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The 800-lb Gorilla in Live Entertainment
Live Nation $LYV reports Q4 earnings and here's what to expect
Live Nation's balance sheet contains four items of revenue. Four! Concerts, tickets, sponsorships, and "other." Together, these revenue items generated $12.3 billion in the first nine months of 2022. Take a seat as the show is about to start and let’s get into the lyrics and melody of Live Nation’s business.
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The 800-lb gorilla
In certain behemoth industries like mobile communications, the jury is out if Apple iPhone is better than a Google Pixel. But in live entertainment, there is no competition. Live Nation LYV 0.00%↑ is the 800-lb gorilla by volume and dollars.
President and CFO Joe Berchtold denied this claim as he testified in front of the US Senate Judiciary Committee on January 24. This committee investigated Live Nation, specifically the massive influence the company wields in the live entertainment industry. According to industry data, there are 4,000 venues in the United States, and Live Nation Concerts owns or operates 200 of these, with another 40 venues locked in a long-term exclusive agreement.
Globally, from July until September 2022, Live Nation hosted 11,000 concerts that 44 million fans attended in 50 countries, generating $6.1 billion in revenue. So for three months, Live Nation matched the annual GDP of Monaco. Monaco!
In the first nine months of 2022, Live Nation generated $12.4 billion in revenue. Their cash cow...ticketing.
It’s like governments collecting sales tax
Competitor, Seat Geek, alleges that Ticketmaster captures the lion's share of the ticketing business with about 80% market share. Ticketmaster's business model is to generate fees from tickets bought on their platform in both the primary and secondary markets. Berchtold will tell you what Ticketmaster does not do: "[we] do not set ticket prices, do not decide how many tickets go on sale and when, and do not set service fees. Service fees, even if they are called ticketing fees, are retained mainly by the venues."
If service fees are "retained mainly by the venues," then it is pretty impressive for the Live Nation management team to collect $600 million in operating income for the first nine months of 2022. Ticketing income is their highest source, followed by sponsorship and advertising ($474M), and concert promotions ($354M).
What's more beautiful about the ticketing business is this is akin to the cloud business for Apple, Amazon, and Microsoft. The cloud business is a turnkey digital operation where other than maintenance, ticket transactions are handled online, and once the money changes hands, the service fees are collected digitally. It's like governments collecting sales tax.
The real business is 500-seat venues
But Live Nation is about more than just promoting major concerts and performances like Taylor Swift, Post Malone, and Bad Bunny. Instead, most concerts and performances come from smaller acts in smaller venues.
Michael Rapino, CEO of Live Nation, responded to an analyst on their Q3 earnings call addressing the micro-economy of clubs and theatres:
"Majority of your shows don't sell out, always room for a few more tickets to be sold. So although the press always talks about the expensive tickets or the sold-out ticket, that's not your real business. Your real business is night and day, theater, clubs, amphitheaters, arenas, selling those tickets night by night. We did over 8,000 club shows last year and 95% are going to make money and do well and the artists will deliver those 400 tickets or 1,100 tickets as they're building their business. So we don't see any trends in the bottom end, any new trends that would suggest that the club and the emerging artists space isn't growing. There's more clubs opening up all the time, lots of demand in every market, lots of options for artists to play 500 seats, 1,000 seats."
There is no shortage for the demand of live entertainment across the globe. Live Nation has an end-to-end solution that works for the up-and-coming artists to the megastars. They are masters of concert promoting, ticketing, and sponsorships, and even more ruthless when dealmaking with artists.
According to singer-songwriter Clyde Lawrence, who provided testimony in the Senate hearing, he has no negotiating leverage against Live Nation when they control the promotions, the ticketing, and other revenue-generating items like parking. If one of his fans paid $42 to see him perform, when the books close, Lawrence will collect $12 of that ticket price. If Lawrence's fan paid for parking and alcohol at the facility, Lawrence gets nothing. But he can't cry over spilt milk. When Lawrence's fans buy his merchandise at a Live Nation venue, then Live Nation grants him the privilege of keeping half of that revenue.
Live Nation reports Q4 earnings and 2022 year-end results on February 21, 2023.