Thursday, May 10, 2007

Live Nation's First Quarter... holds bad news

Clear Channel is known as the largest single owner of radio stations in the world. There is no other business that has cornered the market like they have. Like most business, they always had their eyes on expanding their business. The United States conformed to their format of radio stations: Rock, Country, Adult Alternative... until you could go into almost any market in the nation and here the same artists played on almost the same stations. A West Coast DJ would be played across the nation to the East Coast. Alarmists said that it was this type of action which would stifle the music industry and make it harder for artists to make it big. Then technology struck an amazing blow against radio, but it didn't happen before Clear Channel started buying up every large outdoor ampitheatre it could get its hands on. Alpine Valley in Wisconsin, Deer Creek in Indiana in the Midwest... probably the biggest ampitheater in your market is owned by them too.
It seemed like to get to the top, you had to contend with their power. The economic model was to start from the top and work its way down and out! They would vertically integrate themselves into every facet of the music industry. They built a ticketing company called Music Today. They bought smaller theaters and world reknowned clubs. It kept getting smaller and smaller until you had to look around and wonder when it was that Clear Channel would come calling for your little slice of heaven. And then they did just that. They called on every independent promoter in the nation who built their careers on their personal reputations of doing good business and getting in touch with todays music fan and bought them out. For years, they let these promoters hold on to their old fashioned names, but they were unmistakenly Clear Channel. Most notably, Bill Graham Presents... a man who was the father of modern music promotion had his name sold to the most dominant corporation of promotion the US would stand witness too. Then after criticism from consumers as the word leaked out that their favorite independent artist was in fact performing for the machine's benefit... they swallowed all the names and cast a blanket of a new color upon the land: LIVE NATION was born.
It was only a matter of time before the self inflicted wounds would bleed themselves dry. The tighter their grip became, the fewer artists there were to fill the largest ampitheatres and they would not have as much money to apease their shareholders!
They would use their ticketing service, MusicToday as a fan portal and create ancillary revenue streams by selling the live concert to the fans. However, the mentality had switched away from the tours of the Grateful Dead and Phish. It was much more fun to see your favorite band play in a smaller setting anyway and its perfectly reasonable to enjoy that. Everyone loves an underplay, especially the promoters, because you can't lose money on a sold out show!

We knew that it was only a matter of time before Live Nation had to cut its ties with the ampitheatres. There simply wasn't enough talent that could bring in enough dollars to meet the operating expenses that go along with those venues. These artifacts of the past will become office parks. Live Nation set their eyes on smaller venues and finally they would turn their eyes on artists themselves. In the short term, stock holders will see a buck or two more in their pockets, but in the long run... good bye to the days of the Rolling Stones. Goodbye.

And now for the article that prompted this statement.

It is true that the next logical step is to offer their dynamic services to artists who intend to grow large in the live music circuitry that exists today! And not that its any wonder, but here it is... an article that came out in Pollstar today!
It is worth reading if you want to know where the eye has turned.

Live Nation’s first quarter earnings call May 10th revealed the company plans to reduce the number of its amphitheatre shows, cut its contracts with third-party local food and beverage vendors, and implement a new program called "Artist Nation."

On the money end of the call, Live Nation reported revenue of $584.2 million, an increase of $67.6 million (or 13.1 percent) compared to the same period in 2006, and operating loss of $30.4 million, a decline of $38.5 million.

However, the adjusted EBITDA of $4.1 million is a decline of $12.1 million for a net loss of $45 million.

Asset sales in the first quarter alone yielded $37.6 million in net proceeds, reflecting the divestiture of Donington Racetrack in the United Kingdom, Starwood Amphitheatre near Nashville and Live Nation’s remaining stake in "Phantom – The Vegas Spectacular" as well as an office building in San Francisco.

Live Nation reported a softer first quarter in concert revenue, citing the difference a Rolling Stones tour can make. The lack of Stones dates in the first quarter was offset somewhat by the addition of House of Blues shows to the box office tally in 2007.

The company reported 20.5 percent more shows held, for an increase in attendance of 1.5 million, or 12.8 percent. Still, the mix of shows in the first quarter, including The Who, Josh Groban, Bob Seger, and Rascal Flatts weren’t quite strong enough to keep up with last year’s early tours including U2, Coldplay, Billy Joel, Aerosmith, Toby Keith, and Depeche Mode.

Looking ahead, Live Nation announced it is taking steps to stop some of the bloodletting at its amphitheatres by severely cutting back on shows that draw fewer than 7,500 concertgoers.

"We are targeting a lower number of events this summer with a focus on eliminating unprofitable events and improving profitability of the remaining events," Live Nation said in a statement.

Another cost-cutting initiative announced in the earnings call is the reduction of the number of different goodies for sale at venues and the elimination or reduction of "low-margin third-party local food and beverage vendors." The number of F&B items available is expected to be reduced to about 50 from more than 200.

Live Nation also introduced a potential new revenue stream with the introduction of Artist Nation, which consolidates all of LN’s artist service businesses under the Global Artists segment. Artist Nation includes LN’s interest in fan portal MusicToday, merchandiser Trunk Ltd., content and marketing developer Ultrastar and tour marketing/creative services unit Tour Design.

The company previously announced the launch of exclusive ticketing offers, including the sale of premium seat, parking and VIP passes through the Live Nation Web site. Divestiture of Live Nation’s theatrical division and additional amphitheatre properties is continuing.

"We are one year into our three year transformation to become a vertically intergrated live music company," Live Nation CEO Michael Rapino said. "We have demonstrated quarter after quarter our ability to execute systematically on our fix/build/expand strategy to get us to that goal.

"Year one was about stabilizing our core music business and refocusing our mission. Now, with a defined music mission, year two is about improving the core, expanding our core music offerings. … Year three will see our growth being propelled by the synergy of our core live, online and artist services businesses."