The COVID-19 pandemic hits the live music sector hardest since the end of World War II. The sector has been shut down since March 2020 in most of the countries. Concert and festivals were cancelled or postponed due to social distancing and lockdown measures. A report of Media Insight Consulting[1] estimates that 64 per cent of the UK’s live music workforce of 262,000 full-time employees will have lost their jobs by Christmas. Thus, 170,000 cultural workers in the music sector – most of them self-employed and freelance workers – will be out of work. At the end of March 2020, the German music industry associations estimated a loss of revenue for the live music sector of EUR 4,543 million for the period from April to September 2020. We can expect a much higher revenue loss for the last quarter 2020 due to the continued lockdown of the German music festival and concert sector.
However, the live music sector is highly fragmented and diverse. The international concert promoting market is dominated by large live music conglomerates such as the US-based Live Nation and Anschutz Entertainment Group (AEG) as well as the German CTS Eventim. They control an oligopolistic industry with myriads of small music venues, concert promoters, bookers and management agencies that have no impact on the market structure and processes. These medium and small sized live music organizers struggle for survival and are dependent on public financial support. However, how is the situation for the large conglomerates? Is their existence also at stake? This blog post tries to answer these question by analysing the impact of the COVID-19 pandemic on the world’s largest concert and ticketing conglomerate Live Nation. Based on the quarterly reports from January to September 2020, it is analysed how the live entertainment giant has been affected by the pandemic and highlights Live Nation’s strategy to weather the storm.
The Music Live Industry in the COVID-19 Pandemic – Live Nation
In 2019, Live Nation had its best financial year ever. The consolidated revenue peaked at US $11.7bn, after an increase by 128 per cent since 2010, when Live Nation merged with the world’s largest ticketing company Ticketmaster. Live Nation also reported a net income (after taxes) of US $118.2m after several years of losses (Live Nation 2020).[2]
Figure 1: Live Nation’s financial performance, 2010-2019
Source: Live Nation annual reports 2010-2020
Although Live Nation is the global market leader in the concert and music festival business, the “Concerts” segment has always been in the red. In 2019, Live Nation reported an operating loss for the “Concerts” segment of US $53.5m, which was more than compensated by positive operating incomes in the “Ticketing” segment (US $232.0m) and “Sponsorship & Advertising” segment (US $330.3m) (ibid.). In terms of profit, Live Nation’s business model does not rely on the concert promotion business, but on ticketing and sponsoring/advertising.
Nevertheless, the COVID-19 pandemic had a devastating impact on Live Nation’s financial performance in the first three quarters of 2020. Live Nation had to cancel over 5,000 concerts that equates 15 million tickets and had to postpone further 6,000 concerts (22 million tickets) into 2021 (Live Nation 2020d: 11). Therefore, the overall revenue for the three quarters (Q1-Q3) 2020 decreased by 81 per cent to just US $1.6bn from US $8.7bn in the same period 2019. The operating income for the first three quarters 2020 turned into a loss of US $556.4m after a solid profit of US $221.3m in the previous year (ibid: 3-4).
Figure 2: Live Nation revenue and operating income for Q1-Q3 2019 and 2020
Source: Live Nation quarterly reports 2020
The “Concerts” segment was most severely hit with an accumulated loss of US $722.6m. But also the “Ticketing” segment showed a negative operating result of US $480.5m due to ticket refunds for cancelled shows. The ticketing revenue was even negative in two of three quarters of 2020 – US $ -87.0m for Q2 and US $ -19.8m for Q3. “Sponsorship & Advertising” is the only segment with a modest but positive operating income of US $40.8m for the three quarters until 30 September 2020, which of course could not compensate for losses in all other segments (ibid: 29).
Figure 3: Live Nation’s segment revenues for Q1-Q3 2019 and 2020
Source: Live Nation quarterly reports 2019 and 2020
Figure 4: Live Nation’s segment operating income for Q1-Q3 2019 and 2020
Source: Live Nation quarterly reports 2020
It is important to understand how Live Nation’s concert promoting and ticketing business works, when interpreting the company’s measures to cope with the tremendous revenue decrease and operative loss. The concert business mainly generates revenue from the promotion or production of live music events in owned, operated and rented concert venues by selling concert tickets and concessions as well as collecting parking fees and service charges of on tickets sold by its subsidiary Ticketmaster. As a venue owner, Live Nation earns rentals fees and as an artist agency it collects commissions on the earnings of contracted artists and other Live Nation clients. Additionally Live Nation also sells merchandising articles mainly at concerts and festival, which is another relevant revenue stream (see Live Nation 2020d: 26).
Live Nation’s ticket business, which is operated by its subsidiary Ticketmaster, generates revenue from so-called convenience and order processing fees regardless if the tickets are sold on the primary or secondary ticketing market. It is more or less an agency business on behalf of third party clients such as concert venue operators, concert promoters, but also theatre producers, museums as well as sports leagues and teams (ibid.: 27). Live Nation’s ticketing business model relies on recoupable or non-recoupable ticketing contract advances to third party clients. In a recoupable ticketing deal the advances are usually recoupable against future royalties from the clients’ ticket sales, which makes venue operators and concert promoters depended on the liquidity provided by Live Nation. The non-recoupable advances can be seen as incentives to strategic partners to secure a long-time relationship. At 30 September 2020, Live Nation had US $66.6m prepaid expenses as well as US $91.1m long-term advances in the balance sheet, from which US $38.8m were amortized at the end of the third quarter 2020 (ibid.: 27).
Live Nation’s third revenue stream comes from sponsorship and advertising contracts with strategic business partners. After a good performance for the first weeks of 2020, the segment revenue and operative income significantly decreased due to the lack of music events and ticket sales. However, sponsorship and advertising contracts are usually multi-year deals and thus the “Sponsorship & Advertising” segment is more protected from the concert cancellations. At the end of the third quarter 2020, Live Nation had contracted sponsorship agreements with terms greater than one year worth US $956.3m (ibid.: 28). This provides essential short term liquidity to meet financial obligations.
Nevertheless, Live Nation had also to implement salary reductions for most of the employees, stopped the hiring of new staff and terminated working contracts of employees. Other cost savings came from re-negotiating rentals of third party venues, reducing and eliminating travel and accommodation expenses for artists and tour support staff, postponing repair and maintenance as well as cutting marketing costs (ibid.: 12-13).
Live Nation also benefits from government support programs in all parts of the world, e.g. payroll support programs offered in Germany, France, Italy, Spain, in the UK and in the US to reduce a substantial portion of employee costs. Additionally, Live Nation also reduced advances in the concert and ticketing businesses to secure current liquidity. The quarterly report for the financial period ending on September 30, highlights that all costs saving initiatives and government support programs helped to reduce US $900m of costs.
As already shown in figure 2, Live Nation was able to decrease the cost of revenue at the same rate of 81 per cent as the overall revenue collapsed in the same period – from US $6.3bn in 2019 to US $1.3bn in 2020 –. Thus, the quarterly report concludes: “We believe this aggressive cost and cash management program, combined with a strong liquidity profile, positions us to manage through the global COVID-19 pandemic-related hold on show activity and provides the flexibility to scale up quickly when shows restart.” (ibid.: 13).
What are good news for Live Nation’s shareholders and investors, are bad news for thousands of employees, who have lost their jobs and livelihood. Nevertheless, it is essential for Live Nation to get backing from strategic investors during the pandemic. Apart from the Live Nation executives, who currently own 5.48 per cent of the company’s stock, Liberty Media Corporation (32.36 per cent), The Vanguard Group (7.04 per cent) and BlackRock Inc. (5.30 per cent) are the main stockholders.[3] Whereas Liberty Media is one of the largest US media conglomerates owning Sirius XM Satellite Radio and US music streaming platform Pandora, BlackRock and Vanguard are global investment funds managing assets worth trillions of dollars. They are also strategic stockholders of flagship companies such as Apple Inc., Microsoft, big banks and other financial institutions, which are main creditors of Live Nation. There is, therefore, an overlap of interests to provide Live Nation with sufficient liquidity to get through the crisis. In other words, Live Nation is too big to fail for its stockholders and lenders.
Hence, Live Nation’s existence is not at stake because of the COVID-19 pandemic. At 30 September 2020, the company’s balance sheet showed cash and cash equivalents of US $2.6bn – 6.3 per cent more than in the previous year (Live Nation 2020d: 2). Additionally, Live Nation issued US $1.2bn long term senior secured notes at a rate of 6.5 per cent to strengthen liquidity. In total, Live Nation had long term debts in senior notes of US $4.9bn at the end of the third quarter 2020 (ibid.: 19). Backed by strategic investors and equipped with sufficient cash reserves and other liquidity, Live Nation will weather the pandemic storm.
As soon as the live music market will be back on track after the COVID-19 pandemic, Live Nation will be in a stronger market position than ever before. The world’s largest live entertainment and ticketing company has sufficient reserves that help not only to recover from the current crisis, but to acquire smaller competitors, which do not have Live Nation’s financial power and struggle for existence. As a pivotal player in the international live music business, Live Nation will also to strengthen its position to other actors in the value chain. It is already clear yet that the live music business will look very different after the COVID-19 crisis than it did before and Live Nation will be one of the beneficiaries.
References
Live Nation Entertainment, 2020a, Annual report for the fiscal year ended December 31, 2019, Los Angeles.
Live Nation Entertainment, 2020b, Quarterly report for the quarterly period ended March 31, 2020, Los Angeles.
Live Nation Entertainment, 2020c, Quarterly report for the quarterly period ended June 30, 2020, Los Angeles.
Live Nation Entertainment, 2020d, Quarterly report for the quarterly period ended September 30, 2020, Los Angeles.
The Guardian, “170,000 jobs in UK’s live music sector ‘will be lost by Christmas'”, October 21, 2020, https://www.theguardian.com/business/2020/oct/21/jobs-uk-live-music-industry-lost-decline-revenues-covid (retrieved: December 15, 2020)
Endnotes
[1] See The Guardian, “170,000 jobs in UK’s live music sector ‘will be lost by Christmas'”, October 21, 2020, https://www.theguardian.com/business/2020/oct/21/jobs-uk-live-music-industry-lost-decline-revenues-covid (retrieved: December 15, 2020)
[2] Since 2010 Live Nation reported a positive net income only for 2016 (US $2.9m) and 2018 (US $60.2m) (Live Nation 2017 and 2020).
[3] Live Nation, Definitive proxy statement (DEF 14A), April 23, 2020, https://investors.livenationentertainment.com/sec-filings/all-sec-filings/content/0001335258-20-000069/lyv-proxyx2020.htm?TB_iframe=true&height=auto&width=auto&preload=false (retrieved: December 15, 2020)
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