The announcement this week that Live Nation inked a five-year ticketing deal with venue operator giant SMG sent shockwaves through the ticket industry, and had some financial analysts saying that Ticketmaster could be in trouble if it doesn’t reassert itself quickly and decisively.
At the end of yesterday, Thursday, September 11, Ticketmaster’s shares, which trade under the symbol TKTM, closed at $15.45, down $3.32 from the previous day’s close. As of 1pm EST today, shares had fallen further to $14.86. By contrast, Live Nation’s stock, which trades under the symbol LYV, closed at $16.90 yesterday, up $1.03 from the previous day. It has since gone down a bit and was trading at $16.57 as of 1pm.
According to estimates, Ticketmaster stands to lose about a quarter of its business once the Live Nation and SMG deal, which covers dozens of North American venues, kicks in next year. Live Nation, its largest client, represents about 17 percent of Ticketmaster’s business and SMG, its second-largest client, represents about 6 percent.
“The deal will put a serious dent in the company’s [Ticketmater’s] revenues and profitability if the full 6.0% of revenues [from SMG] are lost. Ticketmaster will need to be more competitive when it bids for contracts with municipalities and privately owned venues, which will mean a reduction in profitability for Ticketmaster itself,” Scott Devitt Managing Director, Internet Consumer Services for Stifel, Nicolaus & Company, Inc., told TicketNews. “In our opinion, the concert business is the most important revenue stream for Ticketmaster. The company achieves maximum monetization on concert tickets because of the nature of concert ticket purchases (not sold as a season ticket package). Ticketmaster will have to provide greater revenues to clients in order to keep clients happy. After all, Ticketmaster CEO Sean Moriarty said at a Goldman Sachs investor conference in June that Ticketmaster is a scale business and that the more tickets sold through the platform the greater the profits. Losing Live Nation and SMG is not the correct equation for increasing profits.”
In a letter to client investors today, Jim Boyle, Senior Analyst and Senior Vice President for CL King & Associates set a new target share price of $20 for Live Nation stock and is growing increasingly impressed with the company.
“Although no terms were released, we believe the company did not simply outbid Ticketmaster. We think it was the combination of potentially higher guarantees and, more importantly, its control of content. Live Nation had an average single relationship (e.g., tours) with 1,000 artists; it now has an average two relationships/rights with 1,200 artists. But more importantly, the SMG deal might be the first major show of clout from the five ‘360 deals’ with major talents like Madonna, JAY-Z and Shakira,” he wrote.
Attempts to reach Nathan Hubbard, CEO of Live Nation Ticketing, were unsuccessful. Live Nation is using the ticketing platform from German company CTS Eventim to build the new operation, and CTS recently beat out Ticketmaster in Germany for a lucrative ticketing contract.
Moriarty quickly sought to downplay the effects of the Live Nation/SMG deal to let Wall Street know that the company was still the Top Dog in the industry. “Every fan of live entertainment is well familiar with theatrics. The SMG/LiveNation ‘news’ release regarding ticketing is just that – theatrics. As often is the case, theatre can be entertaining, but it does not completely reflect reality,” he said in a statement.
Moriarty went on to outline three reasons for why he believes the deal will have little to no effect on Ticketmaster’s business:
1. The announcement will have no short term impact on our business. Why? Because last week SMG signed an extension to our global master agreements with them through the end of 2010, and ratified multi-year contract extensions to half of the buildings they manage and we ticket today. In other words, less than 250 thousand tickets (of the 141 million we sold in 2007) are at possible risk with SMG in 2009; and SMG has exclusive contractual obligations to Ticketmaster through December 31, 2010 covering approximately 70 percent of the tickets we sell in SMG venues today.
2. We expect that the announcement will have little medium term impact, and we will do our best to ensure it has minimal long term impact as well. Why? Because SMG does not own the venues they manage. SMG has a responsibility to make recommendations in accordance with the best interests of the municipalities that they represent. They mostly choose partners based on either a formal “request for proposal” process or otherwise in a competitive bidding process. Regardless of this announcement, we will continue to bid and expect to win on the merits.
3. Similar to our need to constantly prove our value and re-sign expiring venue contracts in a competitive marketplace, SMG must compete for venue management contracts against AEG, Global Spectrum, VenueWorks and others. If SMG makes decisions which no longer reflect the best interests of their clients, the results will be obvious – and causes us to consider whether we should enter the venue management business as well.
“When technology and business shift, the old system – the traditional, antiquated primary system – can’t continue to work,” Baker told TicketNews, adding that Live Nation is building a new ticket solution model that works for the artist, promoter and venue all in one. “Kudos to Live Nation. Obviously, it’s a huge validation of their ticketing strategy and a huge win for them.”
Devitt sees the deal helping both Live Nation and SMG in several ways.
“The deal helps Live Nation because signing a client such as SMG gives further legitimacy to the company’s new ticketing platform. Industry insiders realize that CTS Eventim is a real ticketing company with a proven track record. Unfortunately, CTS Eventim shares do not trade in the U.S., and, therefore, investors many not be familiar with the company which gives rise to a misinterpretation of the situation,” Devitt told TicketNews. “A lack of knowledge around CTS Eventim may lead some to think that the new platform may not come about or will be a failure.”
He added, “SMG benefits from the deal by securing the right to book top talent that is under contract with Live Nation, e.g. Jay-Z, Shakira, Madonna, U-2, etc. Venues control tickets in the U.S. market, and they seek to book the top talent at their venues in order to sell the maximum number of tickets. Agreeing to use Live Nation’s ticketing platform gives SMG direct access and ensures that they will be able to book the best acts at their venue. The deal illustrates the Live Nation ticketing strategy: use artist agreements to drive venues to the Live Nation ticketing platform. Live Nation artist agreements seem to have a similar effect that long-term contracts had for Ticketmaster back in the 1980s and 1990s, before the Internet.”