19
May
16

Live Nation in the Digital Paradigm Shift

In the course of digitization new players entered the music industry changing the rules of the game. Such a player is Live Nation. Live Nation Entertainment is the result of the merger of the world’s largest music promotion company, Live Nation, and the world’s largest ticketing company, Ticketmaster, in 2010. The Ticketmaster-Live Nation merger marks the beginning of a new era in the music business, with all activities within the industry now being integrated, including live music events, venue operations, ticketing services, sponsorship and advertising sales, and artist management and services (Live Nation 2015: 4). In the following Live Nation’s business model and economic performance after the merger is portrayed and analysed.

 

Live Nation in the Digital Paradigm Shift

Live Nation self-describes its business in the annual report of 2015: “We believe we are the largest producer of live music concerts in the world, based on total fans that attend Live Nation events as compared to events of other promoters, connecting nearly 59 million fans to almost 23,000 events for over 2,700 artists in 2014. Live Nation owns, operates, has exclusive booking rights for or has an equity interest in 158 venues, including House of Blues music venues and prestigious locations such as The Fillmore in San Francisco, the Hollywood Palladium, the Ziggo Dome in Amsterdam and 3Arena in Ireland” (ibid: 2).

Therefore, Live Nation Entertainment operates in four different business segments (ibid: 28-29):

  • Concerts segment, which involves the global promotion of live music events in owned or operated venues as well as in rented third-party venues. The segment covers the management of music venues and the production of music festivals such as the Lollapalooza festivals around the world.
  • Ticketing segment, which sells tickets for Live Nation events and for other clients by charging a processing fee.
  • Artist Nation segment, which provides management services to music artists in exchange for a commission on the earnings of these artists. It also creates and sells merchandise articles for music artists at live performances to retailers and directly to consumers on the Internet.
  • Sponsorship & Advertising segment, which creates and maintains relationships with sponsors and branding partners.

Prior to 2012, Live Nation also operated an eCommerce segment that included acquired online ticketing platforms and the online media research company BigChampagne, which it bought in 2011. However, the eCommerce segment was dissolved in 2012, and its operations were divided among the Ticketing and Sponsorship and Advertising segments (Live Nation 2012: 5).

An analysis of Live Nation’s annual reports highlights impressive statistics. In 2015, Live Nation recorded 7,700 full time employees (Live Nation 2016: 8) and promoted 25,519 music events – concerts, festivals, and concert tours – with 63.5m visitors world-wide. Since Live Nation has been spun off from Clear Channel as a stock company in 2005, the number of promoted music events has tripled, and attendance nearly doubled (Live Nation 2006: 50 and 2016: 31).

Figure 1: Number of music events and attendance of Live Nation, 2005-2015

Figure  1- Live Nation number of events and attendance

Source: After Annual Reports by Live Nation, 2005-2015.

The financial results of Live Nation, however, only partly reflect this positive trend. Although revenues have grown by 147 percent to US $7.2bn in 2015, total expenses have increased at nearly the same rate – 141 percent. Since the merger with Ticketmaster in 2010, Live Nation reported annual net losses, even though they lessened to US $15.8m in 2015. The financial picture becomes brighter if the operating income is considered. Live Nation reported an operating gain of US $131.4m for 2015, after losses in 2010 and 2012. However, the concerts segment could not contribute to the operating gain. In each year since the merger, Live Nation’s concerts segment showed an operative loss – e.g. US $105.3m in 2015 after US $190.5m in 2014. The cost of revenue in the concerts segment has been more or less stable at a high level of 85 percent since 2010. This can be explained by razor thin profit margins in the live music business, as Live Nation’s CEO pointed out in Congressional Hearings to the Live Nation-Ticketmaster merger. Therefore, Live Nation has to pay advances of 90 percent of the ticket sales to the artists. Hence, Live Nation had to earn the money back by the ancillaries. CEO Michael Rapino calculated that his company made an average of US $12 to 15 per person from ancillaries, but only an average of US $4 per person on every US $100 worth of from ticket sales (Budnick and Baron 2011: 321).

Live Nation’s operating gain arises, therefore, from both the ticketing segment and the sponsoring and advertising segment, with costs of revenue being slightly below 50 percent and 13 to 18 percent, respectively. In contrast, the Artist Nation segment, which includes the agency business and expanded rights deals, has shown operating losses since 2010 with a cost of revenue of about 55 to 65 percent depending on the financial year.

Figure 2: Live Nation’s revenues by business segments, 2010-2015

Figure 2 - Live Nation's revenues by business segments, 2010-2015

Source: After Annual Reports by Live Nation Entertainment, 2010-2015.

Figure 3: Live Nation’s cost of revenue by business segments, 2010-2015

Figure 3 - Live Nation's cost of revenue

Source: After Annual Reports by Live Nation Entertainment, 2010-2015.

Figure 4: Live Nation’s operating income by business segments, 2010-2015

Figure 4 - Live Nation's operating income

Source: After Annual Reports by Live Nation Entertainment, 2010-2015.

The analysis of Live Nation’s financial reports highlights a mixed picture. Live Nation’s core business segment – concert promotion and touring – contributes annual operating losses to the company’s performance, whereas sponsoring and advertising as well as ticketing account for an operative gain in the consolidated company. Unlike theses segment, Artist Nation is a loss-generating business segment, which might indicate a strategic failure in promoting 360° deals in the past. Live Nation’s figures also highlight that the international live music business is a highly contested market despite its oligopolistic structure. Thus, the big players compete for market shares instead of profit-maximising prices. Nevertheless, the live music market has become the primary income source for performing artists by demanding high advances and sales shares.

Sources:

Budnick Dean and Josh Baron, 2011, Ticketmasters. The Rise of the Concert Industry and How the Public Got Scalped. New York: ECW Press.

Live Nation, Annual Reports 2010, 2011, 2012, 2013, 2014, 2015

 

 


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