This story was updated at 6:02 p.m. EDT on Tuesday, September 7, 2010, to properly reflect the considerable drop in stock price from a high in April of this year.
Live Nation Entertainment, which has experienced an up-and-down year with its stock price, saw the price drop again today, September 6 – this time by more than 6 percent – following an announcement that an influential Stifel, Nicolaus & Company analyst was lowering his rating of the company from a “buy” to a “hold.”
Ben Mogil lowered his rating of the company on concerns about Live Nation’s financial guarantees to artists, which he believes are high given the slow concert industry this year. Shares of the company’s stock, which trades under the symbol LYV, closed at $9.15 per share at 4:00 p.m. EDT, down $0.68 from the opening price.
The price decrease represented a 6.9 percent drop, and at various times during the day the stock was trading at less than $9.16 per share. The stock is currently trading at considerably less than it was in late April when it reached $16.70 per share.
“We are lowering our rating on Live Nation from Buy to Hold as we would like to see further signs that the industry is committed to reducing artist guarantees,” Mogil wrote in an email to investors today. “The issue for us increasingly is concern that escalating artist costs are capturing the bulk of the economic gains from the secular growth in the concert business. In years when the economy is weak the extent of those fixed artist costs is evident as is the case this year.”
While concert ticket sales have been soft all year, causing several acts to cancel or postpone shows and/or entire tours, Mogil believes the problem is more about the quality of artists on the road – and the monetary amounts those acts command upfront to tour – in addition to the weak economy gripping the country.
“The bulk of the industry hand wringing over this summer’s concert results has been focused on demand issues (ticket prices/surcharges, consumer confidence). While all true, this was the case in 2008 and 2009 when the market held up well,” Mogil wrote. “We believe that the industry does not so much suffer from a demand problem but rather a supply problem brought on by artists needing to tour more exhaustively (the case in 2010) than ever to offset deteriorating record royalties. This has created a situation whereby tour dates for many bands are too extensive given their market appeal.”
Live Nation does not have a major act lined up to tour for the rest of the year, but Mogil believes the company will still meet or come close to estimates for the year.
Yet, the seriousness of the artist guarantee situation was enough convince Mogil he had to act on the company’s rating. He believes Front Line Management, the Irving Azoff-created artist management company of which Live Nation owns the controlling interest, will play a major role in how artists are paid in the future, adding that he expects the subsidiary may work at convincing some acts to take less money for the betterment of the concert industry.
“Some twelve years following [former SFX Entertainment owner] Robert Sillerman’s concert promoter roll-up and despite the fact that today there are just two national tour operators (AEG and Live Nation), talent costs remain stubbornly high. This is not about U2 or Lady Gaga, those are acts for which the realistic risk of running promotion losses are limited but rather about the amphitheater bands,” Mogil wrote. “To be fair the economics for promoters which own/operate venues (like Live Nation) are very different than those who just rent those venues for an event. A promoter who is also the venue operator can afford to bid aggressively for the tour even factoring in some loss on the promotion front in order to generate the high margin ticketing surcharge and food/beverage revenues. But at what point do those promotion losses seriously erode returns on capital? We believe that has been the main issue of this summer and one which is guided by both the price per tour date and the extent of tours, which we believe are likely more exhaustive domestically than the market can realistically handle.”
