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Live Nation Entertainment, Inc. (NYSE:LYV)

Q1 2014 Earnings Conference Call

May 6, 2014 5:00 PM ET

Executives

Michael Rapino - President and CEO

Joe Berchtold - COO

Kathy Willard - CFO

Analysts

Andrew DeGasperi - Macquarie

Vasily Karasyov - Sterne Agee

Doug Arthur - Evercore Partners

David Joyce - ISI Research

Rich Tullo - Albert Fried & Company

John Tinker - Maxim Group

Operator

Good afternoon. My name is Carrie, and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation Entertainment First Quarter 2014 Earnings Conference Call. Today's conference is being recorded. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period.

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, including statements relating to the Company's anticipated financial performance, business prospects, new developments and similar matters. Please refer to Live Nation's SEC filings, including the risk factors and cautionary statements included in the Company's most recent filings on Forms 10-K, 10-Q and 8-K for a description of risks and uncertainties that could impact to 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 measures in their earnings release. The release, reconciliations and other financial or statistical information to be discussed on this call can be found under the Investor Relations tab on investors.livenationentertainment.com.

It is now my pleasure to turn the call over to Michael Rapino, President and Chief Executive Officer of Live Nation Entertainment.

Michael Rapino

Thank you. Good afternoon and welcome to our conference call. Coming off a record year in 2013, we are continuing this momentum, with first quarter revenue growth of 22%, AOI growth of 56% and free cash flow, up 138%. And all four divisions delivered revenue and AOI growth for the quarter.

As we look forward, all signs point to us delivering on our growth targets for 2014. In concerts, our deferred revenue at the end of the quarter was up 14%, and ticket sales through May 2nd are up 5% year-on-year. In Sponsorship and Advertising, our contracted revenue through April was up 10% over last year, and in ticketing, our net renewal rate continues at over 100%, and at Artist Nation, we are on track to grow market share and come up 30% more shows in 2014.

I will now provide you with update on our core growth strategies. We expect to continue growing our global market share this year. Following our success of adding 10 million fans in 2013 concerts. Our research shows, continued strong fan demand for all live events on a global basis, with a continued strong pipeline of great artists. We expect the Live Events business to continue being a robust growth industry, and having the two leading brands of Live Nation and Ticketmaster position us strongly in the center of this growth. And as we head into this summer, the business looks strong again, as evidenced by selling 500,000 tickets in three days last week for the Jay-Z and Beyoncé tour alone.

And we will continue to grow market share three ways. First, we will continue growing our share in touring from clubs to stadiums. We expect to promote over 80% of the top 25 tours globally this year. Secondly, we will continue to grow our festival portfolio, with 5 million fans across 63 festivals, Live Nation is the largest festival producer in the world, and we expect to grow this fan base by 10% this year.

Our portfolio of 18 electronic festivals continues to be quite strong, led by Electric Daisy Carnival in Las Vegas, which is the largest electronic festival in the world, with over 400,000 tickets sold for a three day festival. And third, we will continue our market expansion and enter new markets. Collectively, our global concert platform has never been stronger, as we will promote over 23,000 shows in 40 countries, with 3,000 artists in 2014, and we continue to add more markets, festivals and shows to this platform.

Our artist management business is becoming increasingly strategic to our pipeline of the concert business. This division now, in 2014, will promote over 30% more shows than they did in last year. So we are continuing to see this division as a feeding to our main concert division, which ultimately drives our on-site sponsorship and ticketing business. Our artist management division is a global leader, managing over 250 artists, and we expect to continue adding to this portfolio, as it supports our core business.

The third driver of our business is the rapid growth of our sponsorship advertising and digital business. Our advertising business continues to grow rapidly, the 13% increase in ad units sold during the first quarter, as we increase total traffic to our platform by 14%. This growth was driven by large commitments from major brands like [indiscernible] Ford and O2, and from our digital platform growth. We continue to offer unique proposition for advertisers, who want to engage with fans at scale on digital and on-site.

In last week, we took a major step forward in transforming our advertising business towards a true media and content company, with the announcement of our Live Nation channel on Yahoo! While others have streamed shows in the past, only Live Nation, with the scale of 23,000 shows globally, can consistently deliver programming and establish a network with an ongoing advertising base.

With this channel, we company-sell the advertising. So our advertising team has new ad units to sell, and we are attracting large commitments, that will drive advertising revenue from day one from this channel.

I expect that our venture with Yahoo! proves successful. You will see us further leverage our content in Live Nation brand accelerating the growth of our advertising business.

And in Ticketmaster, our focus continues to be global growth, in developing new features and products to gain share and conversion. Top of our list for 2014 continues to be our integrated inventory product, Ticketmaster Resale. In a recent survey, over 90% of fans indicated they would find it valuable to see all of their ticket options in one location. A service we are uniquely positioned to provide, and now do.

With 60 teams from the NFL, NBA and NHL and over 2,000 concerts now officially offering fans all verified options at Ticketmaster, we continue to see rapid adoption of both content and fans.

Looking at our most recent results for the month of April, we grew our global resale volume at 40% relative to April 2013, and we are tracking towards what we expect to be $1 billion in resale GTV from the launch last September through this year.

Growing market share, while we invest and evolve the Ticketmaster platform and product remains on plan. We are building this new platform in a modular fashion, and expect several key products to be deployed this year.

For consumers, the new platform is powering the Ticketmaster Resale product, as well as other features on mobile, that will enhance search, purchase and checkout. And we will also deploy new products for our venue clients, with additional analytics and marketing products in 2014.

I remain confident that the investment to date has been key to delivering Ticketmaster's renewal, as well as providing a foundation for new products and features, that continue growing Ticketmaster's global business; with Ticketmaster Resale being the first proof-of-concept.

We will continue to see operating reductions that we need to deliver our strategic plans. These cost reductions will start to have a meaningful impact in 2014, and will be important contributors to Ticketmaster's profitability this year. Given our momentum coming out of 2013, our strong early success with Q1 and solid leading indicators, I am confident in 2014, we will deliver our fourth consecutive year of revenue, AOI and free cash flow growth. Grow the profitability of each our businesses; stay on track to deliver on 2015 financial targets; operationally continue to invest and build all of our businesses, to set them up for continued growth.

I will now turn the call over to Joe Berchtold, our COO, to take you through an update on the divisions.

Joe Berchtold

Thanks Michael. First, Concerts; Live Nation Concerts revenue for the first quarter was up 29%, and AOI improved by 80% versus 2013, driven by an 11% increase in global attendance at our shows.

In North America, attendance was up 30%, with a 34% increase in arena attendance, led by tours with Justin Timberlake, Imagine Dragons and Luke Bryan. Internationally, attendance was up 8%, driven by an 18% increase in arena attendance. Europe, particularly France and the U.K., led this growth with tours, with Depeche Mode, Michael Bublé, Beyoncé and Drake.

Through May 2nd, global ticket sales for all shows are up 5% through the same time in 2013, and the global growth has been across all venue types, with nine artists already selling over 500,000 tickets for the year, led by One Direction, Justin Timberlake, Luke Bryan and Miley Cyrus.

Through April, we sold approximately half our tickets for the year, and based on sales to-date in our pipeline, we expect to deliver continued attendance growth for the full year. We expect that this growth, along with improved performance in our festival business, will deliver strong growth in our 2014 concerts profitability.

One other point to note on concerts is the seasonality of the business this year, with a significant shift from Q2 into both Q1 and Q3. As I mentioned, arena attendance was the primary driver of our growth in Q1, thanks to a 10% increase in arena show count.

In Q3, we expect to see strong growth in both festivals and stadium attendance, with all growth in festival attendance projected for the third quarter, and stadium attendance projected to increase by over 50% for the quarter. As a result, Q2 will be impacted by the shift out of arena activity into Q1 and festival and stadium activity into Q3.

On Artist Nation, for the quarter, revenue was up 44% and our AOI was $5 million compared to a loss of $1 million last year, driven by the artist management business. In 2014, we expect improved AOI from the artist management, Artist Nation division, from a growing roster of artists under management.

Turning to our Sponsorship and Advertising business; for the first quarter, revenue for the division was up 13%, with sponsorship sales up 13% and online revenue up 12%. AOI was up 8%, and AOI growth was slightly lower than revenue for the quarter because of headcount increases, particularly for online advertising, where we have added staff in anticipation of building our online content.

We expect this additional headcount to deliver strong growth in online advertising in the second half of the year, as we expand our programming with Yahoo!, launched additional content verticals, and build on our current Live Nation and Ticketmaster sites. Similarly, we expect festival sponsorship to continue growing rapidly, and for the full year, to increase by over 15%.

At this point, we have sold approximately 75% of our expected sponsorship for the revenue for the year, and half of our planned online advertising sales. This puts us on plan to deliver our expected growth for the year.

Finally, Ticketmaster; for the quarter, ticketing revenue increased 9%; AOI was up 17%, with primary ticket sales up 3% for the quarter, and growth transaction value of the primary tickets up 9%. The concert segment was the primary driver of our ticket growth, both in tickets sold and for the increased gross transaction value, given the pricing on concert tickets is generally higher than average ticket pricing.

Geographically, our markets were fairly consistent with North America volume up 2% and gross transaction value up 8%, while international volume was up 3% and gross transaction value up 10%.

On mobile, we continue to see a rapid shift of consumer behavior, now accounting for 16% of all tickets sold in the first quarter, up 33% from the same period last year. In North America, ticket sales grew by 26% and accounted for 18% of overall ticket sales, while in Europe, they grew by 69% and accounted for 13% of overall ticket sales.

Based on the ticket sales in the first quarter and projections for the full year, we are currently expecting low single digit growth in ticket sales for the year, with AOI growth slightly higher than ticket growth.

Overall, given the strength of our first quarter performance and more importantly, our visibility into the rest of the year, we believe we will again grow our businesses in 2014, and continue on track to deliver our three year plan in 2015.

With that, I will turn the call over to our CFO, Kathy Willard, to take you through more details on our financials.

Kathy Willard

Thanks Joe and good afternoon everyone. We had a strong start to fiscal 2014, with growth across all of our operating segments. I will provide further details on the first quarter results, and then summarize our current expectations for the full year.

For the first quarter, revenue was $1.1 billion, up 22% over the same period last year. This increase was led by concerts, which improved by 29% compared to the prior year, from an increase in arena shows globally, and higher overall attendance.

Adjusted operating income for the first quarter grew 56% to $83 million as compared to $53 million in 2013, and this growth was led by our concerts and ticketing segments. Concerts AOI improved 80% to a loss of $2.6 million, due to higher overall attendance, along with increased average attendance per show. Specifically to arenas in North America and Europe. Ticketing AOI was up 17% to $70 million, due to increased ticket volume and higher average pricing.

Sponsorship and Advertising AOI was up 8% to $26 million, with growth in both North America and Europe; and Artist nation AOI was up $6 million from the management business.

The improved performance in our AOI drove a 63% improvement in our operating income for this first quarter, as we reported an operating loss of $12 million, compared to a loss of $33 million last year. And the growth in our AOI, translated to the bottom line, as our net loss for the quarter, improved by $31 million over 2013, to a loss of $32 million. The improvement in the net loss was driven by our higher operating income in the first quarter, lower interest expense, due to the refinancing of our debt in Q3 of last year, and a discrete one time tax benefit of $7 million, related to deferred tax liabilities recorded from an acquisition completed during the first quarter of 2014.

Cash flow also expanded with our AOI growth. Free cash flow was $34 million in the first quarter, compared to $14 million last year, with the improvement driven by our higher AOI, with some timing impacts on interest payments in the first quarter of this year. And cash flow from operations was $366 million for the year-to-date, up $95 million over 2013. This improvement is due to the increase in AOI, higher deferred revenue from ticket sales for future events, and timing of artist deposits, which were lower in the first quarter of 2014 compared to last year.

As of March 31, we had total cash of $1.6 billion, which includes $569 million in ticketing client cash and $697 million in net concert event related cash. Our free cash was $363 million.

Total event related deferred revenue was $885 million as of March 2014, as compared to $774 million in March last year. Due to an overall increase in ticket sales for 2014 events, which are up 10% as compared to March 2013. This deferred revenue in concert ticket sales to-date, give us confidence, that this will be a strong concert season. Our total capital expenditures for the first quarter were $21 million. We spent approximately $11 million on maintenance capital expenditures and $10 million on revenue generating addition. We currently continue to expect that our total capital expenditures for 2014, will be app $130 million for the full year, with under half of that spend on revenue generating projects.

As of March 31, our total current and long term debt, including capital leases was $1.8 billion. Our weighted average cost of debt, excluding debt discount and including debt premiums, is 4.3%. Our debt covenant currently requires a maximum leverage ratio of 5.25 times, and we are comfortably in compliance of less than 3.5 times. We delivered strong results for the first quarter of 2014.

Looking forward, we expect to drive growth across each of our businesses, and increase overall profitability, while continuing to invest in our long term growth strategies. We expect the positive trend this quarter to continue throughout 2014, and we currently expect to deliver solid growth in concert AOI.

As Joe mentioned, we had an increase in early arena shows, shifting event activity on a comparable basis from the second quarter to the first. Additionally, we currently expect to have higher stadium activity in the third quarter, which will shift more activity out of Q2.

The growth trend in sponsorship and advertising AOI is expected to continue in 2014 at historical rates. We expect ticketings AOI to be slightly up compared to 2013, as we grow our secondary ticket sales and deliver cost savings. We expect Artist Nation to grow its profitability this year as well.

Thank you for joining us today, and we will now open up the call for questions. Operator?

Question-and-Answer Session

Operator

The question-and-answer session will be conducted electronically. (Operator Instructions) And we will take our first question from Amy Yong with Macquarie Capital.

Andrew DeGasperi - Macquarie

Yes hi, this is Andrew for Amy. I just had two questions, the first one, if maybe you can quantify the synergies that you expect from the replatforming of Ticketmaster this year? And also, can you comment on StubHub's recent initiatives, including the all-in pricing and concert series with Pandora? Thanks.

Michael Rapino

On the first, with regards to not so much synergies, but the cost savings as we continue our replatforming, as we have talked several times now. The replatforming project is really an ongoing one that we have broken into a modular basis, so we can start both getting the consumer and venue benefits through new products as well as taking some costs out.

So I would say, that our expectations at this point for this year is about a 10% -- sorry a $0.10 per ticket reduction in our costs for our fee-bearing tickets in North America.

Andrew DeGasperi - Macquarie

Great. And the second one?

Michael Rapino

On the -- I don't have a ton of input on what they are up to, and their strategy. But all-in pricing, we have had all-in pricing available to our clients for the last couple of years, depending on the artists, the team, they want to put all in pricing at the front of the proposition. We do that, we leave it in the hands of the client, while at times, it is -- the position is all in, but we break out the pieces to make it transparent. So we don't think all in pricing, either way, changes much on the purchase intent, but we have it as an option for the clients, if they want to position it that way. But we don't think it does much either way. I don't know what they are up to on their Pandora concert series, I assume they are just looking for some brand extension, but we are very thrilled with the progress we are making on our secondary market share.

Andrew DeGasperi - Macquarie

Great. Thanks.

Operator

We will take our next question from Vasily Karasyov with Sterne Agee.

Vasily Karasyov - Sterne Agee

Hi, thank you. I was wondering if you could clarify the metric that you provided, that you have a 40% increase in secondary market, total value I believe. When you disclosed at the Analyst Day, I think last year, that you estimate that you have 10% of secondary tickets. Was that true for April last year, or was your share less than 10% at that point?

Joe Berchtold

I think when we talked about the 10% share that we were looking at the year in its entirety, as you can tell from the numbers that Michael gave, we have been substantially growing our activity each month, since we have been launching our Ticketmaster Resale last fall; because of the seasonality difference, sports league on at different times, we wanted to give that April-to-April comparison, so that you have an understanding of versus April of last year, before we launched Ticketmaster retail to April of this year, the most recent full month that it has been going, that we increased our global secondary growth transaction value 40% year-over-year.

Vasily Karasyov - Sterne Agee

And do you expect to provide this update every quarter, or do you think its going to be a one-off kind of illustration?

Michael Rapino

I mean, we will try to provide the information we think is most relevant. So that you all and our investors can take a read on the progress that we are making.

Vasily Karasyov - Sterne Agee

Thank you.

Operator

We will take our next question from Doug Arthur with Evercore.

Doug Arthur - Evercore Partners

Joe, I want to go back to -- you're giving guidance sort of low single digit concert ticket sales for the year, based on your read right now, and then you made a comment about AOI for the year of somewhat better. Were you referring -- then you were talking about a dramatic, significant increase in concert profitability. So is the somewhat better AOI description for the entire company, I just want your clarity on that?

Joe Berchtold

I think we had said on concerts, that we would have a strong increase in concerts division AOI, off of the continued fan growth that we have this year. We obviously, just from our current profitability of our concerts division, will tend to increase AOI to a higher percentage than our fan base. I think the overall message that we were trying to give on a totality, is that we continue on plan with what we have been consistently laying out, and we think that we are off to a very strong start, that gives us some good tailwind to deliver those results this year. And -- indicator to support that.

Doug Arthur - Evercore Partners

And so, the first quarter, which is obviously seasonally small, you're up 56% in AOI. I guess the commentary strongly suggests that you're going to give some of that, if not a fair amount of that back in Q2 and then, kind of recapture on that in Q3. I am just trying to get a read here of kind of --?

Joe Berchtold

I think that's roughly right. As you said, Q1 is seasonally low, when you look at the overall level of activity for concerts, just relative to the overall year. But I think in general, you got it right. We had a really strong Q1. We have a really strong Q3, and what we have seen just from a show-count perspective is, I gave the detail on, just seasonally less. Nothing more, nothing less than that, just timing.

Doug Arthur - Evercore Partners

Okay. And then finally, on Artist Nation, I mean, this is -- you have been in a year long, kind of reshaping of that business, revenues were up 2% in 2012. They were down 12% in 2013. So now we are looking at a big pop in the first quarter. I know, a lot of that can't be timing associated with the concert tours. But are we having -- is this kind of a completely new platform at this point, and should we expect strong revenue growth for the year, or is that not the read?

Michael Rapino

I think what we are trying to be very clear about is, Artist Nation on itself is the division of 15 or 16 management companies, that manage over 250 artists. We spent the year taking out a lot of services and non-core businesses that weren't core to the artist management business; VIP business, merchandise business, graphic artists, things that were in that division that we didn't believe could grow within there. So we took those out, and we have a very strong single minded Artist Nation division, that it wakes up every day, managing great artists, and furthering their careers.

What we did say is, we don't believe that division has high growth in it organically. We believe that we are going to run it better, and we are going to add a few artists and continue to change up the portfolio and add some artists that we think have a long term perspective. But the most important thing was that division is kind of over the last year, when the silos got broken down. We were able to embrace that division to a level we hadn't heard historically. And that division's main goal is, with 250 artists, you can now capture and co-op into touring with you, supporting your ticketing proposition and supporting your sponsorship division. There is nothing better than 250 fabulous artists feeding your main pipeline. And that is the structural change that has happened, is that division now reporting directly to me, is much more integrated in our sponsorship, our ticketing and our concert division.

So we believe, having 250 strong artists, as a high margin business, generates nice AOI, is a stable and strong business on itself, but more importantly, the numbers we keep telling you, but over the last two years, since we have kind of taken it over, we have doubled the amount of shows that those 250 artists do, that are now touring with Live Nation versus our competitors. So we believe, its an incredible, strong division on its own, but when linked to our core business, can drive profitability in our core concert business on its own, and then ticketing and sponsorship.

So if you took last year's number and we were up 25%, we are going to be up 30%. If those 250 artists combined have a few thousand concerts, and now we have gone from promoting 300 of them to 600 of them, that's a great supply chain; and we believe that if we add value to that division, we will continue to gather more concert market share from that division, if we have the best product out there. And that, in itself, even in the core business, you don't see reflected in the Artist Nation financials, but you do obviously see it reflected in our increased market share in our concert division.

Doug Arthur - Evercore Partners

Got it. Thank you.

Operator

And we will take our next question from David Joyce with International Strategy and Investment Group.

David Joyce - ISI Research

Thank you very much. Your attendance per event was up again nicely, both North America and internationally. How much would you attribute that to the Ticketmaster replatforming and increased conversion, and how much would you be attributing that to macroeconomic trends or other factors?

Joe Berchtold

I think a couple of factors David. Clearly we believe, that as we continue to develop new products at Ticketmaster, online, the Ticketmaster plus the mobile; we are continuing to give more kind of a better experience for consumers and a better experience that makes the purchase easier. It is always going to help conversion some, is one. Two is, we continue to be very focused on shifting more of our marketing spend to digital and social platforms, using that database that we have on fan interest, fan behavior, historical purchase patterns, what they have on their iPhones, to do a better job, making them aware, getting them interested in the show. And then, third would be, kind of, what's the mix of artists that you have in some of the macro environment.

David Joyce - ISI Research

Thanks. And on the type of events, that are growing for you. The festivals, the summer, for example, is that an area where the growth in sponsorship advertising revenue might be more focused, given that you've talked about that being an area where there is more [indiscernible] upside?

Michael Rapino

Yes, absolutely. We have always been very strong in Europe with our festival platform. Our festival platform has been our main driver to our advertising business in Europe, and as we are adding more and more festivals in America and Canada and Australia, we know that our advertising proposition gets stronger, and we have seen that already come to life, with our Insomniac acquisition for some of our new countries festivals, or Made in America with Jay-Z festivals are a great platform for advertisers, and we will continue to build up that portfolio.

David Joyce - ISI Research

Thanks. And just finally on the Artist Nation strength, with the increase in commissions there, was that related to the artists performing or at arenas or was it more clubs, how would you characterize where the growth opportunities have been coming there?

Joe Berchtold

Part of it is timing for us, with the activity. But in general, its just where our artists, the managers are -- where those artists are active in a particular quarter, there is nothing magical about it.

Michael Rapino

And just on the economics of that, as we have said many times, the artist is making most of its money on the road. So if my business in general, on a global basis is continuing to grow and Maroon 5s and Rihannas have more and more opportunities to tour, make more money, then the largest part of your commission is going to be your touring business. So a manager going forward is going to have an increased business, just off the basics that his artist is a good touring artist, the tour -- the artist is going to have more revenue and more growth in the future.

David Joyce - ISI Research

Okay. Thanks.

Operator

We will take our next question from Rich Tullo with Albert Fried & Company.

Rich Tullo - Albert Fried & Company

Hey guys. Got one question; in regards to seasonality, it looks like you ran about 5% ahead of my model on first quarter attendance. Looking at seasonality as a percentage of total revenue for the year, I guess this is for Kathy. When you talk about the second quarter, are we talking at something like 100 to 200 basis points was transferred into the first quarter and something like 100 basis points will be transferred into the third quarter?

Joe Berchtold

This is Joe, I don't think we are getting that specific. I think what we said is, we had a strong first quarter that we were very happy with. All the leading indicators that we have locked through [ph], point to continued strength through the rest of the year, and we are just trying to, every year, round this time we have a conversation that says, what does the seasonality look like, because we manage it for the total year, not for the given quarters. And this year, its particularly strong in the third quarter, as I talked about festivals and stadiums. Strong in the first quarter, and so by definition, some of that has to come out in the second quarter. But in totality, everything pointing to ongoing growth and strength.

Rich Tullo - Albert Fried & Company

Yeah, there is a question about that --

Joe Berchtold

Now --

Michael Rapino

We know we are trying to fill out, we got it. We are trying to help you, but we are just going to not -- we'd only get caught exactly on 100 shows versus this month versus next, in an overall thesis right now.

Rich Tullo - Albert Fried & Company

All right. Okay. I am not asking you to point the wrong finger here, but to point the finger on the EDM, are you thinking about festivals, in terms of more of an experiential marketing, and an advertising plan, versus just kind of a sponsorship and pouring rights. I mean, is that where we are headed with this, and if that's the case, is that going to be kind of an announcement data point, or you are just going to let the numbers surprise, if this transpires?

Michael Rapino

Not even quite sure what you're asking, but I could try to answer what I think you are asking. But help me out here, what are you asking about EDM exactly?

Rich Tullo - Albert Fried & Company

Well I mean, it just seems to me that the opportunity with sponsorships is more than just banners and pouring rights, right? The opportunity is to develop a one-to-one communication between the concert grower and the advertiser, in ways that is not necessarily available in a two-hour venue?

Michael Rapino

Absolutely. I think if you look at our business, its what we have been doing for many years. I mean, our business model, whether its an EDM festival or country festival, stadium show or a house of blues, our main job is to create that 23,000 show flywheel that spits out 60 million to 70 million consumers on-site. And from that scale of consumer base, we built 800 plus sponsors, and many of those sponsors are much deeper than a banner ad as you know.

They are very integrated programs like the Ford Rider series, which is a whole content program, online series we created for Ford to the American Express front of the line, through the Starwood upgrade, while you purchase a ticket to stay at a Starwood hotel, through upselling a Hertz rental car. So we have got an incredible sponsor base, who want to participate in many of the different genres, and you know, the beautiful part of what our model is, is diversity.

A 19 year old or 30 year old or a 40 year old, doesn't live in one genre. Most 19 year olds love Taylor Swift, when they are feeling love sick and they want to party with the latest EDM artist, and they head over to a Rihanna show for pop. So our basics is, when we talk to sponsors, its about the scale of the 19-year old we have, and the amount we can touch, incredible sponsorship programs for 800 sponsors, and then the way we are going to touch and communicate to those customers, is why we always believe in our Ticketmaster strategy, is we have 400 million consumers buying an average of $163 ticket directly for us. We know their name, we have their credit card, we have a communication platform with them. We have now on-site apps at Live Nation and Ticketmaster that are doing more and more for you on-site, and you can see in the future, the value we can bring to the Live Nation Ticketmaster app, whether its upgrading your seat when you are at the venue, whether its buying T-shirts cashless, ordering drinks.

So we have already got the scale. We have got the LN and Ticketmaster brands and mobile applications that are talking directly to you ongoing. We have 800 powerful sponsors, who want to participate in that. So we are not obsessed with any specific genre around creating a one-on-one. We are very obsessed with having massive scale, that lets us talk to a lot of consumers about a lot of shows.

Now within those brands, House of Blues, Insomniac, lot of our European festivals, they all have their own apps, their own websites and their own customer bases, that they do a great job on a one-to-one basis, talking directly to them, that's kind of a sub-brand. So we have a lot of sub-brands, but we have the scale of the master brands, that really is how we have unlocked the 800 sponsors, and are unlocking our 400 million plus database.

Rich Tullo - Albert Fried & Company

One quick little question. It might not be an easy question to answer, but what percentage of the growth we have been seeing over the last, let's call it 18 months, has been from social marketing, which are doing evidently very well. Deals like Yahoo!, if you could provide a little color on that, and what percentage is coming from the expansion of the big data from Ticketmaster. I mean, can you quantify it or qualify it inn any way?

Michael Rapino

We are not breaking that data out specific, it’s a lot of our secret sauce; because no one else in the industry would have the breadth of resources and data that we have. But we have said it out loud over the last couple of years that we believe the greatest opportunity we have, is 23,000 shows and a Ticketmaster, well over 100,000 events on sale, the greatest opportunity we have to grow this business, is to sell 10 more tickets to each event. You sell an extra 10, 20, 30 tickets to -- our 20,000 shows or Ticketmaster's 100,000 plus shows, those are millions of dollars to the bottom line, incremental high margin. And we believe the route to get there, was always the unsophisticated industry becoming more sophisticated with the way it markets and talks to its customers.

So taking the three year ago historic unsophisticated industry that spend all their money on print and radio and [indiscernible] shotgun, to this year, we are tracking well over 40% of our marketing spend is now -- lets call it one to one digital, advertising directly to those 90 million Rihanna fans, when you have a Rihanna concert. Talking to them directly through our database, and finding like minded Rihanna facts and activating them.

You look three years ago, we sent a billion emails a year, with basically the same campaign, and in 2013, we sent over 1.5 billion emails, and we had over 900 campaigns, customized to different customers to different targets with different offers. And most of those are ending up in a young kid's mobile phone, with some rich video or visuals, and the open rate of conversion is incredibly encouraging.

So we do believe that yes, a lot of it is just us, using our data, our customer research and converting our marketing spend to be much more efficient and try to find those 10 or 15 casual fans, that are thinking to go to a Rihanna, but we weren't hitting them with a billboard on sunset, we are hitting with a very direct marketing campaign, and we have got tons of engineers working on algorithms, to figure out how to keep finding a casual and non-buying Rihanna fan, and get her to the next show. And we think the data will be the sweet spot and the unique differentiator on how we bring more and more fans to those current shows.

Rich Tullo - Albert Fried & Company

Thank you.

Operator

And we will take our next question from John Tinker with Maxim.

John Tinker - Maxim Group

Thanks. Terrific quarter. Congratulations. Could you just clarify a little more, how your deal with Yahoo! is going to work? Are you going to own the content that's streamed, or do the artists own that?

Michael Rapino

Sure. Thanks John for asking. We are wildly excited. We spent the last couple of years, talking to a lot of different distributors, the obvious ones on, could we repackage some of our content, and not just provide it as a production fee, to help someone else's platform. But could we partake in the branding and the advertising. Kathy and Melissa saw the vision. The deal is in the simplest context, is they have agreed to underwrite the cost to deliver the content and shoot it. Obviously, we have already invested in the show, so we have done our part. We will then co-sell the advertising units, and we will show that on a 50-50 basis, once Yahoo! has recovered its cost basis.

We are very encouraged, because we are highly subscribed already, talking to advertisers before we launched it. That's why we you saw me referencing my script, that we will -- this will be a positive revenue channel, almost A-1, and we get our Live Nation branding, which is very important to continue to show 800 sponsors and others, that we have the potential to take these 23,000 shows behind the scenes, on the stage and etcetera, to bundle up some great content.

The deal is with Yahoo! The content is owned by both of us for the first, kind of broadcast of it, and then we will revert the rights back to the artist after a certain time period. So part of the value to the artist and keeping kind of the cost upfront low, is let us shoot your show. We don't plan on paying you. We are going to bring incredible audience to your show. We are going to shoot it quality, and we are going to let you reuse that content, when that was done.

John Tinker - Maxim Group

Great. Thank you.

Michael Rapino

Thank you, John.

Operator

And we will take our final question from Doug Arthur with Evercore.

Doug Arthur - Evercore Partners

Yes. Joe, I just want to go back to you, some of your nuance comment on the third quarter. The --

Joe Berchtold

Hey Doug.

Doug Arthur - Evercore Partners

Well the thing is, in the first quarter, the number of shows, the attendee per show were all sort of kind of on-trend. The big delta was the revenue per attendee was up 16%, it has been trending down year-over-year for the last few quarters. So obviously the arena, you have mentioned newer size of the arena impact in the first quarter. Is it -- the revenue per attendee, obviously, its hard to calculate a couple of quarters out? But I mean, is that something that could be based on the skew of shows you're seeing right now for Q3, and obviously at the festivals, etcetera. Could that be a positive surprise in the third quarter or is it too early to tell, get that refined on the mix?

Joe Berchtold

So a couple of things. First of all, the first quarter as you said, there is obviously some mix in there; and the first quarter what you have, is really indoor, so you're seeing arenas, and theaters and clubs. But if you skew towards arenas, you will see just from that mix issue, some increased attendants per show and increased revenue per attendee, generally those ticket prices are going to be higher. So that's part of what you will see in the first quarter.

As I talk about the third quarter, when I talked about being strong in the third quarter in particular, were festivals, and seeing our festival growth in the third quarter in stadium, and a lot of our stadium growth in the third quarter. Both of those venue types, just at a broad level, are high ticket price; because you are buying the more expensive full day ticket to the festival, and on average, your stadium pricing is going to be higher than your arena or amphitheater. So you should see some positive revenue per ticket or per ticket pricing from a mix in Q3 yet.

Doug Arthur - Evercore Partners

Okay, great. Thank you.

Operator

And this does conclude our question-and-answer session. I will turn the call back over to Mr. Rapino for closing remarks.

Michael Rapino

All right. Thank you everybody and we will talk to you all in Q2.

Operator

Ladies and gentlemen, this concludes the Live Nation entertainment first quarter 2014 earnings conference call. You may now disconnect.

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Source: Live Nation Entertainment's (LYV) Michael Rapino on Q1 2014 - Earnings Conference Call
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