Music To The Street's Ears

Live Nation has lots of fans, but those old acts can't rock forever

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Mick Jagger sang an electrifying encore of (I Can't Get No) Satisfaction on Nov. 25, as The Rolling Stones wound down their A Bigger Bang World Tour in Vancouver, B.C. Plenty of people got satisfaction, though. None more so than the members of the band—and investors smart enough to snap up shares in music promotion company Live Nation Inc. (LYV ) It stands to pick up a nice chunk of change from the Stones tour, which grossed a record $437 million.

Thirteen months ago Live Nation belonged to radio behemoth Clear Channel Communications Inc. (CCU ) Back then it was the awkward stepchild Wall Street wanted booted from the nest. Shareholders felt the business, with its smaller margins, held back Clear Channel. As it turns out, the opposite may have been true: Live Nation shares have more than doubled, to about 22, since it went public in December, 2005. (Clear Channel, which still holds a 6% stake in Live Nation, is taking itself private.)

By some estimates, the spin-off could post an operating profit for 2006 of $188 million on $3.5 billion in revenues, mostly from ticket sales. Still, the Beverly Hills (Calif.) company's continued fortunes will depend at least partly on two things: the continued willingness of fans to pay $100-plus to see a top act and the ability of these aging arena jockeys—the Stones, Eagles, Madonna, U2—to keep rockin' and rollin' with their bum knees, high cholesterol, and domestic obligations. There aren't many bands these days with the power to pack in 3.5 million people over 15 months, as the Stones just did.

Ticket prices have been rising at an annual rate of 7% over the past five years. Great news for the Gods of Rock, who, like most bands, make more money touring than selling cds or singles. But ticket sales have fallen 3% annually over the past five years, and it doesn't take a scalper to know that you can raise prices only so far before fans start staying home and watching concert footage on YouTube (GOOG ).

So far revenues from tickets and merchandise have more than offset the drop in attendance. And, hey, Jagger may be 63, but a review of the 10 highest-grossing tours of the past six years shows the average age of each band's lead singer is about 48, according to Credit Suisse Group. "Although that could be considered high," writes analyst William B. Drewry, "we believe there is enough youth on the list to keep generating ticket sales over at least the next three to five years."

Still, Live Nation, which operates 172 venues around the world, isn't waiting around for big acts to become too creaky to tour. It is looking to bolster its business with smaller shows put on by younger bands. In 2006 it acquired rival House of Blues Entertainment, whose theaters and clubs seat fewer than 2,000. Thanks to a surge in smaller shows, the number of U.S. concerts held each year rose from 5,000 in 2000 to 14,000 in 2006, according to Goldman, Sachs & Co. (GS ) That's largely why Live Nation is focusing on music, shedding divisions promoting sports events, Las Vegas productions, and speaking tours. "At the end of the day," says ceo Michael Rapino, "we want to go much deeper into music at the local level."

At the same time, Live Nation is looking at selling underperforming arenas, focusing instead on the halls in the top 20 U.S. cities. Investors are also hopeful the company, the biggest of its kind, can use its leverage to negotiate better revenue-sharing deals with Ticketmaster (IACI )and food and beer vendor Aramark Corp. (RMK ) when contracts come up for renewal. Live Nation is also pushing beyond the U.S. In December it snapped up the largest concert promoter in Spain, and it's buying a stake in another promoter in France.

Ticket inflation has been driving the business, so sudden sticker shock on the part of fans could squeeze revenues and margins. Following such a robust 2006, the last thing Live Nation wants now is for Wall Street to pocket its Bic lighter and head for the exits. Rapino professes himself unfazed. "Music has been commoditized to a certain degree," he says. "But that fourth seat in the seventh row is unique." Even if the geezer on stage is old enough to be your grandfather.

By Tom Lowry



Gain in Live Nation's stock price since going public on Dec. 14, 2005

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