In 2006, all eyes will be on Live Nation, the recently named spin-off of Clear Channel Entertainment's live division (previously referred to as 'Spinco'). Insiders are interested to see how the latest surprise move from the 800-pound concert gorilla will play out. Six years after Clear Channel Communications bought Robert F.X. Sillerman's SFX for $4.5 billion, amassing the largest collection of U.S. promoters under one roof in history, the company has signaled that it is prepping something of an about-face.
While the company is and will likely continue to be an industry leader with more than $1.3 billion in grosses in 2004 for the $3 billion market (according to Clear Channel), with House of Blues on the rebound and AEG Live coming on strong, industry leaders say the change is necessary to keep a leading position and to fit in with the rapidly changing market. Live Nation is headed by 36-year-old Michael Rapino, who took over the company in the summer of 2004 with big ideas about refashioning the industry's biggest name and largest target.
He's the fifth leader of the company since the SFX deal in 2000 and came in with a history in the business thanks to his work with Canadian promoter Michael Cohl (Rolling Stones) in the 1990s. One of the first things Rapino did upon taking the reins at CCE was restore the historic names of the local promoters that had been swallowed up by SFX and Clear Channel, such as Avalon and PACE Concerts.
Rapino also reorganized the music division by breaking the talent buying/promotion and venue operations into different units. In what was perhaps his most controversial move, he set aside millions in potential revenue by rolling back some of the facility fees that had become an easy target for cash-starved concertgoers. He also promised to change the way artists are paid. Historically, promoters paid artists an upfront fee against future revenue. Assuming a full house, that fee was typically 80-90 percent of the box office receipts and was guaranteed, regardless how many tickets were sold.
Previously, Clear Channel paid artists large fees to secure their tours and raised ticket prices to make up the difference, a policy that didn't sit well with consumers.
Rapino vowed to negotiate with artists reps to lower or eliminate the upfront fee, except in the case of huge acts. Instead, the artists would get all box-office revenue and Clear Channel would make its money on concessions, parking and other ancillary revenue. In late December, the company announced the Live Nation name and announced plans to issue shares on Dec. 21, giving stockholders one share of Live Nation stock for every eight Clear Channel Communications shares they owned by Dec. 14.
The company is in the process of moving its headquarters from Houston to Beverly Hills, Calif., and is expected to lay off about 10 percent of its workforce, approximately 400 people as it pares its 14 divisions down to six core businesses.
One of that pared workforce, Patrick Leahy, who left after 16 years to form 409 Management and Consulting, thinks change is good. Even at his high-ranking, long-term status at CCE, he does not know what direction CCE will take.
“The masterplanning has been pretty close to the vest,” Leahy said. “It could come down to more autonomy on a local level, one rumor that has been floated, he said, but bottom line, it comes down to a lot of bright, smart people that work in that company focused on figuring out how to be more successful. CCE is a pretty successful company, not free from issues a lot of companies have, but at the end of the day it's a successful business and I suspect it will continue to be.”
Tom Consolo of Azoff Music Mgmt. (Eagles, Christina Aguilera, Van Halen), thinks the direction Rapino is headed in is a good one that could help restore the balance of power. “The fact that the concert division is spinning away into its own entity will bring more focus to what needs to be done to promote shows,” he said. “Their communication is improved and with Rapino in place I think it will really make this whole idea work. I'm enthused by it.”
As long as Rapino follows through on his promises to work with any promoter that wants to do business with Live Nation, and they also stick to their mandate to have deals be more transparent and friendly and they focus on promoting shows the way they used to, it will be better for the industry and for Clear Channel. “One of big drawbacks of the buying that went on with SFX and then Clear Channel buying SFX is that it was good for certain people making a lot of money, but not good for the industry as a whole,” Consolo said. “One of the biggest negative results of that whole merger was the lack of focus on guys who were tremendous promoters and entrepreneurs in building their business in markets out of nothing and being great marketers. When they were bought up by Clear Channel, they lost some of their focus and it became more about money and less about promoting.”
Consolo saw the return of the promoters names as a positive step, which brought a recognizable face back to the customer in local markets. “Everyone knows how to do sound, lights, catering and utilities, that's static,” Consolo said. “What's the wild card is promoting and building acts again. And talking to managers, record companies and radio stations to build the acts of the future.”
In light of CCE's reputation for buying whole tours and freezing locals out, Russ Cline of Kansas City, Mo.'s RCA Group (Winter X-Games, National Lacrosse League) thinks the biggest key to Live Nation?s success or failure is acting globally but thinking locally. “What we've found is that it's very difficult to sell product if you don't do it well regionally,” said Cline. “That's why local promoters have been so successful, because they could touch sponsors, venues and the local media. By getting back in touch with local markets, they will have a better chance.”
What works in Kansas City, he said, might not work in Tampa, so it's better to have the feeling of a local promoter who has his hands on the market and knows that if he brings an act through too early he might lose money as opposed to waiting until they mature and making more money on the show later.
“I think there will be more collaboration because the emphasis won't be on trying to own the space, but on being profitable in the space.” Others aren't so sure that Clear Channel will be able to get Live Nation out from under the mountain of debt CCE accumulated through years of red ink. “If they're well capitalized, it could be something, but when Spinco walked away from Clear Channel they did it with a fair amount of debt,” said Paul Beard, managing director of Fort Worth, Texas, Bass Hall. “What assets do they have? Until the market corroborates what the value of their assets is, it's hard to say. They've obviously made some inroads into a lot of markets, but the question is will that create inroads into profitability,” While the Clear Channel model of tying radio, outdoor advertising, promotion and venue management together didn't work as expected, James Goss, Media and Entertainment analyst for Barrington Research, said the new structure shows more promise and could free Live Nation from the negative associations many ascribed to the old company.
“I think that since the value they're able to divest the company at is less than the value that they bought the company for, a couple of things are accomplished,” Goss said. “They'll be able to have a favorable tax situation by recognizing that loss, but also freeing one company from another will take away all those perceived issues they dealt with and hopefully position them to pursue their business on a more solid basis without any of those challenges.”
By moving to more talent-rich Los Angeles and focusing their business on fewer divisions, he thinks the company may now have the opportunity to realize the operations potential that the Sillerman roll-up never took advantage of because it never fully reached the operational stage.
“Perhaps the new company will be more focused on the business and will be able to take advantage of having a nationwide group of venues and the ability to conduct concerts on a broad basis.”
But with 2005 revenues of more than $2.7 billion and nominal profits of $138 million through three quarters, Goss said Spinco/Live Nation will have to improve on its 5 percent margin, which lagged far behind the 39 percent margin of Clear Channels radio group or outdoor advertising?s 28 percent. Though Goss did not think financing was an immediate issue, Allen Becker, founder of PACE Concerts, wondered if the company?s historic debt would hamper Live Nation.
“They will need some source of funding and if they get that funding they will need assets,” Becker said. “And if their assets are loaded down with debt, I don't know where you go from there.”
The biggest question in Becker's mind is whether a company in the live entertainment business as we know it is a good product for a public company. “Can a live entertainment company really be a solid public entity in a business with so many unknowns,” he wondered. Bands have to travel; Broadway shows have to be good and be hits; how do you predict that? “These are the same questions there were when Clear Channel owned them, but there were other reasons for them to own it, because it matched and supported their radio stations, so it didn't have to stand on its own.”
One promoter who said he doesn't hold out hope that the new boss will be much different from the old boss is JAM Productions Jerry Mickelson. “The longtime Chicago promoter (who is awaiting a damages trial following a successful lawsuit against Clear Channel's motor sports business),” said Spinco “happens to be the right term” for what the San Antonio-based media giant is doing. “Clear Channel wants their spin on this that it's a positive thing,” said Mickelson.
“A spin-off like this wouldn't be occurring if in fact the entertainment division was working on all cylinders for the benefit of the entirety of Clear Channel Communications. Clear Channel's spin is that this will make for a more nimble, quicker company. But their business model and philosophy hasn?t worked and unless they realize that, nothing will change and they'll continue to be the business that will lose money.”
Mickelson said that if, as Live Nation's Rapino has promised, the new company will be opening their venues up to other promoters, he isn't aware of it yet and hasn't gotten the call or an olive branch.
“I've heard them say it and if they're going to do that, they surely haven't contacted us and they're already booking next summer.” Becker also doubted the promise to work with other promoters, speculating that the business will continue to operate on the basis of locking down tour and facility ownership.
“And I don't know if those two areas of endeavor even go side-by-side,” he said. “I'm not sure if 10 years from now we will have facility owners leasing to tour presenters rather than facility owners being tour presenters themselves.”
While competitors and partners wait to see what the new incarnation of Live Nation will look like, they are left wondering how, or if, they will fit in. Brad Parsons, director of the ArenaNetwork, said he wasn't willing to speculate on how the new company will operate, but could only hope, that they'll keep doing shows in our venues and maybe figure out ways to do some new stuff. Parsons has known Rapino for years and said he has the utmost confidence that the Live Nation boss has a good plan in place, but like everyone else, he's waiting to see if those are new ideas, or business as usual under a new banner.
Interviewed for this story: Allen Becker (713) 693-8600; Brad Parsons, (818) 707-8421; Jerry Mickelson, (312) 266-6262; Tom Consolo, (310) 209-3100; Russ Cline, (913) 384-8920; Paul Beard, (817) 212-4201; James Goss (312) 634-6355; Patrick Leahy, (513) 677-2486