Live Nation Update Call Transcript

Jan.14.08 | About: Live Nation (LYV)

Live Nation, Inc. (NYSE:LYV)

Update Call

January 11, 2008 10:00 am ET

Executives

Michael Rapino – President, Chief Executive Officer &Director

Klaus-Peter Schulenburg – Chief Executive Officer of CTSEventim

Bryan Perez – Chief Executive Officer of Global Digital

Nathan Hubbard – President of Ticketing

[Leanne Markay]

Analysts

David Kestenbaum – Morgan Joseph & Co., Inc.

Mark Wienkas – The Goldman Sachs Group, Inc.

John Blackledge – J.P. Morgan Securities, Inc.

Jeffrey Shelton – Natixis Bleichroeder

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

Operator

My name is Marquetteand I will be your conference facilitator today. At this time I would like to welcome everyoneto the Live Nation Ticketing conference call. All lines have been placed on mute to prevent background noise. After the speakers’ remarks there will be aquestion and answer period. (Operatorinstructions). Before we begin Live Nationhas asked me to remind you that this call will contain certain forward-lookingstatements that are subject to risk and uncertainties that could cause actualresults to differ. Please refer to LiveNations’ SEC filing for a description of risks and uncertainties that couldimpact the actual results. Live Nationwill also offer to some non-GAAP measures in this call. In accordance with SEC Regulation G LiveNation has provided a full reconciliation to most comparable GAAP measure andas a company presentation posted on its website. This presentation can be found on www.LiveNation.com under the about ussection. It is now my pleasure to turnthe floor over to your host Michael Rapino, Chief Executive Officer. Sir you may begin your conference.

Michael Rapino

Thank you everyone for joining us this morning. Today I amjoined by Klaus-Peter Schulenberg, CEO of CTSEventim our new ticketing partner, Bryan Perez our CEO of Global Digital andNathan Hubbard our President of Ticketing. As many of you have followed theLive Nation transformation over thepast two years already, know akey driver inour long term strategyhas been to remove thebarriers between our company and thecustomer, the musicfan. I amhappy to say that withour current ticketing deal expiring atthe end of theyear we will have afully operational new ticketing company and beable to reach a newmilestone in thisjourney. For thefirst time ever Live Nation will control our most important asset theconcert ticket. Through www.LiveNation.com we expect to sell morethan 20 million tickets annually directly to music fans around theworld. Through this activity we expectto strengthen therelationship we have with our customers, develop brand new revenue streams,maximize attendance atour events and build new alliance with corporate partners that have never beenbefore possible. Itis not anunderstatement to saythat the deal with CTSto provide expertise and infrastructure for this new venture is revolutionary inscope and will have aprofound affect on theglobal live music business and our bottom line. Hopefully we’ll beable to download thepresentation at theinvestor site as we will now take you through some keyhighlights of thedeal.

On Slide 4 - The launch of our new ticketing company nextyear we will have accomplished our vision of becoming a vertically integratedmusic company. The ticket to the liveshow is really the glue that brings the fan and the artist and all the ancillaryopportunities up and down the value chain together. For the artist by virtue of our improvedcustomer relationships and customer data we can better connect the artist with theirfans so they can sell more products and tickets. For the fan we create a one stop shop for avariety of music related goods and services at the point of ticket purchase. And, for the sponsor we will be able to offersponsor’s an end-to-end sponsor solution from the venue to direct bandinteraction. And, for Live Nation as awhole it evolves our model from a promoter service provider to an e-commerceretailer. We have now taken an artistrelationship that provided us only four or five revenue streams in ticket salesand venue ancillary’s and can now expand that relationship into more revenuestreams including ticket sponsorship, merchandise, fan clubs, DVD’s, etc.

On Slide 5 - We talk about the benefits of the relationshipof owning and becoming a ticketing company. The ticketing business in itself will open up a variety of newopportunities for Live Nation. Bycontrolling the ticket transaction we can more efficiently sell tickets to fansvia direct marketing. We can now expandour sponsorship proposition. We expectto offer sponsors a comprehensive package from online advertising to on siteevents. Third we get to increase ourpoor concert margins. We have noweliminated the ticket distributor middle man, we can recapture their profitmargin which will make our core concert business healthier and morecompetitive. Four, to date we have notparticipated in the secondary market with our new ticketing business we expectto enter this growing and highly profitable segment. Five, the launch of our ticketing businesshas opened up a whole new revenue stream for us as we can provide our currentvenue partners with a double value proposition of content and a superiorticketing platform.

At a base level we expect to generate an incremental $25million in EBITDA just by taking ticketing in house and not even executing allof these additional opportunities. If wecan execute on these additional opportunities we currently believe that EBITDAwill double. Needless to say we areexcited about the future of these opportunities as they begin to unfold.

On Slide 6 - deal summary - In North America, United States and Canadawe will launch our own 100% owned ticketing company powered by CTS Eventimsoftware which we exclusively license in the USand Canada. The new ticketing company will not onlyservice tickets to our shows and our venues but will also provide service tothird party venues. We will pay alicense fee per ticket for our exclusive license of the CTS Eventim softwarefor an initial period of 10 years. Whichenables us to immediately have access to the worlds most technology advancedticketing software, accelerate our ability to provide fans with a superiorfront end and accelerate our entrance into the third party market withoutspending a significant amount of up front capital on software development.

On the international front the ticketing business where thepromoter typically controls the ticket is a different model for us. We make less money from ticketingoverseas. Only 26% of our music relatedservice fees comes from international operation. As a result we structured an agreement wherebyCTS will provide us with a turn key back end solution for select internationalmarkets while we control the front end through our website, the customer dataand the distribution of tickets all of our core objective. The term of this agreement mirrors the NorthAmerica Agreement and it spans for 10 years.

On Slide 7 we talk about our new partner CTS. I personally have known Klaus Schulenberg fora long time dating back to my time running the international musicbusiness. I have known him to be an exceptionallystrong operator and a pioneer. He hasgrown CTS Eventim successfully over the years into a kind of business that wewould like to become, a unified promotion and ticketing company. He is committed to making our ticketingoperation a success. The choice of CTSfor us was clear. One, CTS is one of themost technology sophisticated ticketing platforms in the world. Use of this platform will allow us to jumpstart ticketing operations for providing our fans and artist with access to asuperior service. Two, leveraging CTSplatform enables us to focus on our core competency of music and doesn’trequire us to become a software company overnight. In addition it accelerates our ability toprovide third party ticketing services by arming us with a platform that isalready capable of handling all types of clients from concerts to sportsteams. Given the unique characteristicsof the European market in which we operate the deal partners Live Nation with Europe’slargest ticketing company to fulfill these needs. I will now turn the discussion over to Klausto talk a little bit about his company and his new software and operations.

Klaus-PeterSchulenburg

Good morning ladies and gentlemen this is Klaus Schulenburgcalling from Germany. I would like to give you a little overviewabout our CTS Eventim Company. CTSEventim is based in Munich and Hamburgin Germany andfounded 1989, listed at the Frankfurt Stock Exchange since 2000. Last year we generated revenue of round about$500 million with an EBITDA of $67 million dollars and this year we expecteverything much higher and our market cap is around $1 billion. We will provide Live Nation with anabsolutely state of the art technology which is big in the year of 1999, 2000and this is a three tiered client server technology which is fully scalable.

We served last year more than 60 million tickets in Germany for 100,000events in 17 countries within Europe and what is special about it is thesoftware is able to serve all Europe outof one database so it is possible to do cross water business in Europe. For example, I do not know if it is the samein the US aswell, Airfare tickets are cheaper than concert tickets. So we see a lot of tourism with concerttickets when people from London going to a Madonna concertin Paris because they saw the artist already two or threetimes in London. We provide round about 600 employees in ourticketing sector where as 60 people are software specialist dedicated only todevelop high scalable software and what is important is that our software isable to serve concerts promoters on one hand, sports clubs on the other handand classical theatre opera houses on the other hand. So we serve more than 1,000 promoters in Europe,200 Sports Team, the complete German Soccer Leagues, for example. 600 venues and around about 200 theatreclients.

I turn now to Slide number 10 and there you can seehow our software is structured. What isimportant with our technology for example is as theticket buyer you areable to buy the ticketto the very lastminute, up to thebeginning of theconcert because you can request your ticket on your mobile, on your cellphone. We send atwo dimensional bar code on to your cellphone and then it isscanned at thedoor and gives you access to theconcert which is very, very popular inEurope at themoment. What is important as well andwill change habitsof buying tickets in theUS is that youcan buy or select your ticket on www.CTS.com outof an interactiveseating map. So, you areable for every concert which is on our software, you can go to theseating map for example, pick out from Row 1 Seat 3 and 4 you don’t like itand you choose instead Sow 1 you choose Row 4 Seat 6 and 7. Everything is possible technology wise. We provide anintegrated secondary market tool as well which enables theauction and the resaleof tickets. This is specific about ourtechnology that again, you can select your secondary market ticket out of aninteractive seating map. Especially whatwe do inGermany for season ticket holders whenyou can’t attend theconcert or sporting match you just type inon our website, return your tickets and we issue anew ticket to thesecondary market customer. This again isvery important and on top of this we arededicated to market concerts or we, for example inEurope had 60,000 online affiliates on theweb to promote concerts. This is veryimportant marketing tool and this is combined with state of theart customer relation management tool.

I would like to turn to Slide 11 please the highlights ofour company was serving the Soccer World Cup in 2006. There we could show how scalable ourticketing software is. We sold over 4million tickets for this tournament but we were able to serve 30 millioninquiries within the first hour when tickets sales started and there was no collapsingof websites. And, we are able todayserve 3 million clients simultaneously, that means at the same time and we dothis through this special service we are able to load distribution for 15,000servers worldwide. There would be nocollapsing on websites. On top of thatwe provide our RSID technology which we provided at the World Cup so that we personalizedtickets. This was a very important toolto prevent ticket fraud at the tournament and there were almost none fraudtickets at the tournament. To come to anend I think we found or created a win-win situation. We enabled Live Nations to set up 100% ticketingcompany right from the beginning without having to invest in technology andsoftware development which is not only a matter of money, it is a matter of know how aswell which enables us at CTS to get into markets without having heavy investmentsand so we believe that we have a win-win technology. I may now pass over to Bryan Perez and NathanHubbard. Thank you very much.

Nathan Hubbard

On Slide 14 - We justwanted to start by giving everyone a quick refresher on how the ticketingbusiness works here and internationally so that you can put the terms of ournew deal with CTS in context. In NorthAmerica the venue generally controls the ticket so that means if we promote forexample the Van Halen show at Madison Square Gardens. We will work with Madison Square Gardensticketing provider to sell the tickets at MSG and MSG will benefit from anyservice charges on those tickets. LiveNation would not directly participate in any meaningful way in the servicecharge on that ticket. If that same VanHalen show was instead at out our Jones B. Champ Theatre then we wouldparticipate in the service charge as we have the right to that ticket in ourvenue. Approximately half the tickets wesell in North America are in third parity buildingswhere we do directly participate in the service charge and in half are in ourowned and operated venues. Internationally the structure is a bit different generally the promotercontrols the ticket. In some marketssuch as Belgiumthe rights go with the venue but for the most part the tickets go with thepromoter and as a result we already control most of our ticketsinternationally.

Another difference internationally is that the ticketservice fees are generally significantly lower than they are in the US. Internet ticket sales are a lot lower andhandled completely differently. Forinstance, in many countries the common practice is to order the ticket onlineand then pick it up at a retail outlet network distributed through a country. For us this means that having a strongEuropean partner like CTS with a commitment to establishing an outlet networkin each individual market is important. The upside in having our own ticketing company in Europe is less than inthe US sincepromoters already own the ticket and it is less likely that they would bewilling to use a competitors ticketing system.

On to Slide 15 - Withthat background we can look at our own statistics. This Slide breaks down the number of ticketswe have in each major market by tickets that we control, that is tickets thatare sold in our own and/or operated venues in the US, Canada and UK or ticketsthat we are the promoter for internationally. Secondly, it breaks tickets down via those tickets that we do not control. That is tickets for shows that we promote inthird party venues in the US and Canadaor tickets for shows that someone else controls internationally. In the USand Canada webelieve that the venue that these ticket sales are in are prime candidates tobecome customers of our ticketing system in the future.

Lastly box office tickets. These are tickets that we sell in our box office that are not includedin our service charge revenue rebate revenue but including in revenues at thevenue level. We believe that hopefullythrough time we can move more box office tickets online as has been the annualtrend. In total we have approximately 14 million controlled tickets willservice ourselves in North America which today generate about $71 millionadjusted of adjusted OIBIDA annually for us and 7 million controlled ticketsinternationally which generate about $18 million of adjusted OIBIDA annually.

On Slide 16 - I am going to provide you with a briefoverview of the details with our agreement with CTS. First in the USand Canada. In the USand Canada wehave an exclusive license for the CTS ticketing software. We can use this ticketing software to serviceour own tickets as well as those from third party venues. We believe that this give us a tremendousadvantage when going after new ticketing clients as we have one of the mosttechnologically sophisticated platforms around. The deal is structured as a simple licensing deal where we pay CTS a feeper ticket sold on the CTS system. Thisstructure was critical to us to eliminate conflicts between the traditionalticketing provider and our objectives. We are now free to be as creative as we want to be around the fees thecustomer pays without having a ticketing partner solely invested in the currentservice fee model. In addition, thestructure provides us with absolutely 100% control over the entire ticketingbusiness, the user experience, all the distribution methods, the customer data,etc. All the conflicts that we have inour existing business are now gone.

In terms of launch CTS is committed to making modificationsto the platform we require to ready it for use in the USand Canada. Andgoing forward, help us implement the system, integrate it with our own systemsand train our personnel well in advance of the termination of our existingticketing contracts. As we look to moveinto new markets in the future such as Mexico, South Central America, Australia,New Zealand and Japan, we have a right to bring this license deal there as wellduring the initial ten year term. Thisis important for us as we have a built in ticketing relationship that we canchoose to use or not as we expand. Inthe United Kingdomthe deal is sort of a hybrid of a traditional service deal and our licensedeal. In this market we will pay CTS afixed fee per ticket in exchange for all the back end services. However, we will retain 100% control over allof our customer data, the fees charged to the customer, who sells tickets onwhich web site and so forth. With the maximumamount of flexibility we can have outwardly facing while working with CTS toprovide all the back end services the technology infrastructure and thedistribution infrastructure.

For most of the rest of our European presence CTS willprovide us with again, a comprehensive back end service including a robustoutlet network as it is important in these markets to service our tickets. We have a relatively low number of tickets insome of these markets and the infrastructure is more complex so CTS will becompensated accordingly with a more traditional ticketing deal where they willearn a portion of the service fee, have an allocation of tickets to sell ontheir website and share customer data with us. The exception being in the Netherlandswhere we’ll 100% control the customer data. However we still ultimately have the freedom as we do in other marketsto do what we want with our customer facing proposition such as the decision onservice fees as long as we adequately compensate CTS. Other European countries where we haveexisting ticketing relationships that cannot currently be replaced maybebrought on board at a later time.

Moving on to Slide 17 - On an economic basis, as we havesaid before once we are fully ramped we currently expect this ticketingopportunity will add an estimated minimum $25 million of adjusted OIBIDA to ourbusiness over what we are earning today with our existing relationships. This figure assumes that we do not changeanything about the model but simply replicate the existing structure inhouse. It also does not include anybenefit from any number of incremental revenue opportunities we now have at ourdisposal from entering third party ticketing markets to participating insecondary ticketing and yield management, ramping our sponsorship opportunitiesand a number of other ancillary opportunities. If these opportunities develop as we currently believe that they willthe contribution to our adjusted OIBIDA and operating income could double. We expect to begin to build up our ticketingoperations in 2008 by hiring new employees in IT, business development customerservice training and so forth. We also currentlyexpect to spend approximately $20 million in capital expenditures on thingslike hardware, new servers, computers and printers for our box offices In total in 2008 we currently expectticketing to be a drag of about $15 million on adjusted OIBIDA as we ramp tobenefit us by approximately $15 million in 2009 as the bulk of our NorthAmerican tickets come online and by approximately $25 million annually in 2010as the rest of our North American tickets and European tickets come online.

On Slide 18 - Incrementally and importantly we expect togrow our business through new opportunities such as third party ticketing. Because approximately half of our NorthAmerican tickets and almost all of the tickets for our premium global tours fortour dates in North America are for shows that are not in our venues we have avery strong relationship with over 650 third party venues throughout the US andCanada that generate a significant amount of their profit from the highlyattended shows that we promote like Madonna, U2, The Rolling Stones in theirbuildings. We believe that given thecombination of content superior ticketing technology and customer data thesevenues are targeted clients for our new ticketing company as they role off theirexisting ticketing contracts. Albeit asmall scale we’re already doing third party ticketing for our Music Todaybusiness. Music today has over 450 venuefestival, promoter, artist and sports clients. Together these clients whichinclude such high profile names as the John Paul Jones arena in Charlottesville,The Bonnaroo Music Festival, Kenney Chesny, The AT&T National which is a PGA event. Music Today sold over 1.6 million tickets in2007. We have a dedicated staff thatmanages these clients, seeks out new business and serves them.

The publicly available data that we have give us a sense ofbroader market opportunity of tickets that come up off of contract annually in North America. In total weestimate that outside of Live Nation, Ticketmaster has about 74 milliondomestic tickets. They’ve said inpresentation that approximately 15 to 20% of these tickets come up for renewalannually and they generate EBITDA of about $2.00 to $2.25 per ticket. Applying these figures to the entireticketing market as a whole we believe that we will be able to generatemeaningful incremental profit for our new ticketing business.

On the next Slide moving on to the secondary market. This is a market that has been much hypedover the last few years but we have not really been able to be a part ofit. The title of this Slide is SecondaryMarket and Yield Management because we view these opportunities together. Right now we do very little, if anything, todynamically price the seats in our venues. We for the most part three or so price tiers and we know from ourcustomer research that that is not efficient. Stub Hub recently put out a list of the prices that they were able toachieve from their top sellers and if you compare the ticket prices that theygot on those shows to average ticket prices reported by PollStar the secondarymarket was able to achieve more than two times the face value of thesetickets. That is value that we believeshould be going to the artist and the tour promoter.

Going forward we believe that we can participate in thismarket by not only better pricing our primary tickets but by also participatingin the secondary market and the fee stream that comes along with it. In addition dynamic pricing may be helpful inallowing us to sell inventory that previously went unsold helping us better setthe price at the intersection of supply and demand. Cleary, we will share these incrementalprofits with our artist clients but we believe that by entering the market wemake the pie bigger for the artist and for ourselves. We estimate that the concert portion of theNorth American secondary market is around $500 million dollars and if youassume those tickets were sold at 100% premium to face that is $250 million ofincremental revenue opportunity from better primary pricing. Of course, Live Nation shows are only aportion of this market. On the fee sideif the average service fee is 15 to 25% as is custom there is $75 to $125million in fee opportunity.

On Slide 20 - There are a number of additional ancillaryopportunities that we can participate in that we currently do not today and oneof the biggest of those is the sponsorship market. Right now we make very little from directlyselling ticketing related sponsorships and based on conversations that we areengaged in at the moment we know this number has enormous growth potential. Now that we will have control of our ownticket inventory the sponsorship opportunities are extensive from distributingtickets exclusively at retail sponsor locations or sponsor websites to producttie-ins and contest with tickets. Oncewe have built a relationship with the fan through their ticket purchase we havethe opportunity to provide additional value through any number of incrementalproducts from fan club memberships, merchandise, music, travel and diningpackages, parking, food and beverage vouchers, gift cards and more. All of these sales will be incremental to ourprojection.

I am going to turn it over now to Bryan Perez, our CEO of GlobalDigital to talk a little bit about execution.

Bryan Perez

Thanks Nathan. Switching gears we want to spend a few minutes explaining to you how weplan to role out ticketing in the USand Canada. The bottom line is that we are confident inour ability to execute selling tickets because it is our core business. It is what we do everyday. Hundreds of people in our company are taskedwith doing it and they’re well equipped to handle this role out. In addition, having an expert partner likeCTS with a superior software platform facilitates that even further. I personally lead the global digital team andhave a background in ticketing to the time I have spent with Madison SquareGarden and South West Sports group and then working with Major League Baseball AdvancedMedia on ticketing related initiatives and it isn’t for the last 2 and a halfyears I have been running Live Nation tickets and have rolled out our highlysuccessful www.LiveNation.com platform.

Nathan will beresponsible for the coreticketing execution and thestrategy on the day-to-daybasis and it goes toleverage his background as theformer CEO of Music Today and merchandise fulfillment and ticketing business ashe mentionedearlier. JoeMana is our CIO and isresponsible for thetechnology implementation and integration. Joe came to usfrom www.Tickets.com where hewas CTO and responsible for integrating over 11 different ticketingplatforms. Hehas anextensive background inticketing technology and operations and he’s already got ateam of experts in thefield. Obviously, CTSitself is a corecomponent to the rollout. They arefully committed to help us launch by theyear end and provide dedicated full time programmers to address our needs,training for our team, ongoing support; thefull package there. Our teams have beenpreparing for this for months together already. The good newsis that our incentives arein line. For every ticket that we sell they makemoney.

Moving on to Slide 24 - As a concert company we already haveextensive, as I mentioned earlier, extensive North American ticketing networkin place. We have 88 owned and operatedvenues which can serve as places to purchase tickets. We have a 500,000 square foot fulfillmentcenter and call center infrastructure that handles customer service and salesfor millions of orders a day located in Crozet, Virginia and that is going to serve as abase for many of our back room ticketing operations. Then again, most importantly we have over 100dedicated full-time employees and 400 part-time box office employees that sonothing but eat sleep and breath ticketing every single day.

On Slide 25 - We talkabout really the front door our new ticketing business is going to be helped byour already strong online presence. Aswe have mentioned in numerous presentations we already have the number twoevent website in North America and that significanttraffic for the limited amount of exclusive inventory that we currentlyhave. We expect to ramp up our onlinepresence dramatically as our ticket sales increase and all those visitors cometo www.LiveNation.com to purchase theticket as opposed to other entities website. We are going to continue to provide fans with a fun easy to use, highlyutility oriented place to find concert tickets and other artists products. I am going to turn it back over to Nathan andhe can talk about specifics of the execution plan.

Nathan Hubbard

Over the next 12 months we will continue to execute on ourplan. Obviously, we are already welldown the path on this plan. Some of thekey steps will include hiring additional personal which will ramp over thecourse of 2008. Many of these candidateshave already been identified and many already hired. We will work with CTS to localize theirsoftware for unique USneeds and develop any specific special applications for our use. We are expanding our data center, installingthe ticketing software and integrating it with our internal systems. We will outfit all of our venues with newcomputers, printers, high speed internet and wireless access. We will train our call center personnel. We expect to use a combination of internaland external call center resource. Discussions that we are having with external call centers are alreadywell under way. We will scale ourticketing fulfillment operation. Thesewill be based at the Music Today facility in Crozet, Virginia. Music Today as we discussed already fulfills annually over 2 milliontickets and a 1.5 million orders.

On Slide 27 - on distribution in North Americawe are going to empower www.LiveNation.comwith exclusive inventory and expand on the progress you have seen us make overthe last year as an e-commerce site. Approximately60% of our tickets are already online and we have deep relationships with thesecustomers already. For every ticket thatwe sold in 2007 we had 3.2 unique visitors to our website. Again, that is with little or any exclusiveticketing inventory on our site. Wespend about $150 million each year marketing our shows and directing fans tobuy tickets. Obviously, going forward wewill be directing them to www.LiveNation.comor box office or other distribution partners. Directing email marketing is one of our core competencies today during2007 we sent over 650 millions emails in the USto our fan database alone. For ticketsnot sold via the internet but sold via outlets and phone we plan to replace ourexisting distribution points with our own retail partners and theseconversations are already well under way. In addition, as we discussed when we utilize a combination of in houseand third party call centers to meet the telephone sales and service needs. We are very confident that the combination ofour existing team and CTS expertise will allow us to execute extremelyeffectively in the coming year.

On the international side on Slide 28 CTS Eventim willprovide us with a turn key ticketing solution and as Klaus mentioned they arecommitted to establish satisfactory distribution networks in each market whichis a critical component of the European ticketing. We have the utmost confidence in Europe’slargest ticketing provider as CTS already has a presence in 17 markets and theyare experts in rolling out new markets for clients.

I am going to turn the call back over to Michael to providesome closing remarks and then we will open the call up for questions.

Michael Rapino

As you can tell we are excited about the potential of ournew ticketing business and believe that we will create tremendous value for ourshareholders and fans. We will now openit up for questions.

Question-and-AnswerSession

Operator

(Operator instructions) Our first question comes from David Kestenbaumof Morgan Joseph.

David Kestenbaum –Morgan Joseph & Co., Inc.

Can you give us some kind of idea what the per ticket feethat you are going to be charged by your vendor is? Some kind of color on that and will it be in Dollarsor Euros? Can you start with that andthen can you talk about your retail strategies? Because I don’t think you got into much as far as distributing thetickets.

Michael Rapino

On the service fee we expect at this point to continue to bemarket price and competitive with other ticketing operations out there so wedon’t see any dramatic increase or decrease in that strategy to date. We obviously work with the artist directly sowe have a new way of thinking about the service fees since we’ll look to wrapit into one price and have more input from the artist. We don’t consider pricing to be a competitiveproposition that we’ll lead with whether it is through less or more of theprice.

Nathan Hubbard

I think the second part of your question was about ourretail strategy and I think you will see us in the coming months roll out ourconsumer model as we get closer to launch. We certainly believe that the content we have is extremely attractive toa variety of retail distribution partnerships and that we can bring some uniquethings like exclusivity to some of those partners. So as we get closer down the road in the yearyou will see us roll that out.

Michael Rapino

But David as it relates to the fee that we are paying CTS,for competitive reasons we are not really discussing that right now so we havetried to give you some kind of net bottom line guidance in lieu of that.

Operator

Our next question comes from Mark Wienkas from Goldman Sachs.

Mark Wienkas – TheGoldman Sachs Group, Inc.

The question on pricing is just what happens ingeneral. The general concert industrypricing trends and then the implications or impact of Live Nation controllingthe ticketing domestically at least and all the pricing with respect to thetransition toward dynamic pricing what do you think happens to [inaudible] asyou move from the three tier pricing model to more dynamic pricing?

Michael Rapino

We believe that is the great opportunity of theindustry. The very unsophisticated modelof the industry to date is very clear on why Stub Hubs and secondary marketshave exploded. In an efficient market inany other industry in the world you would not be having this type of actionhappening where people are making more money selling your product day two thanthey are at the retail strategy. We knowon eBay that we would be one of the very few items out of there entire rosterwhere our product is sold the next day for a higher value than it was at retail. Most of the real world would figure outhow to adjust there retail strategy and dynamic price to capture that and nothave an outside participant participate in the upside. So, now it is just part of controlling theinventory which we always have controlled we just have not had a motivated competencyinside to think about the retail strategy for the pricing. We now believe that dynamic pricing will helpdrive the overall revenue up for us and our profit up for us as we get toparticipate in the secondary market or as most people believe over time thesecondary and the primary merge and we become a much more efficient ticketselling company as in the airlines or hotel rooms or other models that haveassets that are depreciable at the end of the night. We now start thinking about our inventory inthose terms, having all the levers to adjust daily, hourly now we really becomesomebody that is driving our inventory based on consumer instant informationand provide opportunity to price the product and sell through every ticket tothe last minute of the show.

Mark Wienkas – TheGoldman Sachs Group, Inc.

So recently a lot of states have changed there ticketinglaws which limit the restrictions on reselling so I guess with those changesyou are contemplating all of that. And,then I guess what is the reason? Whywould the customer that would today choose to go and sell there ticket on StubHub choose to instead go to Live Nation? Can you force that transaction or no?

Nathan Hubbard

I think it is largely about efficiency for them. Because we have the primary ticketing systemwe take the delivery mechanism out of the equation and put it in the hands ofthe consumer, we can cancel a bar code and reissue it immediately. Not only do we kind of guarantee the officialnature of the ticket because we see this ticket coming both in and then reissuingit. We make that immediacy of, “I paidfor it and it is in my hand,” now available for the customer.

Mark Wienkas – TheGoldman Sachs Group, Inc.

The fees are generally consistent?

Michael Rapino

Yes.

Mark Wienkas – TheGoldman Sachs Group, Inc.

Sorry, one last follow-up. On Slide 17 you talked about the incremental initial hit to EBITDA in2008 and then the bump in 2009. Is thatto read the bump in 2009 at $15 million or $30 million? This looks to the baseline forecast such thatif 2008 core EBITDA were, lets pick a number, index it at 100 that it would beinstead 85 and then the next year the bump of 15 wouldn’t just take it to 100it would be 115. That is actually a $30million dollar incremental change.

[Leanne Markay]

The core numbers, this is based on just our 2006 numbers asa core so just applying that and saying.

Mark Wienkas – TheGoldman Sachs Group, Inc.

Applying the 2006 base to each one of those?

[Leanne Markay]

Correct. Exactly.

Operator

Our next question comes from John Blackledge of J.P. Morgan.

John Blackledge –J.P. Morgan Securities, Inc.

Just wondering the $25 million in incremental EBITDA is fullybloated when you have all of your ticketing, he Ticketmaster stuff is over with. And then looking at he incrementalopportunity of that other $25 million is the market venues, is that the biggestpart of it and can you start to negotiate or can you of the 15% of theTicketmaster tickets that come up on an annual basis can we start to see someimpact in 2009? And then just wonderingwhat the annual maintenance cap ex is going to be?

Nathan Hubbard

Let me answer your question about some of the ancillary. Forus I think the largest components are sponsorship. Certainly the third party opportunity we’lllook at as being large. We do thinkthere is opportunity in 2009 and as we said today we are working with a numberof third party clients through our existing Music Today business, we arealready in discussions with other third party clients. So that is a very real and presentopportunity for us.

[Leanne Markay]

You can see at thebottom of Slide, John that we expect, there $30 million of incremental initialcap ex of hardware, a lot of hardware, mostly servers, computers and then $3million in the years that we don’t have to replace that hardware or software. So you’ll see reinvestment cycle over time aswe have to upgrade those platforms.

Operator

Our next question comes from Jeffrey Shelton of Natixis

Jeffrey Shelton –Natixis Bleichroeder

My first question is for Klaus if he is still on the line. I was curious as to what he felt the biggestchallenges in importing the ticketing platform to work with Live Nationare?

Klaus-PeterSchulenburg

We are used to set ups new ticketing platforms in countries,for example we change our complete ticketing platform in Germanyfrom 1999 to 2000 and we are very experienced in this. There was not one day where ticket sales werestopping and we have almost one year to set up everything and I don’t foreseeany major problems.

Jeffrey Shelton –Natixis Bleichroeder

Will you have a dedicated team supporting the platform.?

Klaus-PeterSchulenburg

Absolutely. We have already started to customize theplatform for USneeds and our software was sort of beneficial because our software is multilingual multi currency and as a user of our software you can easily set up yourown language like English, German, Spanish, French or whatever.

Jeffrey Shelton –Natixis Bleichroeder

Second Michael, the big argument with Ticketmaster was overdirect control over the customer obviously, you will have that now. Can you talk a little bit about whatincremental revenue and EBITDA you’ve seen from your limited efforts to date asto when you actually control the customer? And am I right in thinking that that $25 million in incremental does notinclude any of that.

Michael Rapino

Yes you are right. The fundamental strategy over the last year in soliciting a new partneror renewing with Ticketmaster was all about we needed to control ourtickets. Now that is a couple of foldsnot only control the consumer and have that database but just also control theallocation of the ticket which is the second part which is very important meaning,to date we do not have a lot of flexibility to take our tickets and give themto Target or Wal-Mart and let them sell them for a huge sponsorship premium tous. We think that not only the controlof the consumer and have a direct interaction is a great marketing efficiencyfor our core business.

Remember that we spend close to $100 million dollars a yearmarketing concerts around the world. Themarket is very efficient. We spend lessthan 5% online where 70% of our consumers are actually finding about ourconcerts online. We believe over time wewill shift a lot of our print and radio advertising to a much more efficientdirect consumer model which will help our core concert business become a muchmore affective marketing business. It isjust simple strategy that if Jimmy Buffet plays every year why wouldn’t we talkto those 300,000 consumers directly versus every year going with a radio andprint inefficient campaign to try and get 90% of those consumers back.

So, number one owing the consumer is just really all aboutunderstanding the consumer purchase pattern and having a continual dialogue togrow our core margin concert business. Two is sponsorship. Now we cancontrol our tickets and we can decide whether those tickets are sold at www.LiveNation.com or whether they aresold at Verizon. However, we want to usethose tickets to find the most efficient way to market and monetize them we cannow do. And three, the beautiful outcomeout of all that is because we are the largest promoter in the world we happento be the largest suppliers to venues in the world of content we instantlybecome a very legitimate number two or three largest ticketing company in theworld overnight with an attractive content proposition because we are fillingthese venues with shows every day of the week. That is the fragmentation and consolidation of the value chain happenswe happen to be standing as the largest content supplier in the world with over10,000 concerts and 1,000 artists with a now a number two or three ticketingplatform in the world. We think the realopportunity that we are being very conservative on is how quickly we will growour third party new business through new venues that have already expressedgreat interest in being in business with an alternative.

Jeffrey Shelton –Natixis Bleichroeder

On that topic Ticketmaster does lots of sports ticketing doyou envision competing on that front as a third party provider.

Michael Rapino

We believe that our customer, the venue operator who we havea very long and local relationship with and would probably be their number onebusiness partner in terms of bringing 20,30, 40 concerts a year to there venueand driving there bottom line. When weare in business with them we will be in business with there full ticketingplatform.

Operator

Our final question comes from David Joyce of Miller Tabak

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

A couple of questions – one, if you could please describethe kind of hurdles that would be involved in CTS moving into countries inwhich you currently don’t operate such as in Australia and other parts of Asia?secondly just on accounting housekeeping if you could describe the expensesinvolved that take you from revenue down to EBITDA and the difference between EBITDAand operating income if that is just thedepreciation on the Cap ex.

Nathan Hubbard

I will tackle the first part of your question which wasaround brining the platform into new markets. I think we are not concerned at all. The key hurdles are just around building the infrastructure and I think CTShas a proven track record of doing extremely well through various countriesthroughout Europe.

[Leanne Markay]

Then on how the P&L will shape up it will just berevenue and then we will have a variable licensing fee that we pay on a perticket basis and then we have our own fixed costs operating expenses for developingthe ticketing platform. Then in terms ofthe difference between adjusted OIBIDA and operating income it is justdepreciation amortization really and we put a reconciliation on the last Slideof the deck.

Operator

At this time there appear to be no further questions.

Michael Rapino

Thank you everybody.

Operator

Thank you this does conclude today’s teleconference. You may now disconnect from the call.

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