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Moving Vertical: Live Nations Increasingly Integrated Music Business

live nation bankSince being spun off from Clear Channel in 2005, Live Nation’s management has oriented the company toward a path of broad, vertical integration.  Instead of being just an event promoter, they’ve aimed to transform from a narrowly focused promotion business to a comprehensive music services company.  Non-essential (and non-music) assets have been divested.  Ticketing and fan membership services have been acquired.  People and assets have been shifted.  This week, two more steps were taken toward the fulfillment of those goals.

Ticketing Business Bolstered with SMG
In August 2007,  Live Nation cut off contract renewal talks with long time partner,  Ticketmaster.  Rather than relying on a third party agent and sharing revenue that could otherwise compliment their promotions,  the company decided they’d take up the ticket sales opportunity themselves.  (Live Nation tickets is slated for launch in early 2009.)

Thursday, the ticket inventory for the as yet unlaunched service was significantly bolstered.    Live Nation signed a five year deal to supply tickets for SMG managed venues

[The move is also a significant strike against Ticketmaster. Live Nation is Ticketmaster’s top partner, reportedly responsible for anywhere from 14% to 18% of Ticketmaster’s annual revenue today. SMG is Ticketmaster's second best contributor. With Live Nation leaving Ticketmaster to form its own ticket business and then signing SMG, they will have taken the top two venue partners out of Ticketmaster's inventory).]

Based solely on sales for venues under its own contracts, Live Nation tickets had been projected to handle about 10m tickets in 2009 once the service goes live (Live Nation tickets can’t launch until their prior Ticketmaster contract expires).   The exclusive business from SMG will begin to contribute in late 2009. It is expected to contribute more than 5million ticket sales annually by 2011.   Over the life of the five year deal, an estimated 25m tickets are expected to be sold. 

"This alliance increases our expected total ticket inventory by 25 percent over the next seven years, and that’s before we even flip the switch on Live Nation Ticketing," Live Nation Ticketing CEO Nathan Hubbard said in a statement.

SMG operates more than two hundred venues including major arenas and stadiums like Chicago’s Soldier’s Field, Houston’s Reliant Stadium, The Louisiana Superdome and the LA Forum.   SMG Stadiums represent more than 422K stadium seats and more than “1.5million managed seats.”  According to company press materials (PDF): “SMG-managed facilities grossed more than $1 billion in 2006, hosting 10,000 events and attracting more than 50 million patrons.”

SMG is owned by private equity firm American Capital Strategies.

Divestiture of Motor Sports
Live Nation’s stated focus is music.  Anything outside that has been targeted for cuts. Including its former theater business, TV services, real estate, its sports agency, hundreds of millions of assets defined as “non-core” have been sold off. 

Wednesday, in a continuation of that process, the company announced (release)the sale of Live Nation Motor Sports, to Feld Entertainment.

Feld Entertainment, which also operates the Ringling Brothers Barnum &Bailey Circus and Disney on Ice, will pay $175m up front.  Another $30m in earn-out potential is also part of that deal.

Live Nation Motor Sports , which promoted a number of different auto events, accounted  for about 4% of Live Nation’s total revenue last year.

The Road Map
If vertical integration has been the destination, Live Nation’s path for getting there hasn’t always been crystal clear.  Notably, this past summer, there were reports of some dissension in the upper ranks over how to best handle artist acquisitions.  According to the speculation, Chairman Michael Cohl, who also headed Live Nation Artists and is famed for managing concert tours like the Rolling Stones’,   wanted to aggressively pursue more exclusive artist partnerships; so called “360 deals.”

Under his guidance, the company had already spent millions signing multi-year, multi service agreements with such major artists as Madonna , U2, Nickelback, Jay-Z and Shakira. He wanted to lock up more of the industries top grossing stars.

CEO Michael Rapino, reportedly, took a different position. He wanted to slow down on the up-front and guaranteed spending to instead focus on building out the services around the artists already on board.   According to one source quoted in the New York Post, he has even been interested in striking licensing deals to outsource some functions back to the traditional music labels.

As David Joyce of trading firm Miller Tabak & Co  told the LA Times last June, “Cohl wanted to hurry up and get more of the artists locked up so they didn’t lose them to competitors,” But, he said,  “The market is very nervous right now regarding those deals, and that’s why there was the disconnect.”

Ultimately, if there was a rift, Rapino won.  Michael Cohl, the former founder of Concert Productions International,  stepped down as Chairman and instead took on an advisory role.   

Since, the company’s been moving full steam ahead.  The acquisition of SMG as a partner, and the divestiture of the Motor Sports business, are case in point.

Big on Vision
Live Nation’s ambitions are big. As noted in prior Metue coverage, In corporate marketing materials, Live Nation bills itself as “the future of the music business.” 

Theirs is a vision defined by a single, top-to-bottom vertically integrated business: a place where fan club services, Internet content, recording contracts, publishing, touring, promotions, sponsorships and talent management all sit under the same roof, or at least, under their control.

CEO Michael Rapino has said before, “Live Nation will use its most important asset, the concert ticket, to build artist careers and customer relationships, forge sponsorship deals, create a fan and artist friendly secondary ticketing platform and provide a ticketing alternative for 3rd party venues.”

In today’s music industry climate, that’s a fairly unique proposition.

Unlike in years past when band toured to promote album sales, in today’s music industry the equation is largely reversed.  Today, musicians (at least those with already established fan bases) make their money on the road.  

Some data points: When Forbes summarized the Top Ten Earning Country Acts for last year in May, they found that “most of the musicians on [the forbes] list earned the majority of their income from successful tours.”  The same result was reached in Forbes first review of the Top 20 Female Musicians, Forbes “Cash Queens List.”  In that report, the magazine found the top twenty earned a combined $420m between June 2006 and June 2007.  “The vast majority” the accompanying article reads “collected hefty paychecks from sell-out tours.”

A few more recent examples:

•In the first six months of 2008, the top ten grossing tours so far had generated $391.5m at an average ticket price of $97.92.  The lowest average ticket price for one of those events was 62.88 for Kanye West.  Jay-Z and Mary J Blige drew the largest with an average ticket price of $111.12.  (source: Pollstar (PDF))

•At the top of 2008’s first half report, Bon Jovi had so far grossed $56.3m with an average ticket charge of $87.98 a seat.  Bruce Springsteen and the E Street Band was second ($40.8m) , Van Halen 3rd ($36.8m).  Kenny Chesney and Michael Buble rounded out the top five with 35.3m and 32.5m respectively.

•In 2007, the Police reunion tour earned the trio $133.2 million over 54 shows with an average ticket price of $119.99.

•Country star Kenny Chesney, generated gross ticket revenue of $71.1m in 2007, the second highest tally.  For two years in a row, he sold more than 1million tickets. (via Pollstar)

If successful in implementing their vision, Live Nation could become a formidable competitor for both ticket vendors and music labels. 


In related news….
Ticketmaster announced Thursday that they have partnered with Research in Motion to make the Blackberry their official “smartphone partner.”

Subject to terms not publicly disclosed, the two companies said they will collaborate on software that will allow Blackberry users to easily buy event tickets from Ticketmaster, and

Given smart phone users already can easily access the web, and websites of ticket vendors, beyond marketing, the value of the exclusivity seems insignificant.

Related Articles from Metue
Music Business 2.0: Live Nations Broad Service Portfolio Approach
IAC Completes Ticketmaster Sell Off (external)
•Live Nation Chairman Out Over Strategy Dispute (external)
NFL and Ticketmaster: Jointly Chasing Stubhub and Scalpers
Viagogo Crosses the Pond: Stubhub Co-Founder brings Competing Venture to U.S.
The Rising Price of Tickets: Entertainment with a Cost
Ticketmaster buys Echomusic: Goes straight to Fans
•Live Nation Buys Fan Club Ticket Service Musictoday (external via CNN)


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