Turbulent Nation

The Live Nation Entertainment investors meeting at Irving Plaza in New York July 15 was grand theatre on a Shakespearean scale, with Michael Rapino and Irving Azoff in the lead roles.

It had props like “slide No. 9” and plot points like “three months to stardom.” Rather than bolstering confidence in LYV stock, it included investors frantically e-mailing their offices early in the presentation with orders to sell or short the stock as everyone in the room watched the price dive in real time.

It was a “stock massacre,” as one publication put it, with a “discordant tone” according to the Wall Street Journal’s Martin Peers.

And maybe it was so. Rapino noted from the stage that the sobering numbers was a buzz kill, and he pointed out that investors in the room were e-mailing to their home offices the bad news after the ninth Powerpoint slide showed flat revenue for the past two years. Before the two hour-plus presentation wrapped, LYV stock had dropped 16 percent – a quick loss of $322 million in market value.

Live Nation could have released its pending 2Q numbers quietly rather than try to provide investors with future guidance. If Live Nation brass had expected the webcast presentation to suppress investor fears, or even to bolster the stock, it was rudely disappointed.

But putting aside the din of Wall Street and the dramatic press coverage, the presentation included some major policy changes that will affect the industry in very significant ways. If Live Nation holds to its guns, there will be changes ranging from all-in ticket pricing to reducing North American volume and putting more emphasis on global markets with better profit margins.

Jason Garner, Live Nation’s CEO of Global Music, made it clear that the financial realities of this season could initiate a drop in artist guarantees, leading to lower ticket prices, in turn leading to more butts in seats. The new mantra was that talent prices and ticket costs need to come down because consumers are demanding it. Meanwhile Live Nation chief Rapino, pointing the finger at the media, said acts are getting spooked about touring in the fourth quarter as he projected a further decline through the end of the year.

Also, Hova was in the house: The presentation kicked off with an appearance by Jay-Z, who has a 360 deal with Live Nation, and figured prominently in an upcoming bullet point.

“Jay-Z doesn’t care if he’s playing Paris or Denver,” Rapino said. “We do.”

That’s because the typical deal structure in North America has much smaller promoter profit margins whereas international deals can be much more lucrative. The company acknowledged it makes little or no money off ticket revenue as a promoter and that most of Live Nation’s profits are coming from ancillary revenue streams like popcorn and parking.

Garner also referred to Jay-Z while discussing artist guarantees – noting that some artists, such as Shawn Carter, deserve what they charge while others need to reassess.

“It’s not a U2 or a Lady Gaga problem,” Garner said. “[It’s] that middle segment of the bands … that’s trying to have that same $50 or $60 price that Jay-Z has.”

Live Nation also promises to be more consumer friendly and the company will start refunding the service fees on all tickets to canceled shows – a fee that was previously not returned to the consumer. To make up for that and other lost ticketing revenues, the company’s new building contracts will attempt to include fees for season ticket sales that had been previously excluded. The company also wants to start collecting service fees on all tickets bought at venue box offices – the one place consumers previously could go to circumvent many of the added fees.

Meanwhile, when times get tough you can depend on the high cost of tour production becoming the bogeyman of the industry.

“The consumer is going to be just as happy with a stage set that may fit in 12 trucks as opposed to 22,” Azoff said. That’s very true if you can get the artists to accept a leaner stage show.

Live Nation also said it expects to remove the onerous $2.50 surcharge that accompanies the “print-at-home” feature of Ticketmaster. This is a byproduct of the merging of the two companies: Much like how Ticketmaster’s LiveDaily.com has disappeared because of redundancy, so will the print-at-home surcharge disappear to match the policy already in place at Live Nation Ticketing.

More significantly, Live Nation expects dynamic pricing to be prevalent by next year. Azoff noted the supply-versus-demand model was implemented at an Eagles show at Arco Arena in Sacramento – a show that sold out and increased gold-circle revenue while nosebleed seats were as low as $28.

A slide that was on the screen early in the presentation apparently had little immediate impact but made a lot of news once it was trumpeted by industry commentator Bob Lefsetz, which in turn was mentioned in the Wall Street Journal.

The slide presented a new model for success in rock ‘n’ roll – a model that begins with a no-name artist posting a video to YouTube, then signing with a promoter (presumably Live Nation), then playing at arenas – all within three months.

Now if they could make that scenario happen, Live Nation stock would be trading up there with Berkshire Hathaway.