Times are tough at Live Nation Entertainment. The Beverly Hills company is bracing for the loss of its biggest customer while suffering from a recession that has taken a severe toll on ticket sales.
While its stock price is way down, it’s not just rolling over. Last week Live Nation, the largest concert promoter in the world, announced strategic alliances with Universal Music Group and Facebook. The announcement had little immediate effect. The company’s stock closed at a 52-week low Sept. 21, representing a loss of 20 percent in value in the last year.
Analysts said increasing fears of a double-dip recession and competition in concert ticket sales explain the stock’s decline, even as they praised the strategic partnership with Universal.
Live Nation announced Sept. 19 that its music-act management subsidiary will form a joint venture with Universal Music, the world’s biggest record label, to promote bands through worldwide sponsorships and merchandising. The plan is to bundle tickets, recorded music or related products and sell them together through Ticketmaster, the largest online ticket service in the world, which Live Nation took over last year.
In a separate deal, Live Nation announced at an investor conference that the Ticketmaster division will start selling tickets through social networking giant Facebook. The service will allow concertgoers to share information about upcoming events and buy tickets near their friends for a concert without leaving the site.
David Joyce, an analyst at Miller Tabak in New York, praised the Universal deal as a smart decision. But he added that the company is especially exposed to recessionary pressure because of the direct link between discretionary income and entertainment spending.
“The stock hit a year-to-date low on macroeconomic fears of another recession,” he told the Business Journal last week. “Consumer discretionary stocks have a rougher patch when consumers might be pulling back on their spending, so the stock movement has overly punished Live Nation.”
Another factor in the stock’s decline is the announcement a month ago that downtown L.A.-based Anschutz Entertainment Group, or AEG, had launched an online ticketing service and would transform from a Ticketmaster customer to a competitor.
AEG, a sports and music conglomerate, is now Ticketmaster’s biggest customer. Joyce estimates Ticketmaster will sell about 136 million tickets this year, with AEG shows accounting for about 42 million of them.
AEG’s new ticketing service, called Axs and pronounced “access,” will gradually grow to handle all ticketing at AEG’s venues by the end of next year.
However, Joyce believes that it will only be a 5 percent loss for Live Nation because the company has a plan to increase international sales.
“Live Nation has been embarking on international ticketing growth that should more than offset what might be lost from AEG,” he wrote to investors Aug. 23 after AEG announced Axs. “This was an expected development.”
Live Nation declined to comment for this story.
Hal Abramson, a concert promoter and music festival consultant in Rockville, Md., said that as Ticketmaster’s processing fees have grown and consumer’s wallets have shrunk, about 30 Internet companies have sprung up to sell tickets with much lower fees. Axs will become the largest player in that field of competition.
For independent concert organizers, contracting with startups makes financial sense. Ticketmaster charges promoters to sell the tickets for them and also takes a service charge from concertgoers. The startups don’t charge the promoters and are happy with a smaller service charge. For example, Ticketmaster might charge a $9 processing fee on top of a $60 ticket, while a startup competitor might charge less than $1.
“You have free ticketing for the promoter and it’s cheaper for the customer,” Abramson said.
Not even positive earnings could prop up the stock, however. In its most recent quarterly statement, Live Nation reported net income of $13.3 million compared with a loss of $32.8 million the same quarter the previous year before.
Douglas Arthur, an analyst at Evercore Partners in New York, said the key to the turnaround was the company’s decision to schedule fewer concerts and sell a higher percentage of the tickets without any discounts. This yielded double-digit increases in revenue per concert attendee and concert sponsorships.
However Arthur questioned if the company could stay profitable after the summer ended. He maintained a “neutral-weight” rating with a target price of $13.25.
“The stars aligned perfectly for Live Nation in the second quarter with a lot of large acts on the road, filling large stadiums at high ticket prices,” he wrote to investors Sept. 20. “We choose to wait for further evidence of an upturn.”
Miller Tabak analyst Joyce sees the Universal Music partnership as good positioning for Live Nation for the time when the economy returns to strength. He rates the stock a “buy” with a long-term target of $19 per share, more than double its current price.
“The strategic importance of this (Universal) partnership is that it helps to keep privately held competitor AEG at bay,” he wrote to investors Sept. 20. “We view this as a wise move by Live Nation to help solidify its artist relationships.”
