The MBW Review is where we aim our microscope towards some of the music biz’s biggest recent goings-on. This time, we listen through – and cogitate over – comments made by Live Nation CEO, Michael Rapino, last week. The MBW Review is supported by Instrumental.
There was an oddly muted sense of anticipation surrounding the numbers in Live Nation’s Q1 2020 results, which arrived last Thursday (May 7).
We all knew the headline figures were going to be bruising; this is a company, after all, that produced over 40,000 events around the world for more than 5,000 artists in 2019 – an average of nearly 110 shows every single day.
The bigger question mark surrounded what Live Nation might reveal about its plans for the future – both in terms of weathering the damage being done to its business by the COVID-19 pandemic, and when/how it hopes to return to any sense of normalcy.
So it was no great shock that, on a constant currency basis, Live Nation’s revenues fell significantly in Q1 (the three months to end of March) by 20%. The firm’s Concerts quarterly revenues were particularly affected, down 24% YoY at constant currency to $993.4m.
Following the announcement of Live Nation’s Q1 2020 results, the firm’s CEO and President, Michael Rapino, addressed investors and analysts on an earnings call, and gave some interesting updates about Live Nation’s health as a business today – and how we can expect the crisis-hit business to evolve in the coming months.
Here’s five things we learned…
1. Live Nation believes 2021 could be business as usual
Michael Rapino got this out of the way early.
Striking a positive tone in his opening address on the earnings call, Rapino noted that Live Nation considers its top priority right now to be the “health and safety of our employees, fans and artists”.
However, Rapino also reiterated the fact that 90% of fans to Live Nation concerts that have been rescheduled have so far held on to their tickets despite refunds being available. The Canadian exec said his company believes that this 90% retention rate is “the clearest demonstration of pent-up demand that will enable us to quickly start concerts back up”.
“We believe 2021 can return to show volume and fan attendance at levels consistent with what we’ve seen in recent years.”
Michael Rapino, Live Nation
He added: “Looking a bit further out, given that 80% of shows are rescheduled rather than canceled, and as noted, almost all fans are holding on to their tickets, we believe 2021 can return to show volume and fan attendance at levels consistent with what we’ve seen in recent years.”
Rapino further revealed that Live Nation recently ran a survey of 8,000 fans across North America regarding a post-COVID live music scene, with 85% stating they want increased cleaning and sanitizing of the venues and ready access to hand sanitizing stations.
That being true, Rapino added that Live Nation expects to have “additional safety protocols in place” from now on, including reduced capacity, as well as “touchless concessions and creative ways to apply our digital ticketing technology”.
He was careful not to be too gung-ho about re-opening live shows either, commenting: “Our next priority is planning for the reopening of concerts when the time is right. First and foremost, we will let the facts and science tell us when we should start putting on concerts again. We are working with government at federal and state levels in the US and across all markets in building plans that fit with their reopening phases.”
2. By cutting costs by $50m per month, Live Nation has enough cash to see it through to the end of the year
As part of this effort, Michael Rapino himself agreed to sacrifice his $3m-a-year basic salary, until the point that the firm’s management deem it fiscally sensible for him to start getting paid again.
Other implemented cost-cutting measures included the furloughing of staff, plus hiring freezes and putting a stop on marketing spend.
This cost-cutting exercise went so smoothly, said Live Nation on Thursday, that the firm has now decided to up its annual target, from $500m to $600m – the equivalent of $50m in cost savings every month.
“We believe that our free cash balance, together with our undrawn debt capacity, gives us sufficient liquidity to maintain critical operations for the remainder of the year, even in the extreme scenario that no major shows play off.”
Michael Rapino, Live NAtion
Rapino noted that as of the end of March 2020, Live Nation had a total cash/equivalents pile of $3.3bn, which included free cash of $817m. Thanks to a recently amended credit agreement, the firm also has an additional $963m of available debt.
The final piece of Live Nation’s liquidity stack is $2bn in “event-related deferred revenue” (correct as of March 31), which is essentially money that fans have paid for concerts that haven’t yet taken place.
The fragility connected to that $2bn for Live Nation, of course, is that every time a customer asks for a refund, it reduces. That said, Rapino noted last week that total refunds to rescheduled shows are currently “running somewhere between a 5% and 10% refund rate” on a global basis, and are “much lower in Europe”.
Importantly, even discounting that $2bn “event-related deferred revenue” figure, Rapino said: “We believe that our free cash balance of $817m, together with our $963m of undrawn debt capacity, gives us sufficient liquidity to maintain critical operations for the remainder of the year, even in the extreme scenario that no major shows play off [in 2020].”
That’s actually quite a conservative forecast. Speaking on the same earnings call, Live Nation President Joe Berchtold confirmed that the company now estimates an “operational cash burn rate of approximately $150m per month for the rest of the year, prior to interest expense, debt payments, capital expenditures and other nonoperational items”.
A $150m-per-month burn rate would mean the $1.78bn pile cited by Rapino ($817m cash plus $963m undrawn debt) will last Live Nation between 11 and 12 months – i.e. to the end of Q1 2021.
Don’t forget that Live Nation’s main income source might not be shut off completely this year, either: the firm can still put tickets on sale, and pull in the resultant cash, for new show scheduled for next year.
3) Rapino’s big Mexican deal is off… for now
Last year, Live Nation agreed a deal that promised to further tip the balance of global power in the live music industry.
According to an SEC filing from summer 2019, Live Nation entered into a definitive agreement to acquire 51% of OCESA – the biggest concert promoter in Latin America – for a purchase price of MXN $8.835bn (approx $462m), with MXN $7.93bn (approx $414m) to be paid in cash.
It was expected that this deal would be completed before the end of June this year, after being held up by regulators.
It transpires that Mexico’s regulators actually approved it in April. However, the deal won’t be going ahead… for now.
“We want to delay the cash payment of the deal until we both know how and when we’re on the other side of this crisis. So that’s the intent.”
Rapino said last week that “we are, long term, still bullish on [OCESA’s] business and ours”, adding: “We want to be in business with OCESA and get the deal done.”
However, he added: “I’m not looking to take on any losses from Mexico while they’re going through their six or eight months of business downturn [due to COVID]… Ideally, we want to get the deal done. We want to delay the cash payment of the deal until we both know how and when we’re on the other side of this crisis. So that’s the intent.”
Of course, at the time, Rapino probably wouldn’t have been delighted to have the deal held up by Mexican regulators at the end of last year. Now, that decision has helped his firm’s emergency cash reserves no end.
4) Live Nation is going to “dabble” with fan-less concerts, and reduced capacity shows
It’s usually the stuff of nightmares for an artist. They take to the stage, production cranked up to eleven, mind-blowing show rehearsed within an inch of its life and… no-one shows up.
This may soon be the lucrative reality – as Live Nation navigates the hinterland between the COVID shutdown and a post-Coronavirus world.
Rapino was asked by analyst Khoa Ngo from Jefferies for a specific blueprint of Live Nation’s reopening strategies, and the response he gave was, in some senses, surprising.
“It’s important for us to keep doing drive-in concerts,” said Rapino, of the vintage cinema-style, in-car shows that have begun to roll-out in Europe.
“We’re going to test and roll out, which we’re having some success with, fan-less concerts, which have great broadcast opportunities.”
He then added: “We’re going to test and roll out, which we’re having some success with, fan-less concerts, which have great broadcast opportunities; [and we’re going to] reduce capacity of [concerts] where it could be outdoors, could be in a theater, it could be in a large stadium floor, where there’s enough room to be safe.”
A fan-less concert, then; a show, played by an artist you love, on a real stage, but broadcast into your home. Interested in that kind of thing? Rapino says advertisers certainly are.
He said fan-less concerts are “really important for our sponsorship business” and would allow Live Nation to “create great properties to keep all of our sponsors who have been amazing and sticking with us this year”.
Live Nation’s other baby-steps plan for a return to concerts, those reduced-capacity shows, don’t have to mean half-empty enormo-domes, noted Rapino.
“We’re going to go and reduce capacity shows because we can make the math work,” he said, adding: “There are a lot of great artists that maybe they can sell an arena out, but they’ll do 10 higher-end smaller theaters or clubs.”
5) Michael Rapino doesn’t think the power of live music is going anywhere
There’s been a few surveys emerging recently that, counter to Live Nation’s own data, suggest that as many as 45% of concert-goers won’t feel safe returning to shows until there’s a COVID-19 vaccine.
There’s a broader hypothesis linked to such worries too, of course: that, even with an available cure, the COVID pandemic is going to make society more cautious about spending time in large groups, for fear of physical damage.
When it comes to live music, Rapino is bullish in the face of such suggestions.
“We see that on a global basis that the show will be back – it’ll be back as big as ever from a consumer demand.”
“Since the early days [of humankind], people have been gathering around artists,” he said last week. “And we think long after we’re dead, people will gather around artists. It’s a communal, primal need.”
Added Rapino: “There was no acceleration in our industry of a decline [from COVID]. If anything, we were having a global acceleration [of live music] as emerging markets were becoming more sophisticated and opening up to the traditional concert.
“So we see that on a global basis that the show will be back – it’ll be back as big as ever from a consumer demand.”
Rapino did appear to suggest, however, that the live music industry will suffer business casualties because of the Coronavirus impact… but they won’t be at the world’s two biggest promoters.
“One of the realities is we and AEG are the two companies [in the live space] that can withstand this storm as long as it plays,” he said. “And we’re going to play for the long safety of business.
“So we’re not looking to rush and provoke any new spread of the virus. We want to do it smart, with local participation.”
