understand. And then maybe just for Joe very quickly, a couple of housekeeping questions. Do you have an estimation of what the legal costs are going to look like going forward from here on kind of a quarterly basis?

No, we have not yet gone through to figure that out. I think it will come a bit in waves. But I assume by the time we have earnings in a couple of months, we'll be in a better position.

Okay. And then the other one is OVG. Your relationship with OVG is cited in the document and also, I guess, in the press conference. What percentage of your fee-bearing tickets are actually OVG or OVG clients?

Oh, it would be low single digits. It would be a very, very small piece of our business.

Let me just put that in perspective is that the DOJ is complaint as they are articulated to us in the buildup to this, was that 6 venues that had been with another ticketing company had been persuaded to switch to Ticketmaster. That's 6 out of 500 or something like that, that would be in the relevant category that. It's a small number.

And these were not the biggest buildings. Yes.

Our next question is from Stephen Laszczyk with Goldman Sachs.

Joe, I appreciate some of the detail around the time line over the last week or so. Could you maybe just talk a little bit more about some of the discrete business practices you discussed with the DOJ. I think we know a few of them being opening up owned and operated venues as a point of discussion and maybe some limits on exclusive ticketing contracts, but just curious if there was anything else discussed. And maybe looking at just giving your understanding of where that conversation left off, what your thoughts are on the prospects of reaching some type of negotiated settlement going forward?

Yes. I think you hit the 2 key ones, which is the opening of our amphitheaters, to other promoters, which I think we've been talking with all of you guys for a while on that's something that's been under consideration after we substantially improved our execution in our buildings, driving our per caps, started running our venue management business as a specific group within our overall concert segment. We started looking at it and saying that our benefit of incremental shows far outweighs any other risks of being open in the amp. So we've been deep in contemplating that. That was certainly on the table. Talking, as you said, about ticketing and what are some constraints we might be willing to accept was another factor. Again, we thought for a while that having -- there was going to be the real opportunity to have a discussion about those issues. We ended up clearly having the wrong impression of what they were open to do. So it's hard for me to handicap going forward what their willingness is because I don't think their behavior is necessarily their words and their needs have been consistent. So it's hard for me to gauge that.

Got it. And then maybe one for Dan. Could you maybe expand on the point on why you don't believe there's a good faith argument to be made for breaking up the company? And maybe just framing this, what are the legal arguments that DOJ would need to make in a case like this to successfully break up a vertical integration? And then based on what we learned today, where do you think that argument most notably breaks down?

Yes, sure. So just let's put this in perspective that there was a lot of rhetoric today from Jonathan Kanter about how there's a deep history of structural remedies in monopolization cases. And I smiled at that because, in fact, what you have to do is go deep into history to find evidence of structural relief in monopolization cases. The last time it succeeded -- and ironically, I was on the Justice Department trial team on this -- was in 1981 in the AT&T case. And that happened -- first of all, it happened because AT&T capitulated and agreed to it and took away all the legal uncertainty around it. But it was warranted in that case because anticompetitive behavior was rooted in the structure. It was rooted in the fact that AT&T manufactured all the equipment, owned all the local Bell operating companies and had all of these chokeholds on competition. In the Microsoft case, which was the next time that they got a district court to go along with it, it was reversed because the conduct wasn't rooted in the corporate structure. It was kind of in the silos, if you will, of Microsoft. And it's been evident to me for since, I think, last August, which has been the first time that we heard -- got any sort of indication of what the DOJ was looking into -- that the behavior was one exception, which really has to do with this Barclays thing. It's not named in the complaint, but that's what it's about. All the behavior is in either the pre-merger Ticketmaster, the pre-merger Live Nation silos. And that just doesn't cut it. That just doesn't allow you to say that you have to have structural relief to have an effective remedy. And I -- honestly, I just think that the DOJ is playing fast and loose with that today. But there's another factor here, which I don't think anybody can understate its importance is that there's never been a circumstance where the DOJ allowed a merger to happen under a consent decree with behavioral remedies, which it said was an effective remedy and then came back later and tried to say that, that should be broken up. And not because they've decided that in retrospect, the merger was illegal. There's no claim here that the merger was illegal. And in fact, we were told back in August that they weren't trying to establish that the merger was illegal. They're just -- this is just what they want to say. And I think when Joe talks about the frustration at the third meeting, it was a realization over those 2 hours that we were actually up against a predetermined outcome. And the process and the promises of open minds that we had received weren't genuine.