Summary
- Live Nation (LYV, $91.98) is the quintessential example of an Epicenter stock; it lost 95% of revenue at the height of the pandemic and was forced to significantly mitigate interrupted revenue with cost-cutting.
- The company is by far the largest operator in the events business. The advantages of scale are likely to increase as it potentially gobbles up the best of thousands of smaller operators and assets like venues.
- We believe a truly once-in-a-lifetime moment is developing for the live music business in the post-pandemic period. There is no company, in our view, better slated to turn it into benefits for shareholders than LYV.
- Live Nation is still exposed to the risk of pandemic resurgence, but unlike competitors, its scale and geographic diversification should help mitigate the effects of regional shutdowns/outbreaks.
- Current trends show fans are buying tickets, and events are selling out literally at their fastest pace in history. We believe what this company sells will be a massive beneficiary of “revenge spend.”
Americans love Rock N’ Roll, and it is also one of our most admired cultural exports. It is a uniquely American invention that could not have possibly spawned from any other geography in the same way. In our divided times, one thing that unites all Americans across generations, political parties, race, and creed is that we all look forward to that one particular artist we’d pay almost anything to see. We polled our Fundstrat staff to see what concert they are most looking forward to, and we got a wide array of answers.
We got responses from Travis Scott and The Offspring to the Opera and The Eagles, from electronic dance music to a great hope that perhaps Robert Plant and Jimmy Page will finally lay down their egos and unite for the benefit of their considerable fanbase. We want to encourage them to do this as the world could really use a Led Zeppelin reunion tour, in our opinion, and they could always give the money to charity if it’s such a hassle. Come on, guys, PLEASE!
Source: Seekingalpha.com
Perhaps it is not a coincidence that the roots of two of America’s most remarkable modern contributions to humanity, Silicon Valley and Rock N’ Roll, sprouted in the humble American garage. The business side of something so satisfying to human beings on a spiritual, non-material level has always faced challenges and allegations of hypocrisy toward those trying to monetize it.
Nonetheless, one of the most potent social forces in the United States since abolitionism has made many folks great fortunes as they find ways to capitalize on that certain intangible magic that draws us all to smoke-filled, low price-per square foot properties to pack in like sardines to abuse our eardrums.
Not Your Grandfather’s Live Music Business
People in the industry can feel the normalization coming. According to industry expert Peter Gross, “I think there’s some light at the end of the tunnel, and it seems a lot of people in the industry see and feel it as well. I feel like Q3 will definitely be back to normal for many states in smaller events. I think we will see larger events in states like Florida, Georgia, Texas.” Mr. Gross’s assessment may even be conservative as evidence of a coming music boom mounts. He also mentioned that he is seeing unprecedented demand across the industry.
We think it’s possible that what’s left of the music industry may have just experienced a 20-year bottom. There are few players more well-positioned to benefit than Live Nation with their sprawling assets and intangible know-how. The show always must go on, but we think it might be going louder and grander than any time in recent history.
Source: Pollstar
While we may think of events like Woodstock, when we think of the glory of live music, things have radically changed since then. When the record companies still maintained an oligopolistic stranglehold on music production and distribution, the primary purpose of live shows was to promote record sales.
As the digital revolution reduced the walls of competitive advantage of these former behemoths to dust, the calculus started to change on the part of people in the music business. The artists themselves (many of whom had always treasured live performance) and the centrality of the live performance as the way to monetize musicianship increased dramatically as the old power dynamics of the industry crumbled. Touring more for higher prices replaced album sales.
In 2010 anti-trust regulators conditionally approved the merger of Live Nation and Ticketmaster. The resulting behemoth was so prodigious that some internal departments are prohibited from sharing data. Anti-trust regulators still pay pretty close attention to the company, close enough that the DOJ just forced Ari Emanuel (who was portrayed by Jeremy Piven on HBO’s Entourage) to step down from the board given that his company Endeavor is a direct competitor. Thus, to prevent an interlocking directorate, he resigned.
There were many risks to this merger, mainly since Ticketmaster had significant brand baggage as consumers came to associate the company with last-minute fee tag-ons, perhaps unfairly. Incidentally, these fees were usually at the behest of artists who shamelessly collect them through the firm to maintain their ability to claim they provide “low-cost” tickets for working-class fans. As one industry insider put it, “Every story you have ever heard about the greed of musicians is true.”
The balance of power between artists, record labels, fans, and the likes of Live Nation has been changing though ever since Joan Jett and The Blackhearts released their debut album “I Love Rock N’ Roll,” as one of the most successful releases in history after being rejected flat-out by all the major and minor record labels. As Joan Jett said of the experience, “We gave them five songs, four of which were top 20 hits; it’s as if they didn’t have ears.”
Well, Joan Jett’s fans did have ears and money to buy the record she made herself. She’s a perfect example of a performer using live performance to elevate herself to Rock N’ Roll Titan status. Before the guerilla release began shattering the record labels hold, she had been touring the Northeast incessantly at venues like The Ritz, the Left Bank, My Father’s Place, and The Malibu. Venues like this that are local treasures are notoriously poorly and corruptly managed and even abusive toward musicians.
Live Nation gets right what so many small operators get wrong, and the musicians love working with them as a result. As 90% of the nearly 3,000 strong National Independent Venue Association stated that they would go bankrupt without government assistance, the opportunities abound for Live Nation to increase its already supreme market position in live music.
Getting ‘Asses Into Seats’ Has Never Been So Easy
Through all the glitter and glory of Rock N’ Roll, one of the perpetual problems plaguing managers, record labels, and artists alike was pricing tickets. If you price too high, you have an empty show, and if you price too low, scalpers reap financial benefits that the artist could have captured. Live Nation partially solves this problem with its customer data and, more importantly, its great direct relationship with the customers who provide it.
Source: Digitalmusicnews.com
The ebbing and flowing balance of power between artists and the record industry may grab all the headlines and even inspires some great songs, like EMI by the Sex Pistols or Working For MCA by Lynard Skynard. However, quietly since their 2010 merger, Live Nation has been becoming one of the most influential players in the music industry in general, and that’s because the past primary financial goal of going platinum has been replaced by orchestrating successful and profitable tours.
It is much easier to do this with Live Nation’s resources on your side. Quietly, behind the scenes, a player like Live Nation has become perhaps the most crucial player in the music industry, certainly more important than a label for artists whose bread and butter is live music.
Now, the balance of power between artists and venue owners, and concert operators is a bit more challenging to anticipate, given the utterly anomalous nature of the near-apocalypse just faced by the live music industry. Are the artists’ direct connections to their consumers calcified after a long pandemic? Are they potentially more dependent on Live Nation than ever to orchestrate successful and profitable performing strategies?
We think so, and we believe the potential financial implications of this are significant and being missed by many industry observers. While the pandemic saw a streaming boom, we believe the post-pandemic will be a genuine renaissance for live music. The artists have comparably less bargaining power than before the pandemic, given the ubiquitous pent-up demand is less act-centric.
In the end, the Live Music business is about getting asses into seats or, even better, outdoor standing room in so many of Live Nation’s proprietary outdoor festivals. The work is easier than it has ever been. Live Nation is also better positioned to do it more profitably because of its massive scale and promotional abilities. They have an army of people logistically qualified to pull off first-rate events.
Anyone who was personally at Woodstock will now probably purchase a $10,000 box and VIP experience for a Rolling Stones concert. Coincidentally, in terms of monetizing Rock N’ Roll, original 1962 shares in the Rolling Stones were among the best investments you could have made in the 20th century.
Source: Citydata.com
There’s a little more than just the typical Epicenter story for Live Nation. Yes, it was amongst the worst affected companies, and in the nadir of the pandemic, its revenue was down a catastrophic 95%. However, we also think it may be on the verge of benefitting from secular tailwinds for live music that perhaps haven’t existed since the advent of global communications in the 1960s. As Josh Brown recently said on CNBC when talking about the rosy picture he saw for the stock, “I’m predicting six months of New Year’s Eve seven nights a week in this country, between now and the end of the year.”
Mr. Brown is articulating a concept in a roundabout way that my colleague Tom Lee has been using lately, “revenge spend.” This is price-be-damned spending for products that may hold higher immediate value to consumers because of emotional appeal. There are few products with as powerful emotional appeal as what Live Nation is selling to starved consumers.
There Is Also An NFT Kicker? Far Out!
The devastation wrought by digitally transferable file formats in this industry was one of the most visible disruptions of the past three decades. Interestingly, this industry and the painful disruption it also faced perfectly illustrate why something many people may have a hard time understanding has value; Non-Fungible Tokens.
Live Nation’s 2010 merger target, Ticketmaster, is perhaps one of the most tangible examples of the real-world economic benefits of NFTs as compared to fungible formats. For example, the company realized considerable savings from switching ticket formats from PDF files to NFTs. The CEO speaks quite optimistically about them. Aside from the logistical side of NFTs, one imagines the format could find life in unique live performances, potentially creating lucrative secondary markets that the company could capitalize on.
Risks And Where We Could Be Wrong
For every Woodstock or Lollapolaooza, there is an Altamont and a Fyre Festival. Let’s just say the kind of mistakes that defined the latter two events are simply unlikely to be made by the professionals at Live Nation. Their raison d’etre partially prevents dreadful outcomes such as these. Nonetheless, the risk of significant failures turning into significant public spectacle is always there.
Airline passengers’ behavior suggests that many people may be more prone to unruly behavior than before COVID-19. This could be a challenge. However, it is also a challenge that Live Nation is better equipped to handle than its peers, due to its scale and the intangible relationships and rock n’ roll intangible know-how we referred to earlier.
Source: Original Poster
This company’s most significant risk is probably the pricing risk associated with any significant return of widespread, pandemic-induced lockdowns. The share price has exceeded pre-pandemic highs, and thus markets do appear to have partially assumed COVID-19 variants will not reverse re-opening. In 2010 during the height of the Global Financial Crisis-induced recession, concert sales reached their all-time high.
We don’t think it is in doubt whether consumers want to go back to concerts and spend a significant portion of their wallet on them and adjacent services; it is a question of when it will be considered entirely safe to do so all around the world! Live Nation’s geographic sources of revenues are indeed highly dependent on local ordinances regarding large gatherings. After all, this company’s business is facilitating enjoyable large gatherings centered around music.
One of the reasons Live Nation has exceeded pre-pandemic levels is because there is no readily available digital alternative for its core product. You simply cannot replace the live show. People tried over the pandemic, and the significant price discount illustrated what many could have already told you, there is to date no good substitute for the live performance.
Nonetheless, there are adjacent venues that may provide increased competition. Travis Scott recently held a concert within the video game Fortnite that 28 million players attended. However, we anticipate these developments do not threaten the viability or popularity of live shows, one of the most timeless and universally enjoyed activities that being a member of the human race offers.
