Is the party over for Live Nation? It’s more likely than it ever has been for the concert behemoth to go bankrupt ….or just go away.
By David Icke Turner
Primary photo by Edwin Andrade
Live Nation isn’t exactly the easiest company to love. They are a publicly traded corporation that controls the lion’s share of the planet’s concert industry and they rule with an iron fist. The company controlled the landscape of live music for the last 2 decades through domination rather than innovation. They gobble up anything independent, control the routing of just about every major artist, and stifle innovation at every turn. As soon as an independent venue, promoter, or festival bubbles up out of the primordial swamp, the concert behemoth comes to drag them under water and devour them into pieces. I was once told by their Chief Strategy Officer ” Live Nation is where dreams go to die.” Never mind the fact they are currently selling 2020 tickets to Austin City Limits and Bonnaroo festivals despite knowing well these events will not happen. Their leadership is made up largely of people who, well, don’t look like they have ever been to a concert. To be fair, fanboys like myself have this unspoken hope that the music business should be made up of people who have also waited in the rain for an hour to get into a show with 3 hits of LSD hiding in their rectum.
Yet the pandemic-induced trauma the event business has endured has made the prospects of Live Nation’s collapse seem more real every day. Reports on whether they can survive the storm are mixed. Many analysts say they have enough cash to last through, well, however long it takes for concerts to become a reality again. As of the end of 2019, the company had $3.3 billion in debt outstanding and $2.5 billion in cash. There is a good chance that a major chunk of that 2.5 billy has gone to operating costs. On top of that, 837 Million of the remainder is ticket revenues that very well may need to be returned to customers. It is safe to say, that is why they have been reluctant to give refunds. This whole pandemic could not have had worse timing for the company. The two quarters of 2020 that have been shutdown are their most profitable of the year. According to The Motley Fool “ The spring, summer, and early fall months are Live Nation’s most active. In fact, the company operates at a loss during the first and fourth quarters, making up for these losses with strong profits during the second and third quarters.”
|Quarter||Live Nation Operating Income|
|Q1 2019||($23.8 million)|
|Q2 2019||$171.6 million|
|Q3 2019||$260.0 million|
|Q4 2019||($82.9 million)|
With CEO Michael Rapino not expecting a return to full-tilt concerts until mid to late 2021, tickets to shows they intend to cancel may be their only viable revenue stream. The COVID-19 pandemic has adversely affected virtually every company yet Live Nation Entertainment (NYSE:LYV) has a proverbial knife to its throat. As the planet’s largest concert promoter, its holdings include 270 event venues and also the infamous Ticketmaster platform. Before the quarantine, their stock was a safe and frequent winner. It soared from $10 a share in 2013 to over $70 per share in 2020. The stock is now down 50% and there is no end in sight to the hemorrhaging. A new uptick in the virus, particularly in states that have opened up, could spell disaster for the company. Up the ante with an election year with potential civil disruption and the return of concerts is the least of your worries. Live Nation claims to have enough cash to ‘weather the storm.’ But the problem is we do not know how long this storm will last. Everything BUT concerts and events could come back a year or more before venues open again. And if we see another viral uptick as many epidemiologists are warning, then it could go well beyond 2021.
Carrying enough cashish to get them through the crunch is obviously a serious concern. They demonstrated how dire the situation is by recently announcing plans to sell off $800 million in bonds to raise funds for “general corporate purposes.” If someone asked you to borrow $5000 dollars and when you asked them why they told you “ general purposes”, you would imagine they were in some deep shit.
Long-term portfolio platform Macroaxis just updated their rated probability of a Live Nation bankruptcy is nearly half — “Based on latest financial disclosures, Live Nation Entertainment has a probability of bankruptcy of 42.0%. This is 18.64% lower than that of the Communication Services sector, and significantly higher than that of the entertainment industry.” Despite this, the stock has made a significant rebound to to 49.01.
Sure we have done our fair share of picking on the event giant here, here, and here. Yet there would be some real bloodletting should Live Nation come to its demise as a result of Covid-19. If Live Nation were to go bankrupt and call it quits, the entire concert and festival industry would have to be re-imagined. Thousands would lose jobs. Major venues would disappear. But let’s really unpack this. What does a post-Live Nation music business even look like?
Short Term Economic Impact
Live Nation employs just under 10k people. That’s not a huge number given their overall revenues and scope of work. But what that number is missing is the tens of thousands of contractors and vendors that rely on regular Live Nation spending to support their businesses and their families. The fact the company contracts so many vendors has a trickle down effect. Many businesses cover much of their operating expenses with the sums spent by Live Nation. That is the independent production company that depends on them for half of their yearly income. That is the local newspaper that supports independent journalism with Live Nation’s regular ad buys. That is the independent venue and their staff that get a routed show here or there placed with them when Live Nation’s nearby venues are full. Not to mention the hundreds of millions of dollars in real estate deals in which they are signatory. Also, Live Nation has a legion of subsidiaries such as household names Roc Nation, Ticketmaster, Front Line Management Group, C3 Presents, and AC Entertainment; among others that would get kicked in the teeth. The concerts and festivals that Live Nation produce brings billions of dollars of economic impact to cities throughout the world. Simply said, the dissolution of Live Nation would have reverberating economic effects across the music industry and beyond.
Artists’ guarantees go down.
Live Nation has the muscle to outbid any other promoter when it comes to artist guarantees. Oftentimes, it works like this: Artist X routs tour through various markets and seeks the highest fee guarantee possible from competing promoters. LN is notorious for overbidding to force the few, independent competitors out of the running. Either local promoters pay exorbitantly to outbid the behemoth or Live Nation gets the show. This has the net effect of raising artist guarantees either way. And with artists relying more and more on performance dollars, Live Nation is an easy option.
“We know that Rihanna can sell out anywhere,” said Live Nation CEO Michael Rapino. “That’s the part that makes our model unique.”
Big Box Shows suffer. Some artists may just retire?
Live Nation often builds the tours soup to nuts for the mega artists in stadiums. Besides them, AEG is a rare company that has the depth of dollars to produce an Elton John, Rolling Stones, Springsteen, or Billy Joel worldwide tour. They are basically the runner up and have a fraction of the money and juice LN does. In the absence of a single, financially responsible promoter with power like Live Nation, artists like Elton John are unlikely to rely on different promoters in 30 different markets to have checks that don’t bounce. Not to mention the production and logistics chops necessary to pull off a show like his. It is possible that Elton tells the world to ‘bugger off’ and enjoys his golden years without the nuisance of an international tour.
Who is gonna grease the local politicians?
Live Nation does a lot of the heavy lifting required to have a sustainable live music industry in a city. The company works with municipal and state governments on an endless array of issues like noise ordinances, booze taxes, curfews, event permits, and major festival coordination. Their clout and dollars have tangentially benefited other promoters small and large. Live Nation donates hundreds of thousands of dollars to both Democratic and Republican politicians to lobby issues often important to their competitors. You can rest assured they had a hand in the recent inclusion of live entertainment in federal stimulus packages. See below where they actually gave Andrew Yang a little over $5000 bucks. Not too shabby.
Independent Venues have a brighter future.
Yes, Live Nation gets all the strong tours. Since LN began dominating the touring landscape, venues large enough to hold the shows Live Nation produce are forced to either find a niche, overpay artists, or partner with the company. But if they went away, independent venues would have a shot at the hot-selling tours and be able to markedly increase their revenues. In an industry where even historic venues are clinging for life, Live Nation’s dissolution might be a Godsend.
Make Festivals OK Again.
Name your favorite festival. Not a single one of them was conceived by Live Nation. Lollapalooza, Austin City Limits, Bonnaroo, EDC, Hard Style, Download, and Pinkpop were all founded by creative and visionary independents. Then Live Nation scooped them and homogenized them. Austin’s recently purchased C3 Presents produces many of Live Nation’s festival properties. They have standardized everything from wristbands, websites, food, and signage hence creating an often milk-toast experience. Why does Live Nation make sure and gobble up every emergent festival that gets its legs? The company may have seen the late 00’s ascendant festival circuit as an existential threat. With dozens of artists taken out of routing with every festival that sprung up, these large multi-artist events became year-round obstacles to Live Nation controlling routing. The ultimate offense came when independent festival operators began routing their own mini-tours for artists performing at their festivals. This made it exponentially harder to monopolize artist dates across states and countries. Independently controlled festivals means more innovative, authentic experiences from people who have their cities culture at heart and still have some fanboy left in them. Live Nation ‘annexed’ nearly 100 festivals in the last decade. The lion’s share of them went away.
Return of locals as openers for touring acts!
Remember back in the day? Back when the big, cool touring band would come through town and your buddies act would get a shot to open up? That may seem a vestige of the past now but it was commonplace a few short years ago. Independent venues would have symbiotic relationships with the big, local bands who could draw. An economy of favors would arise out of these relationships which was great for the entire ecosystem of a music scene. Bands aspired to opening for local acts. It could be argued that this very aspiration fueled creative output. Go to your typical House of Blues show in NAME YOUR CITY and seeing a local opener for a big, touring act is just about impossible. Regularly, these shows are over by 10PM and there may be no time for them. But independent venues often go later as they seek to bring in as much bar sales as possible to pay the talent fees driven up by Live Nation. I guess the artists can shoulder some of the blame too. But with independent venues deciding the run of the show, you just might get to see your buddy embarrass him/herself in front of 2000 people.
With exorbitant talent fees naturally comes high ticket prices. If Live Nation goes the way of the Dodo bird, there would be a reset on the market value of a touring artist performance. The marketplace would actually become competitive yet promoters would have the opportunity to collectivize. This would mean promoters and venues could establish ceilings on what they would pay an artist based upon volume-metrics. We could also see the return of a shared risk model: promoters and artists ‘co-promote’ a show and make an agreed split of revenues from tickets and concessions. Then everyone would be equally incentivized to market and produce the best show possible. From the standpoint of economic theory, what we have today is the antithesis to free market ideals and completely stifles innovation. The company’s 2009 merger with Ticketmaster cemented the monopoly. We will get to that shortly.
I ordered a drink between sets the last time I was at House of Blues. I ordered a single tequila. Not top shelf but not well. 32 dollars. American dollars. I have spent less on a single drink in Stockholm, Sweden. As previously discussed, Live Nation outbids everyone when it comes to talent fees. They overpay often over and above an artists value and frequently take a loss vis-à-vis ticket sales versus talent fees. Somewhere, there is a mythical bank account that constantly takes a loss on Live Nation shows. This fabled bank account magically gets replenished with new hedge fund capital in a blink of an eye. See, Live Nation is reported to have a business model they internally call ‘peanuts and parking’, or ‘parking and popcorn’, or …whatever. The point is, the company can take a loss on the ticketing part of the event because they make so much money on 12 dollar beers, 8 dollar slices of pizza, and 25 dollar event parking. Without that $32 dollar tequila, the company might be bust.
Live Nation and Ticketmaster. Finkel and Einhorn. Einhorn and Finkel. Yes, the once separate titans became a singular force through their 2009 merger. There are hundreds of big ticket companies out there but Ticketmaster is the oldest and biggest. Importantly, they are the most fucking expensive. The average ticket fee is now 27 percent of the ticket’s face value. And Ticketmaster is regularly referred to as one of the most-hated companies in America. And many would say for good reason. Their shit is just gangster sometimes. 5 years ago, Ticketmaster settled a class action lawsuit mandating it to pay out a whopping $400 million to 50 million+ ticket buyers who were hit with mysterious “order processing fees” and “UPS delivery fees” that did not actually go to UPS.
A Prayer for NYSE:LYV
This is not a prayer for the demise of Live Nation. This is not sour grapes. This is an exploration into what a reset would like for this one industry as every other industry goes through similar trauma. Maybe this is an opportunity to bring the seemingly unapproachable mammoth into the conversations everyone else in music and events have been having for years. But this pandemic has Live Nation in a tough spot. Part of me just wants things to chill out and shows to come back as soon as possible. The other part of me hopes that this will be a cathartic moment in American culture. If Live Nation has to go away for something better to come down the pipe, then let them die a quick and painless death in their sleep.