Live Nation Entertainment Inc (LYV) — Q1 2021 Earnings Call Transcript

Good afternoon, and thank you for joining us. When we spoke last in February, I was optimistic that we will soon be returning to live events, and since then, our confidence has increased for our key markets. In the US, over 40% of the population received at least one vaccine dose, and most states are now fully or partially reopening with more restrictions being lifted daily. In the UK, over 50% of the population has received at least one vaccine dose, and their reopening roadmap is tracking to plan. And although Europe remains a few months behind on vaccinations, they are progressing and recent discussions about reopening to international visitors this summer are encouraging. Around the world, people are showing the need to get out and socialize once again, which reinforces our expectation that a return to concerts will be the logical progression as vaccines are readily available to everyone who wants one. This is generally already the case in the US, where we are confidently planning our reopenings, particularly front door shows, and we expect other major markets will follow this summer. Alongside these trends, we are seeing the effects of significant pent-up demand as fans are buying tickets and events are selling out faster than ever. In the US, Bonnaroo, Electric Daisy and Rolling Loud festivals all sold out in record times at full capacity. In the UK, we have 11 festivals planned this summer, including our largest ones Reading, Leeds and Parklife where tickets are already sold out. New Zealand, the country's largest festival, Rhythm and Vines quickly sold out. And as we get further clarity on reopening timelines, we are announcing more tours for late this summer, including Dave Matthews, Luke Bryan, Maroon 5 and others to come, showing artists' increasing confidence in performing this summer.

Thanks, Michael, and good afternoon, everyone. As we have done over the past few quarters, we've added some tables at the back of our earnings release, to reconcile in more detail some of the numbers I will refer to today. For the first quarter, all the key cost and cash numbers improved relative to Q4 2020 and are at or better than what we expected at the start of the quarter. We remain confident that our actions taken to cut costs and increased liquidity will provide us with the runway we need until we bring shows back, which will begin to scale in key outdoor markets this summer. As we move toward reopening, we continue to balance strong cost and cash management. We are now making the necessary investments to grow the business. While we expect the second quarter to be our first year-on-year improvement since Q4 of 2019, and to also be generating positive AOI through the second half of the year, we still plan on reducing costs this year by $750 million and reducing cash spend by $1.5 billion, relative to pre-pandemic plans.

Before taking questions, I wanted to cover one other thing. Kathy Willard, our CFO for the past 15 years will be retiring as of June 30. She will then be staying on as an advisor throughout the end of the year. As of July 1, the plan is for Joe Berchtold to become CFO. Kathy, as you know, has been an invaluable part of our executive team for the past 15 years and has been with Live Nation for over 20 years. We are a much stronger company because of her, not just from her role as CFO, but as a champion for women at the company and the industry, and an important adviser to me on a range of issues. Because she built such an effective finance organization, I'm confident we will remain in good shape as Joe steps in. He and Kathy have been working together closely for over a decade now, and he has gotten more deeply involved over the past year, as we have been planning this transition. In addition, late last year we elevated Jackie Beato, EVP of Operations to take on greater responsibility and give Joe the bandwidth he will need for the job. More than anything, I want to thank Kathy for her impact on the Company, her commitment and her friendship. Operator, let's open the call for questions.

I'm going to ask a question. And Kathy, if you're on the call, good luck and you'll be missed. And I guess with regards to the summer, early fall, Michael or Joe, can you provide a sense of how much is booked at this point relative to a normal year in the US or UK? And just given the lead time, how much room do you have still to ramp that higher should conditions improve further from here?

Yes. This is Joe. David, I'd say that the summer and early fall, the next three to four months is largely booked. We obviously have a lot that is shifted from last year into this year. We've added some tours so we've also added a number of festivals, all of which have been selling well. The typical ramp show is probably a couple of months' lead time, so I think we'll still have room to be adding more as we get into August and September, but the majority has been booked at this point.

Okay. And then, can you maybe just expand a bit on the reviews following landscape over the next 12 to 18 months given all the supply that's built on? How do you expect to efficiently allocate all the tours? Are there any capacity constraints, not necessarily in terms of venues, but just in terms of maybe like the weekend nights that are available?

Yes. We're currently in a good position. We have lots of great conversations with probably every artist you can imagine, talking about when they're going to be back on the road. Artists typically tour once every three years on a cycle, so we're condensing 2021 and '22. So the good news is we've got incredible supply and now we're just sorting through what makes sense to go out at the end of '21 still, moving into '22, and some artists are talking about moving into '23. I would say, the artists are patient and they're smart in terms of what their cycle predicts; maybe they have a record coming out in the fall, maybe it's in Q1. So right now, we have great supply. We don't have any issues in terms of availability. But we're also not looking to cram everything in three years into one year. We're looking to stage a good '22 into '23 year. So when you spread it over those two years, you find enough Fridays and enough weekends and enough routing challenges to solve that way.

Okay. And if I could just sneak one more in. I guess this Concert activity is now ramping up, can you maybe just discuss a little bit about what the process has been for Live Nation? What are you finding you can do differently versus prior to the pandemic? And maybe just what your overall confidence level is in hitting your prior target for structural cost savings? Thanks.

Yes. We're very confident that we will achieve the $200 million in structural cost savings we announced. As we've mentioned, we approached this differently by removing $950 million from our costs, and now we are allowing $750 million of those costs to be gradually reintroduced over time. This makes the process more tangible. We’ve implemented several changes; for example, on the Ticketing side, we transitioned to a truly global organization as part of our effort to create a unified approach across the marketplace, enterprise, and all technology. Regarding Concerts, our established local network is crucial for understanding market dynamics. Given that 80% of our shows are now booked as tours, we don’t need a full infrastructure in every local market. We have identified ways to streamline operations. During the years we experienced double-digit growth, we didn’t want to risk potential disruptions. However, now that growth has slowed, we have asked ourselves how to best rebuild from the ground up. We are confident this will yield the anticipated savings and create a more effective organization to drive future growth.

Thank you.

And just to add to Joe, I think there are two ways to look at the business. We had a great workout, testing a new muscle for the last 12 months in terms of our balance sheet, our fixed costs, and how we can become more efficient. You're going to see this come to life through our $200 million-plus. However, I think the real win of the downtime was in discovering the new products of the kind of Live Nation 3.0. What else can we do with this incredible scale we have across our consumer base? I would say whether it's Sponsorship, Concerts, or Ticketmaster, we now have a new level of products in the pipeline that we historically didn't have the time or skill set to unlock. I'm very confident that over the next couple of years, we'll see some exciting new developments from the Concert division. Our consumer side of the business, including our Subscription business, Ticketmaster business, and new Ad business models, has many exciting ideas that we've finally had the time to develop, along with the skills we've acquired to advance that part of our business. We see the future not only in running the largest concert company in the world more efficiently and effectively but also in exploring what other new products will drive our business to think differently about the customer and the artist.

Thank you.

Hello. You mentioned Live Nation 3.0, which leads me to ask about web 3.0. You talked about the digital ticket and the integration of blockchain. Can you explain the additional benefits of using blockchain compared to your current digital ticket? Also, how challenging will it be for you to implement this, and what strategies do you plan to employ?

Thanks, Brandon. It's a great question. We get asked it every day and I read a new article every day on all the great things it's going to solve. So let's step back on blockchain; we think it's a very exciting technology. We're currently using blockchain technology in our products. We've invested in this business for a few years now, and we think it's a great technology that will help our business. I would step back from what are the problems that we're trying to solve or what are the opportunities that blockchain specifically brings to the Ticketing business. One of the great advantages in the industry is when we went from a TDF to a digital ticket, we unlocked a lot of what you keep reading about the blockchain is going to do in the future. So the digital ticket or your mobile ticket that you are now buying has solved the biggest problem that unlocked we've been talking about this for two years: Identity. Identity for us, the fan, the artist, the team and the venue knowing who sits on that seat, who is actually coming to the venue, having a communication directly with them, having a verified ticket, being able to trade that ticket, putting rules on that ticket. We currently do that now. If you want to, can you transfer it with a certain cap, all of those things that content could decide to do if they wanted to with the digital ticket. And the service fee, I read about being reduced. I mean the service fee could be reduced tomorrow. It's just a function of the venue, not the ticket company. So digital ticket and moving from the old TDF model that historically around the industry has been achieved to date, we've been talking the last couple of years about the progression of adoption. COVID obviously has really sped that up. Most tickets access now does not want to be in the contact business, so having a ticket on your mobile phone, walking into that venue and then being able to buy a drink, communicate with each other, upsell, you name the ideas when you have a direct communication with your fan, those are all being unlocked right now by sports teams, by venues and artists. So we think the blockchain technology is a great part of a technology solution to keep providing a better communication and identity platform for the fan. But that's already in place. There is nothing blockchain would bring to that that we can't or others currently achieve. So we'll continue to use blockchain to supplement and augment our platform, and continue to look to be better at it. And we think it's a great opportunity in ticketing, just getting this full access. I would step back and Brandon, you and I've talked about this before in terms of what does the ticket company do? I mean, quite honestly, selling the ticket is the easiest part of being a ticketing company. When we talk to clients, they don't pick us because we can sell a ticket. They pick us because we have marketing and distribution reach. They pick us because we have one of the largest marketplaces in the world to help them sell tickets. They pick us because we have a secured great technology platform they can plug and play with their APIs and their databases and their consumer needs. And they also pick us because it's a financing mechanism. A ticketing business is about financing the venues and exchanging that for ticketing rights. So it's a full bundle to be a ticketing company, and that's what Ticketmaster has delivered so successfully for so many years. And we'll continue to lead with blockchain and bring identity and all of the transparency and benefits but now having that ticket with ownership to the market.

And can you maybe talk a little bit about hello?

Yes.

Can you maybe talk a little bit about the collectibles angle to it?

We believe this is a significant opportunity. NFTs represent a way to enhance the customer relationship by adding value through contracts or privileges associated with tickets. Whether it's selling a T-shirt or a unique PDF artwork related to a concert, it serves as an additional means to engage customers and help them preserve special memories of events. At a broad level, we are constantly exploring how to enrich that concert experience for fans. Ticketmaster is already collaborating with sports teams and festivals to integrate NFTs into tickets, allowing tickets to be minted alongside NFTs on its platform. This will enable Ticketmaster to deliver digital tickets and blockchain-based NFTs according to customer preferences. Additionally, as customers create their own NFTs, we plan to connect them across various minting systems and marketplaces. On the Live Nation side, we are actively exploring NFT opportunities with a dedicated team focused on this space, and we anticipate introducing an innovative NFT concept related to Live Nation concerts. This approach will allow us to engage fans more directly, offering rewards and memorable moments. Inspired by successful models like the NBA’s top shops, we envision utilizing unique concert experiences as collectibles that enhance ticketing events and special moments. If we can leverage our intellectual property, we see this as an exciting time to create memorable experiences for fans that they can trade and cherish. For example, after the first concert back at Jones Beach on July 16, attendees will receive an NFT and a unique souvenir ticket that they can own and trade, preserving that experience. We believe this is a fantastic opportunity to transform standard tickets into magical souvenirs, opening up limitless possibilities for fan engagement. We are excited to use our scalable intellectual property to develop new ways to connect with fans in this arena while also empowering our artists through our management company.

That makes sense. While we're on the topic of ticketing, I wanted to ask for your updated views on the secondary ticketing market now that Vivid is back. Do you see this as a growth opportunity for the industry overall, and specifically for Ticketmaster? Additionally, how do you perceive the competitive landscape in that area at this time?

Yes, we firmly believe in the secondary market. It serves as another distribution platform for delivering tickets to fans. For all the reasons Michael mentioned regarding digital ticketing and identity, we anticipate that more control over the secondary market will shift to content creators. Sports teams and artists have various goals they want to achieve in relation to their fans. We foresee an evolution toward digital ticketing and fully support content creators having greater control over this process. We advocate for increased transparency in the secondary market. We believe it's a permanent fixture and will remain a vital distribution platform. We will continue to focus on pricing to ensure that fans receive as much value as possible from those tickets. When we consider Vivid, their business model is similar to ours, operating as a service fee model. They incur customer acquisition costs tied to digital searches, while our costs relate to aligning with content. Although our approaches differ slightly, the underlying business model is similar. We believe we have a strong position by partnering with content and leveraging the scale of our Ticketmaster platform. We're confident in our stance, whether the market expands or contracts, as artists price their content at market value, which is less of a concern for us in fulfilling that content agenda.

Great. Thank you, guys.

Thank you. Michael, you surprised me with that July 2021 mention because I have a ticket to the Black Rose at Jones Beach on that day. Maybe you’ll be there too, probably with better seats. Just briefly following up on the discussion with Brandon, do you have any comments or reactions to the recent developments from DC regarding safe tickets? I found it a bit odd that they would bring up and defend the secondary market in that context. I thought we had moved past the consent decree. Do you have any thoughts on the matter since it was brought up over the past month?

Yes, it would surprise us, too, given our current position. However, we have been on this mission for quite some time, and we would appreciate the opportunity to meet with his team and educate him about our business to ensure we address all the nuances involved, as the situation is rarely as straightforward as it appears. We view this as a subtle issue. It seems that scalpers have been effective in persuading his staff that we plan to implement a digital ticket in a closed platform. Their main concern is that when you purchase a ticket, it can only be resold through Ticketmaster, which has never been our goal. If they would sit down with us, we could clarify that our intention has never been to have a closed platform. One of the largest initiatives I've undertaken at Ticketmaster since I took over is rebuilding the company to facilitate an open platform. Our objective is to sell that first ticket. For instance, we have an open platform with the NFL, where we serve the NFL and allow tickets to be freely sold on other platforms, provided those secondary companies are approved by the NFL. We believe this model is the most effective. We have the broadest footprint as a primary platform and if a ticket is to be resold, we offer a robust marketplace for Ticketmaster fans. We have also been working toward an open platform so that tickets can be sold elsewhere if content providers like the NFL or venues prefer that direction. Therefore, it seems there’s not much substance to their claims. We are not aiming to restrict distribution; instead, we want to enhance it for teams, venues, and artists. Ultimately, the strongest platforms will prevail, providing the best value to both content creators and fans. We see a tremendous opportunity in ticketing. The percentage of people who buy tickets through Ticketmaster and subsequently resell them is quite low, indicating a significant potential audience. We should strive to better support fans in considering resale options on our platform, potentially through improved incentives that make the process more seamless. However, if fans prefer to sell on other platforms, as we do with the NFL, we are happy to validate those tickets and let the content dictate where they can be sold.

That's very helpful. Secondly, regarding Veeps, I understand that 60 venues have been equipped with their technology. Could you share any updated thoughts on how significant that opportunity is as you plan for reopening later this year and into next year from a business perspective?

I believe it's similar to what we discussed regarding NFTs. Our focus is on continually assessing our core business and finding ways to introduce more appealing products around it. We're really excited about our partnership with the Madden Brothers, who manage this daily. They put in a tremendous amount of effort, and we've simply enhanced their reach through our distribution capabilities. They've already hosted over 1,000 shows in the past year and are likely to exceed 10 million in growth, marking a solid start for that segment. With our new clubs, we expect to manage around 10,000 club shows, and by incorporating some amphitheaters, we see significant potential, particularly with our festivals. Instead of just rebroadcasting events like Lollapalooza for free, we could offer viewing options for $49, allowing fans to enjoy the festival at home if they can't attend. Our electronic dance music events have performed exceptionally well when we implement this model. We believe there's substantial opportunity in extending the festival experience to include a home viewing option, and we prefer to leverage our festivals to generate additional revenue rather than purely for promotional value. We plan to pilot this concept this summer, and we anticipate gaining valuable insights that will guide our future efforts. Launching festival TV presents a unique proposition with our portfolio of over 150 festivals. This, along with our club business aimed at emerging artists, represents a new avenue for us. We foresee opportunities for subscription models and potential bundling with other offerings. There's a solid foundation in our core business that we can continue to explore and innovate upon.

Great. Thank you.

Hi. Thank you for the question. The period from July to November for the festivals in the US and the UK seems quite busy. Beyond the major festivals mentioned in the press release, is there any negative effect on consumer demand for some of the other festivals due to this crowded schedule? Also, with the 2021 Rock in Rio being rescheduled for 2022, does that mean you will host that festival two years in a row, including in 2023?

I'll address the question in reverse. We are currently discussing the decision regarding Rock in Rio, and we will provide more details on that after we finish our plans for 2022. We are not concerned about a crowded schedule. Recently, we launched some of our events like the Travis Scott concert and sold 100,000 tickets, and Club [indiscernible] had its largest on-sale event ever. Rolling Loud was also a huge success, where we sold 100,000 tickets within an hour and had 200,000 people in the queue. The demand we are witnessing right now is unprecedented. This morning, Garth Brooks set another Ticketmaster record for the fastest stadium sellout in history. I am excited about the turnout and even more so about our ongoing improvements to Ticketmaster, which allows us to handle such high demand. The capacity to sell 100,000 tickets in an hour and the strain that brings on the system is impressive. I am proud of the Ticketmaster team's performance, as the current demand is far surpassing what we anticipated for our scheduled festivals.

Thanks, Michael. And one more, if I can. Just you spoke about the NFT impact and blockchain impact on your Ticketmaster operations. From the standpoint of artists potentially making more money, monetizing their back catalog or whatnot, does that make them become less reliant on touring as an earnings driver going forward in your view?

Not sure if that was a statement or a question. But no, I would say that I think you've got to look at the macro pie always, right? There is always going to be a few artists that are able to sell their business at the top end. But if you look at the macro numbers, the percentage that comes from the road, the amount of artists that are dying to get back on the road, we're seeing right now a greater demand than ever from artists calling us saying, when could we get back out? And these are some very successful and wealthy artists. So we always look at that two hours on stage at a stadium is a drug that, that artist tends to want to run for his entire career. So we don't see any decline in that desire for that artist to get on stage. I think the reason you see Mick Jagger and The Stones on stage isn't financial at this point. I think it delivers something much bigger than a paycheck. So I think that magic moment on stage is non-duplicable for the fan and something that the artist doesn't get at home.

Yes. Looking forward to going back to shows in the second half. Thanks, Michael.

Thank you.

Hi. Good evening, and thanks for taking my questions. There's been an awful lot of discussion about the near-term demand. I wonder what data points or information or perspectives you might have about demand beyond, say, the next 12 or 18 months, and how you think about sort of the demand curve longer term?

I believe if you analyze the situation, you'll be pleased to see that the initial demand is unprecedented. I don't expect any decline in this demand over the next period. Consumers aren't indicating that they are eager to move past 2022 as if demand will disappear. The key factor to consider is the excitement among today's 14, 16, and 17-year-olds about attending shows, which reflects their preferences as well. We often get asked who the next significant act will be, and our data suggests that emerging young artists can quickly fill stadiums and arenas. For instance, Bad Bunny sold out venues rapidly upon release, showcasing the appeal of new talent. Billie Eilish is also achieving instant sellouts. We observe a continual influx of young fans, like 14-year-olds who are enthusiastic about BTS worldwide. To me, it's crucial to evaluate whether it's still significant for today's 14-year-olds to connect with music history, from the Beatles to NSYNC, to the current acts like BTS. My own 10-year-old is just as excited about concerts as I was at that age, possibly even more. We recognize a dynamic and youthful supply and demand in the industry, which is essential for forecasting. The interest remains as strong among today's 15- and 20-year-olds as it did a decade or two ago.

Thank you. Sorry. Go ahead.

And David, just one other thing to add. I wouldn't just use what are the on-sales of the past month as part of your indicator. This is a supply-constrained business with a lot of latent demand out there. And if you look at the past decade, and you look at how Live Nation went from 40 million fans a year to 100 million fans a year, it was by bringing more artists to more markets to more people, and unlocking that latent demand because of the desire that Michael talked about. So there is a long track record that would say, concern about whether the demand is going to be there when you've got these great artists out on the road.

Agreed. And if I may follow up quickly. With respect to M&A, how are you thinking about sort of the timing and the boundaries and the catalysts for maybe getting out and putting some deals back on the board to grow that way?

Yes, please proceed.

Yes. I was mentioning that we have been reviewing our current pipeline. We have a solid pipeline that was already in progress when COVID began. We likely have 15 to 20 different venues worldwide that are at various stages of construction, development, or opening; these are proceeding as planned, and we will be launching everything from theaters to amphitheaters. We have an ongoing list of promoters and festivals globally with whom we have been in discussions. We have finalized a couple of those recently and will continue to do so. Therefore, we will maintain our bolt-on strategy, as we have for many years, to strengthen our global foundation and opportunity markets.

We're a growth business, and whether it's growth CapEx or M&A, we're going to be continuing to invest in the business. We're obviously at a higher leverage level, but we are confident that as we continue to grow our AOI and that returns in 2022 and beyond, that we'll have plenty of flexibility to continue to drive that growth.

I appreciate it. Thank you very much.

Hi. It's actually, Jessye McVane on for Ryan. Thanks for taking our question. Last call, you guys talked about ticket sales in the UK benefiting once guidelines and timelines for reopening. But put in place, when we see states like New York announced this week that they will start to remove capacity restrictions later this month, or other states like Texas have already acted on. Are you seeing a similar step-change in demand here in the US? Or does it need to be done at a national level to have a similar effect?

We're definitely experiencing significant demand. For instance, today we added our first few Broadway shows, and their presales have exceeded all expectations. Just a couple of days ago, New York eased its restrictions, and sales are doing exceptionally well. The Governors Ball, as Michael mentioned, had its best first day ever. As each market reopens, it's encouraging fans to confidently go out and purchase tickets, and this trend is consistent across various markets.

Great. Thank you.