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Live Nation, Inc. (NYSE:LYV)

Q4 2008 Earnings Call

March 2, 2009 5:00 pm ET

Executives

Michael Rapino – President, Chief Executive Officer & Director

Kathy Willard – Chief Financial Officer & Executive Vice President

Analysts

David C. Joyce – Miller Tabak & Co., LLC

Mark D. Wienkes – The Goldman Sachs Group, LLC

Benjamin Mogil – Thomas Weisel Partners, LLC

Tuna Amobi – Standard and Poor’s

Alan S. Gould – Nataxis Bleichroeder, Inc.

David B. Kestenbaum – Morgan Joseph & Co., Inc.

Operator

My name is Maggie and I will be your conference facilitator today. At this time I would like to welcome everyone to the Live Nation fourth quarter and full year 2008 earnings conference call. All lives have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question and answer period. (Operator Instructions) Before we begin Live Nation has asked me to remind you that this afternoon’s call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ.

Please refer to Live Nation’s SEC filings for a description of risks and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with SEC Regulation G Live Nation has provided a full reconciliation for the most comparable GAAP measure in the earnings release on their website. The release, reconciliations and other financial or statistical information can be discussed on this call can be found on www.LiveNation.com/investors.

It is now my pleasure to turn the call over to Mr. Michael Rapino, Chief Executive Officer.

Michael Rapino

Welcome to our 2008 fourth quarter and yearend conference call. I am joined by my CFO Kathy Willard. Our operating and financial performance in the fourth quarter of 2008 capped an outstanding year for Live Nation. We successfully executed on our strategic plan and generated improved results across the majority of the metrics used to evaluate our operating and financial progress.

Highlights of the fourth quarter include our total fourth quarter adjusted operating income was $28.4 million which was ahead of expectations. For the full year period we delivered 20% growth and adjusted operating income. We believe this performance is well ahead of all of our peers. We grew the number of shows we produce by 33% in the fourth quarter and increased total attendance by over 14% during the same period. We also increased total sponsorship revenue by nearly 14% during the quarter while average revenue per sponsor increased by nearly 15% for the year. Excluding the impact of the goodwill impairment charge our North American Music operating income nearly tripled to $43 million for the full year.

Overall, we believe these results are outstanding given the severe global economic downturn. Millions of fans have continued to attend live concerts to support their favorite artist despite the challenging times. This trend has continued in to the current quarter as ticket sales are pacing in line with last year. Artists continue to rely on touring as a primary driver of their income and we believe our pipe will match the levels we achieved in 2008.

As a sampling of the super stars touring in 2009 include Cold Play, Jonas Brothers, Madonna, Nickelback and ACDC, just to name a few of the many artists who will perform in 2009. Live Nation’s mission is to maximize revenue generated by the live concert experience. Our business model is driven by monetizing our global distribution pipe.

Let me briefly update you on the execution in 2008. Growing our core business model has two labors: filling our pipe; and monetizing the pipe. On our first strategic imperative of filling our pipe we continued to fill our distribution pipe by buying artist rights more effectively and at the right price securing both near and long term revenue streams while minimizing our risk. We promoted almost 7,000 events with over 13 million attendees during the fourth quarter compared to 5,200 events with nearly 12 million attendees a year ago, an increase of approximately 14% in attendance and 33% in events.

For the full year we promoted over 22,000 events with over 52 million attendees compared to 17,000 events and 46 million attendees in 2007 an increase of 12% in attendance and 32% in events. We continue to add ancillary rights in order to provide our artists a broader array of services and expand our exposure to higher margin revenue streams. We have secured approximately 850 ancillary rights in 2008.

Madonna’s tour concluded on December 21st and was hugely successful exceeding our forecast model. Upon its conclusion the tour became the number one largest grossing tour in history by a solo artist and with 58 shows in Europe, North America and South America generated over $280 million in ticket sales. In January, Madonna announced that she’s extending her tour and going back on the road beginning July 4th in London. This is the first time that Madonna has ever extended her tour which speaks to the remarkable demand worldwide. Madonna will be visiting 22 markets overall in 2009 leg of which is already sold out.

Monetizing the pipe; so there’s no doubt we succeeded in filing the pipe in 2008 and we expect to do the same in 2009. Here’s an update on how we grew and monetized the pipe. Our first strategy is always to expand the pipe. In 2008 we extended our geographic footprint by entering Latin America through an exclusive distribution deal with CIE. We entered the market of Dubai through the acquisition of Mirage. In addition we expanded our venue platform by acquiring the Heineken musical in Amsterdam, opened our new House of Blues in Houston and finishing our expansion of the highly successful Point in Dublin which is now reopened. In February of this year the House of Blues in Boston opened.

Our second strategy is to reduce costs and improve efficiencies. Adjusted operating income in our North American Music segment increased $46 million for the full year as we increased the average profit by show by 25% partially driven by improved cost controls around talent buying and venue operating costs. Our third strategy is to increase our in venue revenues. For the full year total revenue per attendee increased to $78.34 from $78.14 in the prior year.

Total revenue per attendee in the fourth quarter was $66.49 versus $76.54 in the prior quarter, a decrease of 13% as a result of less arena shows in international and a currency exchange rate exchange. For North American Music we generated revenue per fan of $73.28 in 2008 up nearly 4% compared to revenue of $70.67 in 2004. Our focus here remains the same increasing ancillary sales per fan in the food and beverage category while promoting operating efficiencies.

In 2008 we entered in to a new concession contract with SMG-SAVOR and ARAMARK for managing the food and beverage concessions at 34 of our North American amphitheaters. We expect this new partnership to generate roughly 20% increase in adjusted operating income for North American concession business in 2009.

Our fourth strategy is to expand sponsorship. We continue to attract larger and more profitable advertising and marketing campaigns. During the fourth quarter our sponsorship revenue recognized increased nearly 14%. For the full year sponsorship revenue recognized increased over 4% and our average revenue per sponsor increased nearly 15%. To date in 2009 sponsorship revenue are pacing ahead of the same in 2008 by over 25%. However, we do believe sponsorship is the biggest challenge in 2009 as a broader advertising downturn will impact the overall sponsorship dollar.

Our final strategy is expansion in to our ticketing and ecommerce platform. Our ticketing platform is proceeding according to plan. We launched in late December and while we had some learning curves especially when volume is enormous, our platform is working well and we’re making the right adjustments to strengthen our ability to handle shows that generate unexpected traffic.

We also recently relaunched LiveNation.com store front in order to better differentiate our offering in the marketplace and deliver improved functionality and transparency to consumers. We are seeing steady increases in traffic flow to our website and have sold over $1 million tickets to over 1,300 shows since our launch in December.

In summary, three years ago we set out on a clear three year transformation plan. We embarked on a mission to transfer what was then a declining fragmented live entertainment company in to a global artist to fan concert company. We have a three core strategies to achieve this number one was shedding non-core assets which we are 90% completed. Two, was turning around our declining North American core business. Since we took over we have grown the global North American business by over 50% and our third strategy was vertically integrating our operations with our ticketing and ecommerce business to strengthen the artist to fan connection and achieve more efficient marketing, develop better products and drive higher margins.

We have largely completed the transformation of our operations so some so some of you may ask whey then did we decide to merge? The answer is the merger is consistent with the strategy we laid out three years ago, that is to maximize our concert pipe and vertically expand in to a complimentary businesses that strengthen the artist to fan connection and improve our growth profile.

We chose CPS to help build our ticketing capability however, the option to now merge with Ticketmaster allows us to advance our strategy and start providing the ecommerce marketing products and solutions of the future today. Let’s be clear, we can get to the end game either way, we just believe these economic times require faster transformation to meet the evolving needs of the artist and fans today.

So, on February 10th we announced that we had entered in to a merger agreement with Ticketmaster Entertainment. Once closed the combined entity which will be called Live Nation Entertainment will accelerate the execution of our vision and strategy to build an artist driven company that provides a full service connection between artist and fans. Both companies have proven leadership in their respective businesses but it’s clear neither are moving fast enough or have the complete model to address the artist and fan needs in these fast changing times.

Together, we believe we can harness more technology an great jobs in the development of a world class technology ecommerce platform, relieve pressures on price in both primary and secondary by generating new revenue streams for the artist, increase sponsorship dollars, invest in new artists and provide a marketing channel to help them find a fan base, provide more secure and robust platform for fans to buy tickets, deliver more shows to venues as new stars grow, attract higher attendance for artist through better dynamic pricing and promotion.

In addition, through this combination we believe we can create a more diversified company with a stronger financial profile that will be in a better position to drive improved shareholder value over time. Specifically, the merger creates a diversified business across a portfolio of live entertainment genres and across the live entertainment value chain. It brings together Live Nation’s attractive growth profile with Ticketmaster’s strong cash profile. I provides opportunity for significant operating synergies of approximately $40 million to the combination of ticketing, marketing, data centers and back room and lastly improves our credit profile on a relative basis versus the Live Nation standalone.

We believe these strategic and financial benefits will help us to speed the fruition of our business and deliver significant value to our shareholders in the future. So, to conclude, 2008 was a solid year for the live concert industry and a superior year for live concert industry and superior for Live Nation. We grew our core business despite a very economic backdrop and more importantly would deliver what we told investors we would deliver in 2008 as well as over the last three years.

The merger aside we are focused on executing and delivering another solid year through our focus on three priorities: ensuring our pipe is full at the right price; implementing all measures to maximize revenue and further improve cost structures across the pipe; and continuing to grow our online ecommerce business via our Live Nation ticketing inventory.

Our management team will be working hard to close the merger and when completed we believe we’ll be able to quickly consolidate these complimentary businesses and execute against a clear strategic road map. Looking ahead our concert pipe remains robust as evidenced by the strong group of artists that have already committed to touring. Ticket sales continue to pace in line with sales at this point last year. Again, given the state of the economy and the pressures on the consumer we are very pleased with these trends.

We are optimistic about 2009 given the strength we are seeing across our business, our intense focus on execution and the fact that million so fans continue to attend live shows despite very tough times. Now, I’ll turn it over to Kathy who will comment on our financial outlook.

Kathy Willard

During the fourth quarter consolidated revenue was $916 million which was down $6.4 million compared to revenues of $922.4 million in the same period last year. The slight revenue decline was primarily due to a decrease in International Music resulting from a disposition of a portion of our promotion business in Italy and reduced promotion activity primarily related to arena events in several European markets.

This decline was offset by a strong increase in Artist Nation revenues drive by Madonna’s sticky and sweet tour as well as the benefits from several of our recent acquisitions in International Music and the Artist Nation segments. For the fourth quarter of 2008 we experienced normal quarterly fluctuations in our adjusted operating income with a reported adjusted operating income of $28.4 million, a slight decrease of $5.5 million as compared to $33.9 million in the fourth quarter of last year.

These decrease in adjusted operating income was driven primarily by increased costs as expected in our ticketing segment resulting from the build out of our ticketing platform and a decrease in show results in several European markets in the International Music segment. These declines were offset by the impact of Madonna’s tour in Artist Nation as well as the benefits of acquisitions in both International Music and Artist Nation.

As you note, we experienced a net loss and an operating loss during the quarter and this was driven by a goodwill impairment charge of $269.9 million that we recorded in the quarter. This impairment was recorded based on the company’s annual impairment test and was required according to FCC guidance and accounting literature due to the company’s market cap at year-end and the fair value of our total assets which are much greater than the goodwill recorded.

As a result, our operating loss in the fourth quarter was $317.1 million compared to an operating loss of $24 million in the fourth quarter 2007. Excluding this goodwill impairment charge the operating loss for the fourth quarter was $47.2 million. This year-over-year decline of $23.2 was primarily due to increased depreciation and amortization expenses and non-cash compensation along with a slight overall decline in adjusted operating income previously discussed. Overall, our net loss including the goodwill impairment charge was $337.5 million for the fourth quarter of 2008 as compared to a net loss of $18.4 million for the same period last year.

Moving on to yearend results, for the full year consolidated revenue increased to $4.2 billion an 11% increase over 2007. This increase was driven primarily North American Music due to increases in the number of events, total ancillary revenue per attendee and increased attendance. 2008 had a strong artist lineup for North America music including the Dave Mathews Band, Journey, Jimmy Buffet and the Jonas Brothers. We also had the benefit of recent acquisitions in North American Music, Artist Nation and International Music.

Our adjusted operating income was $169.8 million for the full year an improvement of nearly $29 million compared to $141.1 million in 2007. This increase was primarily driven by strong growth in North American Music based on the revenue growth noted and also due to cost controls and show related expenses. Adjusted operated income for 2008 also benefited from a recent acquisition.

These increases were partially offset by a decline in Artist Nation based on the overall volume and size of tours this year as compared to 2007 and higher infrastructure costs and also impacted by increased costs and ticketing for the build out of our ticketing platform. Our operating loss for the full year including the goodwill impairment charge was $284.2 million compared to operating income of $16.8 million in the prior year.

Excluding the goodwill impairment charge of $269.9 million, our operating loss for 2008 was $14.3 million despite the growth in adjusted operating income. This was driven by increased depreciation amortization expense and a decrease gain related to the sale of several assets in 2007. Overall, our net loss for 2008 including the goodwill impairment charge was $231.8 million as compared to a net loss of $11.9 million in 2007.

Turning now to other key financial information; as of December 31st, our cash and cash equivalents balance was $199.7 million. Of this, our free cash which is essentially cash less event related items was $32.2 million. Free cash flow was up in the fourth quarter of 2008 to $11.2 million compared to negative free cash flow of $3.1 million in the fourth quarter of ’07. Capital expenditures for the 12 months were $186.9 million which includes $25 million of maintenance expenditures which is a decrease over 2007 and $161.9 million of revenue generating projects.

As we have discussed previously these revenue generating projects are primarily for the development and renovation of various venues during the year including the O2 Dublin arena in Ireland formerly known as The Point and the two new House of Blues in Houston and Boston in addition to our ticketing roll out. Overall, 2008 was the most capital intensive year in our history as a public company and we expect our capital expenditures to decrease significantly in 2009.

As of December 31, 2008 our total long term debt including our outstanding redeemable preferred stock was $925.7 million. We have no significant debt maturities under our primary debt instruments until June 2012 and the company continues to remain comfortably in compliance with all of our debt covenants are yearend. Based on the investments we have made over the last three years we continue to believe we will deliver solid adjusted operating income growth in 2009 and beyond as we continue to grow our core operations and realize the impact of these investments in venues, artists and our ticketing operations.

With that, I will open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from David C. Joyce – Miller Tabak & Co., LLC.

David C. Joyce – Miller Tabak & Co., LLC

There are some good metrics coming out of this quarter and I was wondering if you could fill in if there’s like some sort of seasonality going here? Overall the attendance was below what we expected but better revenue per attendee, is that I guess ancillary revenue that flows through from the events possibly that’s on an uptrend?

Michael Rapino

Yes, absolutely.

David C. Joyce – Miller Tabak & Co., LLC

Because that metric was up but I was wondering also because of the global economic slowdown how much of that was a factor to some of the European countries you mentioned versus it being pipeline volume?

Michael Rapino

Zero. In the fourth quarter it was arena show comparable 2008 to 2007 in Europe was down so if you don’t have the big arena shows – remember, we don’t have amphitheaters in Europe so if our arena shows are down our ancillaries go down. Then also a large majority of it was just pure currency year-over-year. I’d just tell you that although it’s not a big month and as most of you know Q1 is a fairly irrelevant quarter in our overall year since we’re actually just buying the shows and getting them on sale for the summer.

Now, that we’ve sold motorsports year-over-year it will be a very low quota for us in terms of activity. But, we do have some shows that have been already executed, Nickelback is already on sale and closing nightly sold out and our per heads or any of the revenue metrics in January and February seem online with last year so we have not seen any decline in ticket sales or decline in someone having a beer, or a hot dog or parking at the venue in these arenas that they’re going to already.

David C. Joyce – Miller Tabak & Co., LLC

On the sponsorship front, granted you said that in this advertising environment that’s going to be one of the challenges for this year and you were still up 14% in the fourth quarter is there any clear seasonality starting to emerge from sponsorship revenue or is it very highly linked with the regular concert season?

Michael Rapino

It’s 100% linked with the concern season. Usually, a sponsor would be buying some activity whether it’s a sign, a sampling or some advertising campaign that’s usually probably going to happen with the majority of the shows are so we haven’t seen any decline to date. But, we are absolutely in the middle of renewing for the summer and we would say that in Q3 we knocked it out of the park and there was a lot of skepticism on was that history and with the future on ticket sales hurt us?

We’ve now shown you in Q4 we didn’t get hit by ticket sales and as of the first two months we haven’t gotten hit by ticket sales. So, we can confidently say, although no one has believed us for months that we are fairly recession proof in the concert business in terms of that consumer going to those two shows a year and having a hot dog or beer. So, we do not believe in 2009 that we will have a pipe problem in terms of the number of shows, number of people walking in or them spending their $12 to $15 on parking and food.

But, we absolutely believe that if we’re reading the tea leaves on everyone else who’s being affected by the advertising downturn that we could have some pressure closing some of our sponsorship deals going in to the next couple of months. Now, the good news is most of my sponsorship business is on a one to three year cycle so we don’t have a huge amount of deals up in any one year. We have about 25% of our deals up for renewals in terms of risk in the final closing in the next two months internationally here if some of those deals don’t get closed.

In that sponsor ship business as you can imagine you could have a deal approved on a Friday and it could be in trouble by a Tuesday. So, that business we’re just tracking daily and if we think anywhere we get hit this year that could be an area that could be anywhere from a $5 to $15 million risk on our business.

David C. Joyce – Miller Tabak & Co., LLC

Has any of that started to emerge because in the fourth quarter you did have greater sponsorship revenue but fewer sponsors. Is there some sort of shift in to larger sponsors maybe in better fiscal shape?

Michael Rapino

Well we purposely drove that and you’ll notice hopefully if we’ll successful, over a three year period you’ll see our sponsorship number go down in terms of the number of sponsors but the revenue per sponsor go up. We actually over the last two years have been cutting sponsors at the bottom level. If you were a $5 to $15 sponsor we started to cut those sponsors and require a minimum commitment because the servicing of those sponsors is expensive.

So, we’ve been very successful in reducing the execution but increasing our bigger deals. So, that’s the result of the success you’ve seen in Q4. As of right now we seem on track, we don’t have any data right now that would suggest that the sponsorship category could not deliver its plan but I do want to look at the fuller market impacts on advertising. If there was risk which a lot of people thought for the last few months would be, “Will they come to the show?” “Will they buy a beer?” That doesn’t seem to be the risk which is the good part, that’s the solid foundation to what will drive the machine for us this year but we do expect that we will have some sponsorship challenges on the overall business and we’re planning and have a [inaudible] in place for that if that is to come to life.

Operator

Your next question comes from Mark D. Wienkes – The Goldman Sachs Group, LLC.

Mark D. Wienkes – The Goldman Sachs Group, LLC

Just a follow up to that last question, what percentage roughly of your expected business has been booked this year or typically is booked by this time this year both in attendance for the shows and in sponsorships? Are you typically 15% of the year booked by now?

Michael Rapino

I’ll give you two of them. Do you have that number?

Kathy Willard

Sponsorship we’re running same point in time compared to last year 25% over where we were last year Mark.

Mark D. Wienkes – The Goldman Sachs Group, LLC

But what percentage of the business is booked of your expected full year business?

Michael Rapino

Right now it would be – we call it three levels of booked we’ve got contracted, we’ve got letter of intent so right now we have 63% booked 2009. A year ago to date we would have only had 56% booked so we are running ahead of where we historically are in terms of booked sponsorship business so that’s good. On the music side we would be running exactly flat right now year-over-year. We are identical in terms of the number of shows on sale, the number we’ve got over 5 million tickets sold on the comparison basis and historically right now you would have not on sale but you would have booked in the pipeline hopefully by March because you’re going to be on sale in two months, you have at least 50% of your summer booked and we are tracking on that right now.

Mark D. Wienkes – The Goldman Sachs Group, LLC

Can you just confirm that the company still expects the ticketing business, your own internal ticketing that the cash flow will largely reverse to the mid teens millions adjusted loss from ’08 in ’09?

Michael Rapino

Right. You mean the fixed cost investment turns in to a positive in 2009, yes.

Mark D. Wienkes – The Goldman Sachs Group, LLC

Kathy, any interest in putting a range around the significant cap ex decline in ’09? Could that number be $100 million or below?

Kathy Willard

It will be – we’re still finalizing the numbers but we expect it to be less than $50 million for the year in total.

Mark D. Wienkes – The Goldman Sachs Group, LLC

Then last question, how much of the reported cash, not the free cash balance but the reported cash balance of the bank count against the company and the leverage ratio?

Kathy Willard

As we’ve disclosed in our covenants we can deduct up to $150 million in total cash.

Mark D. Wienkes – The Goldman Sachs Group, LLC

Whether the cash is free cash for not?

Kathy Willard

That’s correct.

Operator

Your next question comes from Benjamin Mogil – Thomas Weisel Partners, LLC.

Benjamin Mogil – Thomas Weisel Partners, LLC

Following up first on Mark’s question about sponsorship, the 63% number you were talking about, that’s booked. Is that sort of everything from deals that were signed to letter of intents out there or is that actual deals that have been signed?

Michael Rapino

That would be considered contracted and gone to letter of intent. So, those would be committed in our world. We then have two other categories where we would call them in negotiations and then we would have TBDs.

Benjamin Mogil – Thomas Weisel Partners, LLC

Generally speaking are most letters of intents you get out there most of them I suppose are closed eventually?

Michael Rapino

Yes, 100%.

Benjamin Mogil – Thomas Weisel Partners, LLC

Starting at the beginning, from an fx perspective, if in terms of guarantees, obviously there will always be an artist who is only playing in the US or only playing in Europe you can obviously pay them guarantees only in Euros or dollars. When you get artist like Madonna that are playing in both parts of the pond if you will, are you giving them just a global guarantee in US dollars or are you giving them an Euro guarantee for the European dates and the same thing for US dollar dates.

Kathy Willard

Ben, it varies with artist but certainly when there’s a difference in currency between how we’re paying the artist and what currency we’re selling the tickets in we look if hedging is appropriate.

Benjamin Mogil – Thomas Weisel Partners, LLC

And have you done so?

Kathy Willard

Sure.

Michael Rapino

Absolutely. But, just to give you perspective, 99% of our shows are booked locally. So, our Swedish operation is booking every day in that currency so on an exception like Madonna and U2s are we doing a global deal and we would hedge all the time.

Benjamin Mogil – Thomas Weisel Partners, LLC

In terms of the debt levels it looks like you were up about $80 million or so on the revolver for the quarter can you sort of walk us through from a debt perspective do we see debt like is that sort of a typical fourth quarter draw down and then the first half it gets paid down? I just want to get a sense of the seasonality of some of the revolver and how we should be looking at it.

Kathy Willard

That’s basically right Ben. Obviously, as fourth quarter and first quarter being quieter quarters for us and we’re funding artist advances and you’re going to see more draws on the revolver. However, when we start to put tickets on sale then that will start turning around.

Benjamin Mogil – Thomas Weisel Partners, LLC

So, if we were to look at sort of the average debt level for the year, let’s say the average debt level in ’09 as you sort of see the world, do you anticipate the average debt level to be below that of ’08 on the average?

Kathy Willard

Ben, I don’t have those numbers with me. Certainly, we’re focused on growing the operations this year and putting less reliance on the revolver and there are other things like we talked about including the potential sale of UK Theatre and other assets that can impact that as well. So, it’s a little hard for me to predict that.

Michael Rapino

But, it is safe to say – you can tell by the number we’re just giving you on cap ex that we have brought down our cap ex considerably. We will still operate our buildings to the levels we need but in 2009 we will not be using any capital for anything else than basic cap ex. We do look between the Boston Opera House, the New York 42nd Street Theaters and the UK Theatres we will be shopping those this year in an effort to remove our final non-core assets and put that money in the bank.

We will grow our operations this year through our return on our investments from the House of Blues and Point with the overall objective to reduce debt and get in to free cash flow by 2010 and all those measures to get there.

Benjamin Mogil – Thomas Weisel Partners, LLC

I think sort of last question for me, in terms of CTS Eventim, where do they – let’s say for the sake of the conversation that the Ticketmaster deal is successful, you pass all the requirements you need to pass regulatory wise, where does CTS Eventim fall? Do they stay with you until their contract is over, do you buy them out? I want to get a sense if there’s an early penalty or something of that nature?

Michael Rapino

No, there’s no early penalty and as of right now we met with Klaus Schulenburg last week. We are very committed to honoring our contract. If you think about the CTS deal it is a great software platform that we license in North America and we will continue to do that. But, really where the fruit of the relationship is both for Klaus Schulenburg and ourselves is really international where we are in markets with him as he expands.

So, we envision the merger getting approved and we do envision life continuing with CTS and the new merged company under its existing contract and any other way that we can kind of operate on a global basis that makes sense for both of us.

Benjamin Mogil – Thomas Weisel Partners, LLC

Then just sort of the last one before I cede the floor. We’ve seen [inaudible] say that they’ve got the right to exit Ticketmaster in case you guys merge. What’s your thoughts in sort of reaching out to some of these other promoters who possibly have these kinds of deals? Do you think you can keep everyone in the fold if you will?

Michael Rapino

Well listen, we won’t comment on the AG Ticketmaster part since that’s still really their business. We would have went through obviously when we decided to merge we would have built a very dynamic model that said, “What will this company look like going forward?” Be clear, we said it last week in Washington, market share wasn’t the priority, growing it was definitely not the priority and losing some market share is absolutely okay with us in the overall picture because we believe the real benefit of the combined new entity is to start developing new products based around the artist, the website and the fan. We’re not worried about what business we lose. We’ve modeled that out, we think it can be a much more stable profitable business with less market share but better products in the long run.

Operator

Your next question comes from Tuna Amobi – Standard and Poor’s.

Tuna Amobi – Standard and Poor’s

With regard to the margin, I’m just trying to get a little bit more quantitative commentary perhaps from Michael on what kind of vibes we’re hearing in Washington. It just seems like since the time you guys announced this transaction there has been a lot of I don’t know if outcry is the world as well as from some of the major artists out there surprisingly. So, just trying to wonder, get a sense from you how you feel in terms of the relative chances of this deal going through? Would you say that since last week your expectations have improved based on the public responses or gotten a little dimmer or how do you feel overall qualitatively?

Michael Rapino

We’re very confident. I mean, nothing happened in the last three weeks that we wouldn’t have predicted was going to happen in terms of the press. We realized that one of the core issues is Ticketmaster is not going to win a lot of popular vote right now. It has always kind of been at the front end of taking most of the industry brunt when a consumer can’t get a great ticket. So, we understand clearly the issues with the Ticketmaster brand.

We believe the foundation at the Ticketmaster their core business is strong and one, that’s why we called it Live Nation Entertainment. We believe we can turn that combined business in to a much more fan artist friendly business. Number two, just to kind of put it on the table, we have not had a large number of artists against this deal at all. There was Bruce Springsteen who had a very big issue with the way some of his tickets were sold on Ticketmaster but we delivered artist support letters last week to Washington.

We have seen a real strong support from the artists who are definitely looking for a continued strong business partner in the live music business to help them through these tough times while maybe their record label business partner hasn’t been delivering for them. We absolutely expect to get this approved. We expect it to be a very thorough review by the DOJ. We have great respect for them they’ll do their job.

We believe on a horizontal level we’ll prove both management promoting and ticketing there are great competitors and on the vertical we will prove that there’s no leverage that is going to be used or has been gained by this combination that puts anything of competition at risk. We do believe building a better mousetrap is okay and we will prove that the better mousetrap is what the consumer needs today but surely will have a ton of competition going forward.

Tuna Amobi – Standard and Poor’s

Would you characterize given the atmosphere in Washington right now with the new administration perhaps the timing of that is would you say perhaps suspicious?

Michael Rapino

That’s not my job. We put a lot of work in to building my company, we believe this is a great move for the Live Nation shareholder and our business model. It’s completely consistent with everything we’re going to do and we have great respect for the DOJ process which is a very legal and factual based review. We’ll leave it to the pros and our board and our management team spend a lot of time reviewing all of the options and believe we will get approved in the end and it was the right move in the interim. We’ll let all the other stuff [inaudible].

Tuna Amobi – Standard and Poor’s

A real quick follow up on a comment you made on the merger call. I think I was kind of struck when you said that you were kind of looking to use Ticketmaster as kind of your front door with or without the deal? If I’m correct in that interpretation. Then, I’m just looking at some of the other sources out there, the outlets, whether it’s the artist’s website or MusicToday, of course your own ticketing platform, how do you see all these various sources coming together as you think about your own platform which I was under the impression that you were looking to actually drive most of the sales from there. Particularly from your own venues there seems like there’s going to be a mix and match of some of these different channels including Ticketmaster.

Michael Rapino

I’m not sure what you’re reading but that’s nowhere near where we are. We’ve never stated that we’re going to use Ticketmaster’s front door. We use LiveNation.com as our front door for all of our controlled tickets at our venues. We have been doing that since January and have been building that front door for a couple of years. What I did say is people are sometimes confused that we also have 50% of the shows that we do promote are in Ticketmaster buildings which are sold at Ticketmaster because we don’t control those tickets.

Tuna Amobi – Standard and Poor’s

Are you looking to reduce that 50% perhaps given your ticketing launch? I mean assuming the merger does not occur are you still going to not want to do anything about that 50% or are you just going to live with that?

Michael Rapino

Our business is based on we put artist in venues and make the ancillary revenues and dollars from it. A lot of times it makes sense to put our artist like Madonna’s or Coldplay that we’re promoting in to Ticketmaster buildings whether it’s the Staples’ Center or Madison Square Garden. If that’s the right building for the artist that’s where we’ll put them. If the ticketing function happens to be through Ticketmaster than that’s what we’ll do.

Our business model provides us to put the artist in the right venue where we can maximize revenue and where the artist is approving to play. Many times it’s our own buildings, many times it’s in great arenas around the world and we have great ancillary revenue lines whether they’re in our buildings or others and that’s the way we drive our business.

Operator

Your next question comes from Alan S. Gould – Nataxis Bleichroeder, Inc.

Alan S. Gould – Nataxis Bleichroeder, Inc.

I’ve got a few questions, first Michael can you tell us what milestones we should be looking for in terms of this merger process? Is there filings, any dates when the DOJ is suppose to come back to ask more questions or make any rulings?

Michael Rapino

We don’t really have any out loud. Michael Rowles, my GC I guess we’ve got our 30 days we’ll be coming back now that we filed with the DOJ and would expect to hear from them after the 30 days and that will be the first milestone. We’ll have a shareholder vote after that in the next few months. I think we’re business as usual, we’ve already begun the process of filing and after 30 days we should have more sight.

Alan S. Gould – Nataxis Bleichroeder, Inc.

When will the merger document be filed?

Michael Rapino

What do you think Kathy?

Kathy Willard

Within the next 45 days.

Alan S. Gould – Nataxis Bleichroeder, Inc.

Switching to the ticketing, one question, I know that CTS event that they had done the World Cup so they had some experience with some big events, obviously it’s a learning curve that you’re starting, you’re using their system now but can you just go through a little bit of what happened in the first quarter, what hiccups there are and why you’re confident that things will be fine when we start selling for the big summer shows?

Michael Rapino

Sure. Listen, we’ve been selling since January so we’ve sold well over as I said the million tickets so we have no issue that the system sells tickets, works when you go to our site. The only weekend where we absolutely dropped the ball was when we put the FISH on sales on and God bless FISH, a huge band. We had 1 million hits at our 10 am website. That’s an incredible big load for us and it was nothing really to do with the ticketing platform or the store front it was just a combination the two weren’t talking well together on letting 1 million people come through the front door.

So the engineers from both sides worked hard over the weekend to readjusted for that and since then we’ve had Coldplay on sales and every weekend on sales. We’re more than confident that we will absolutely and now can handle the load and we haven’t had a breakdown of that nature since. We remind people that Ticketmasters’ system blew up on Bruce Springsteen. These ticketing systems do crash when there are huge, huge drivers to the site.

One of the challenges and we said it last week in Washington, one of the challenges is the secondary scalping market is very sophisticated and they have these incredible electronic platforms that blow in to your system at that 10 am on sale to grab as many seats as possible and they’re a whole new level of business that you have work against. Anyways, we had a meltdown on the Fish 10 am. We still sold out the shows by the end of the day and we haven’t had a melt down since. We’re now confident these platforms can handle the load.

I’m not telling you that over the summer we won’t have a couple of technical issues and a glitch here and there but 100% the drive train works on our ticketing platform and we’re already off to the races and huge numbers.

Alan S. Gould – Nataxis Bleichroeder, Inc.

So it was basically one incident that got all this press?

Michael Rapino

Absolutely.

Alan S. Gould – Nataxis Bleichroeder, Inc.

Kathy, two financial questions. Can you tell us what the fx impact was in the fourth quarter and if fx stays where it is today what it would be for ’09? Can you also tell us on this $270 million impairment charge, what assets where written down? Was it all goodwill, was there any real estate, was there any other assets written down as part of that $270?

Kathy Willard

The goodwill impairment charge just requires you to look at your goodwill compared to your overall fair value of assets so no, it did not require any write down on the other assets and actually just implies that we have more fair value of unrecorded assets around things like the Live Nation trade name that aren’t part of our balance sheet. It was just related to goodwill and it was specifically in the North American Music and Artist Nation segments. So, nothing outside of that Alan.

Alan S. Gould – Nataxis Bleichroeder, Inc.

And the fx?

Kathy Willard

The fx, I do not have the ’09 numbers for you but the overall impact just on revenue alone for the full year was around $8 million.

Alan S. Gould – Nataxis Bleichroeder, Inc.

So that would have been all fourth quarter I’m assuming?

Kathy Willard

That’s a full year number. I don’t have the fourth quarter standalone with me.

Operator

Your next question comes from David B. Kestenbaum – Morgan Joseph & Co., Inc.

David B. Kestenbaum – Morgan Joseph & Co., Inc.

First question, can you just talk about the total revenue per attendee for the fourth quarter, it feel by about $7? And, is that all ticketing because I know you said beer and the food remained constant? Then, what would be the trend there going forward?

Michael Rapino

You were asking Q4?

David B. Kestenbaum – Morgan Joseph & Co., Inc.

Your total revenue per attendee dropped $7.

Kathy Willard

That’s really related to the international mix that Michael highlighted in this script.

David B. Kestenbaum – Morgan Joseph & Co., Inc.

So the Italy, that whole issue?

Kathy Willard

Just the arena shows timing.

David B. Kestenbaum – Morgan Joseph & Co., Inc.

Now, will that move back up in the first quarter and throughout next year or are we at that level going forward?

Michael Rapino

That’s international and we would assume depending on currency but we would assume that should work its way back up over the summer as the arena shows increase.

Kathy Willard

We’re always going to have some quarterly fluctuations obviously but that was really just timing of the shows and the fx. But, we’d expect that over the summer season that’s more impactful.

Michael Rapino

David, that’s why we always say the real metric to us is the year because, if you have a bunch of tours in one quarter versus the other it could be relevant or not. We like to just look at the entire year so you get the full up and downs of touring to say did the business per revenue increase, decrease, etc.? On a year basis we’re very proud of the overall numbers on all those metrics.

David B. Kestenbaum – Morgan Joseph & Co., Inc.

Now, you said at one point ’08 was a strong year, can you comment on ’09 or is it still too early?

Michael Rapino

No, I mean listen we believe – again, we do know from what we understand on the overall live business sports, theater, motorsports, Broadway versus concerts, from everything we’ve heard we in the concert business we are absolutely delivering strong numbers and consistent numbers year-over-year. I think if you’re in the other businesses you’re probably going to feel a little bit of tough 2009 and quite honestly that’s a very simple analogy.

If you look at a sports team, they’ve got 90 games to sell whereas in our economic we have one Aerosmith show in that city in three years. So, we believe that’s why our shows end up holding their own is just the supply demand is so different than a Broadway show that has 400 opportunities for you to see it. So, we do believe in 2009 you will start to hear some sports, some of the other businesses may be affected in ticket sales but our concert business is looking very strong for 2009.

Now, remember 2008 was an incredibly good year for us versus 2007. So, for us to be saying that we think 2009 could deliver somewhere in the same level of events and/or attendants is a fairly strong number. But, as of so far we are dead on track with our 2008 tickets on sales and shows in the pipe.

David B. Kestenbaum – Morgan Joseph & Co., Inc.

Then you didn’t really touch on the announcement you made this morning with some of these new people coming in to the company. None of them seem to have much concert business experience but maybe you want to give some color on what you’re planning to do there.

Michael Rapino

It’s just really what we’ve been doing over the last three years. We’ve been really turning this company in to what – at the core we are a sales and distribution company. We’re outsourced, the artist hires us, we put a financial guarantee down and our job then is to go market the show, sell the tickets and maximize the onsite revenue. The challenge when we took over we realized were we had great people that knew how to buy shows but we did not have a great skills set to meet the needs of today from a marketing onsite revenue basis.

So, hiring people from Disneyland, the Hilton, GE, those people are coming in here saying how do we drive per head revenue per square revenue from our existing business and how do we market those shows and break through the clutter and not market like we historically have with the print ad and radio spot but, how do we break clutter, sell more tickets and sell more per revenue per fan this summer. We’re trying to bring all that skill set in. We want to learn from whether it’s Starbucks or Disney, how do you drive your retail revenue.

Operator

Your next question comes from Benjamin Mogil – Thomas Weisel Partners, LLC.

Benjamin Mogil – Thomas Weisel Partners, LLC

When I look at the balance sheet I’m seeing the deferred revenue at the end of the year is down from what it was at the end of the year in ’07 but then when I look at the cash flow statement it looks like it is a source of cash, can you help me reconcile those two? I’m trying to get a sense if deferred revenue is an indicator if you will of what ’09 looks like?

Kathy Willard

One of the items there is the way the discontinued operations work Ben is that the balance sheet is reflective of just the operations that we still have so it wouldn’t include theater, it wouldn’t include motorsports as our last year’s K would if you went back and looked at that. The cash flow statement however is not restated for discontinued operations so you kind of have the flows going through there. So, that’s really the big drive on there. But, all-in-all you’re only seeing a call it $30 million drop between years and that’s just really timing of ticket sales related to our core music business.

Benjamin Mogil – Thomas Weisel Partners, LLC

So the balance sheet for ’07 was restated for the divestiture of those two businesses?

Kathy Willard

That’s correct.

Benjamin Mogil – Thomas Weisel Partners, LLC

So help me walk through, for me to feel comfortable that you think ’09 is pacing sort of similar to what ’08 was how do I look at the deferred revenue on the balance sheet and feel sort of comfortable on that?

Kathy Willard

Well, remember again you’re finishing fourth quarter and starting first and first is always a low quarter for us with the big seasonality in the amphitheaters and the festivals coming in in the second and third. So, those tickets sales would typically be going on first quarter and second quarter so it’s really the activity that’s going on right now that will impact more of the summer season.

Benjamin Mogil – Thomas Weisel Partners, LLC

But that was the same last year too, right? Because I mean after all I’m looking at the balance sheet from the yearend not from the quarter end.

Kathy Willard

That’s right.

Benjamin Mogil – Thomas Weisel Partners, LLC

Is deferred revenue for you not a relatively good indicator of what you think the following year looks like? Or, are you saying the amount of the deferred revenue is basically only first and second quarter is so small that it gets swung around a lot?

Kathy Willard

It’s definitely a indicator but I’m saying that the seasonality impacts that so you can’t just look at one point of time being yearend and decide what the whole year is going to look like. As Michael said, our ticket sales for events kind of same time of year are flat to prior year.

Michael Rapino

I think you can also feel good if there’s only a $30 million difference right now of deferred revenue off that spectacular 2008 then $30 million is a swing of one tour that could have been Q1 versus Q2. To be anywhere near that range is a great indicator but it wouldn’t be a substance indicator all in itself because it’s too early in the year.

Operator

There are no further audio questions at this time. I would now turn the call back to Mr. Michael

Rapino for closing remarks.

Kathy Willard

Thank you operator. We’re done. Thank you everyone for calling in.

Operator

Thank you for joining today’s Live Nation fourth quarter conference call. You may now disconnect.

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Source: Live Nation, Inc. Q4 2008 Earnings Call Transcript
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