Investors rock out with Live Nation

NEW YORK Thu May 27, 2010 3:37pm EDT

Irving Azoff, Executive Chairman of Live Nation, participates in the ''The Business Behind the Show: Outlook for the Entertainment Industry'' panel at the 2010 Milken Institute Global Conference in Beverly Hills, California April 28, 2010. REUTERS/Phil McCarten

Irving Azoff, Executive Chairman of Live Nation, participates in the ''The Business Behind the Show: Outlook for the Entertainment Industry'' panel at the 2010 Milken Institute Global Conference in Beverly Hills, California April 28, 2010.

Credit: Reuters/Phil McCarten

Related Topics

NEW YORK (Reuters) - Legendary rock 'n' roll promoter Irving Azoff has been managing multimillionaire musicians from the Eagles to Christina Aguilera for much of his 44-year career.

Now the executive chairman of concert powerhouse Live Nation Entertainment (LYV.N) has to deal with multibillionaire hedge fund managers from the investing hall of fame.

Julian Robertson's Tiger Management, Stephen Mandel's Lone Pine Capital and Larry Robbins's Glenview Capital Management were among 30 of the largest equity-oriented hedge funds that bought shares of Live Nation in the first quarter, according to recent regulatory filings.

The company was one of the top additions to the portfolios of the "Smart Money" 30 in the period, according to data compiled by Thomson Reuters.

Investors are betting the January merger of Live Nation, the No. 1 concert promoter, and Ticketmaster, the leading ticketing company, sets up the company to control the fastest growing segment of the music business. While sales of recorded music decline, more and more of the industry's profits are coming from live shows.

"You have a dominant industry player in a live music market that's growing at around 10 percent annually, and the merger should generate some pretty significant synergies," said Brett Harriss, a portfolio manager at Gabelli & Co, which owns Live Nation shares.

By comparison, music sales have declined 36 percent between 2000 and 2009.

The merger created a colossus that produced almost 22,000 concerts for 2,000 artists in 42 countries attended by more than 52 million people last year. The company books acts, sells tickets and owns or operates 142 venues ranging from the famed Fillmore in San Francisco to the House of Blues in Chicago and the Wembley Arena in London.

Azoff, who was running Ticketmaster before the merger, hammered out the deal with Live Nation President and Chief Executive Michael Rapino. Eighteen years younger than Azoff and a dealmaker in his own right, Rapino retained the CEO title at the combined company.

The merger was bitterly contested by smaller rivals, who complained it would be almost impossible to match Live Nation's huge network of venues, ticket sales agents and contracts to promote bands. But those advantages are exactly what make Live Nation attractive to investors.

Live Nation may have become a hedge fund favorite when media mogul John Malone's Liberty Media LINTA.O made a move in late January to more than double its 14.6 percent stake in the company. Liberty bid $12 a share, a 14.2 percent premium on the closing stock price of Jan 25.

Malone, considered a pioneer of the cable television industry and one of the most far-sighted media investors, attracted a host of imitators, who until them seemed to have missed the Live Nation story, analysts said.

That resulted in Live Nation shares climbing well past $12 and making Malone's bid unappealing. Liberty was able to buy just 311,000 more shares.

The Malone bid seemed to create a $12 floor for the stock, said Miller Tabak analyst David Joyce.

"Investors saw the tender offer as a seal of approval of what this combined entity could mean because of the unique. irreplaceable nature of the assets and business model," said Joyce.

The analyst, who rates Live Nation a "buy," said the company is in a strong position to benefit from being a market leader.

"It's a very healthy concert season coming up and there's expectation for growth in attendee spending as we come out of recession," said Joyce.

VERTICAL BENEFITS

While Live Nation's results should get a jolt in the short run from merger cost savings, seizing the potential benefits of vertical integration will make or break the company in the long run, analysts said.

In particular, because it manages the artists, runs the live venues, promotes the concerts and sells the tickets, Live Nation could more easily introduce key initiatives like dynamic pricing and paperless tickets.

Dynamic pricing would allow Live Nation to more effectively price tickets at venues based on demand and desirability in the same way that airlines currently charge for seats. Prices for the very best seats could be higher, and prices of slow-selling, cheaper seats could be cut even more to fill a venue making more money off concessions like parking and drinks.

Paperless tickets could undermine the secondary ticketing business if individuals can no longer resell their paper tickets without going back through the Live Nation technology platform.

Combined, the two innovations could give Live Nation a huge say in the pricing of secondary tickets and significantly reduce the influence of ticket scalpers.

Still, the industry has been trying to edge out scalpers and modernize ticket sales for years.

"While the benefits of dynamic ticket pricing have been well documented both in terms of blunting the premiums on the secondary market and clearing unsold primary market inventory, to date the roll-out has been slow," said Benjamin Mogil, an analyst at Thomas Weisel who rates Live Nation "overweight."

Indeed, there is still concern among more bearish investors about whether Live Nation management can pull it off. Before the merger, neither Live Nation nor Ticketmaster was always able to deliver on promises to investors, according to analysts who have covered both companies.

"The bear case is that these synergies are not realized," said Gabelli's Harriss. "You really need all these moving parts to work together for this merger to work."

(Reporting by Yinka Adegoke; additional reporting by Aaron Pressman; editing by John Wallace and Derek Caney)

FILED UNDER: