Live Nation Inc. made big news last week when it cut a deal to sell tickets at concert halls managed by one of the nation’s largest venue operators.
But while the deal with Philadelphia-based SMG garnered headlines, analysts are saying that a recent move by the Beverly Hills concert promoter into Latin America could be even more important.
The company recently sealed two exclusive five-year distribution agreements with CIE, the largest concert promoter and venue operator in Mexico, and with T4F, one of the leading venue operators in Brazil, Argentina and Chile.
The agreements give Live Nation the exclusive right to book world tours into nearly every major concert hall and arena in Mexico and most other significant South American markets some half a billion fans. It also hampers competitors from booking acts on world tours because they no longer will be able to use these critical South American venues.
But perhaps most crucial: The move boosts Live Nation’s plan to restructure its business by cutting all-encompassing “360” contracts with established artists which give it a piece of the action for about everything including worldwide concert tours.
“This gives them unprecedented access to Latin America,” said David Joyce, analyst with Miller Tabak & Co., who specializes in Latin media. “It is a very difficult market to enter.”
Terms of the deal were not disclosed, but CIE and T4F are believed to have agreed to pay Live Nation a percentage of revenue when acts promoted by the company perform at their venues, with the operators keeping the lion’s share.
The Latin American agreements, disclosed last month, preceded what has become a string of major deals for Live Nation, the world’s largest concert promoter, as it restructures.
Last week, the company finalized the sale of its Motor Sports division to Vienna, Va.-based Feld Entertainment Inc., which puts on arena events such as indoor motocross. The $175 million it received will free up capital and allow it to pay down debt. It could gain $30 million more based on performance.
Also last week, there was the deal with SMG, which manages more than 200 major venues, including the Los Angeles Forum.
The deal locks up to 25 million tickets, worth an estimated $50 million in ticketing fees fees that would have gone to West Hollywood-based Ticketmaster, which currently sells 90 percent of the tickets to Live Nation concerts. Ticketmaster’s stock closed Thursday about 25 percent lower than it started the week.
Live Nation is preparing to sever its contractual ties with the global ticket selling giant in January in order to start its own online ticket sales business a key part of its restructuring.
However, in order to make its new model work it had to guarantee that established artists such as Madonna who have signed 360 contracts with the company could perform in all markets around the globe. Live Nation already has established a significant presence at venues throughout Europe and Asia but had been weak in Latin America.
“This latest move accomplished that goal, at least in Latin America,” said David Kestenbaum, an analyst at Morgan Joseph & Co.
Live Nation did not speak publicly for this article.
Wall Street rebound
The string of deals has excited Wall Street’s prospects for the company. As recently as early July, Live Nation was trading near its 52-week low of about $10 per share. But since then the stock has taken off, closing at $16.90 on Sept. 11.
Four out of six analysts who track the stock rate it a “buy,” according to Bloomberg News.
“Live Nation is successfully diversifying along the artist-to-fan music pipeline, eliminating third parties like Ticketmaster, partnering with artists and building its own Internet platform,” according to James Boyle, an analyst with New York-based CL King & Associates.
Live Nation had been a concert promoter, a low-margin segment of the music industry. (That’s reflected in the company’s $11 million loss last year on $4.18 billion in revenue.)
In contrast, the entire worldwide global music pie is a $77 billion business and it includes segments that have much higher margins, such as CD and merchandise sales which are all businesses that Live Nation is getting into with its 360 artist deals.
However, Live Nation’s forays into the wider music business have not all gone smoothly.
The company had to pay big premiums to cut its deals with established artists. Its very first deal with Madonna turned heads when the company agreed to pay her $120 million up front. And similar contracts with U2, Shakira and Canadian rock band Nickelback were also pricey.
Some analysts were starting to wonder how it would all pencil out. Indeed, the pace of the deals fomented a disagreement between former Chairman Michael Cohl and Live Nation Chief Executive Michael Rapino, who reportedly wanted to slow it all down. Cohl ultimately resigned in the summer, though he retains a consulting contract with the company.
Rapino has defended the deals’ costs, telling the Wall Street Journal that despite the high up-front payments, the lucrative downstream revenues should improve the company’s cash flows. He said the Madonna deal should provide the company with a 9 percent operating cash flow, well over its standard 4 percent cash flow it now generates out of its business.
Still, though, other challenges abound.
Ticketmaster said last week that it planned to fight the Live Nation-SMG ticket deal.
Ticketmaster’s Chief Executive Sean Moriarty claimed that SMG, owned by private equity fund American Capital, LTD, must go through a competitive bidding process because many of its venues are municipally owned.
So far the markets seem to be betting on Live Nation, which saw its share price rise a dollar last week.
