Live Nation Giving Artists a Paycut in 2011

Touring isn’t as lucrative as it was before.

This is what Live Nation, the world’s premier event promoter and ticketing company, stressed during the Bank of America Merill Lynch Media, Communications and Entertainment Conference yesterday, September 16.  Michael Rapino, CEO and President of Live Nation, addressed investors during the conference and explained point by point why the events promoter giant is planning to take drastic measures to cut their losses and gain more in the coming year.

First among their list of drastic measures is paying artists, including their managers and agents, less than what they are used to.  The extent of the cut or which artists will be affected was not mentioned by Rapino but it was clear that what transpired this year in the touring industry was something the company did not expect.  “We all thought that the theory that concerts are recession proof is true,” Rapino said, “Going into 2010, we didn’t expect the consumer pull back that happened,” he added, referring to the sudden decline in ticket sales this year.  It was sudden and unexpected because in 2009, the company still managed to rake in the big figures and pay its artists their usual quotes despite the peak of the recession that year.

However for 2010, Live Nation was shelling out more money for its artists than what it could rake in from ticket sales.  Fewer people are purchasing tickets this year not only because the tail effect of the recession is still apparent but because ticket prices were way too costly for fans in these trying times, while artists continue to tour without being affected by the dip of the economy, which creates the unbalance.  Analyst Ben Mogil from Stifel, Nicolas and Co. recently gave Live Nation (NYSE: LYV) a lower stock rating for the abovementioned reasons.  As such, some of the company’s stocks had to be sold at a lower price to keep the company alive.

But Rapino remains to be optimistic for the coming year, “2011 will be less about growing market share and more about profitability,” he said.

He did admit that negotiations with certain artists have begun this year with regards to the lower pay cut for 2011, and while some artists have pulled out their accounts from the company, Rapino says that many of their signed artists will stick by them through 2011 despite the new and much lower paying scheme.  By focusing on higher profit shows, meaning big-name artists performing in arena sized crowds and venues, the company can make room for mid-range artists for more intimate set performances.  Rapino considers this as a win-win and practical solution for the company and touring artists.

Of course the idea of lesser pay would not be welcomed by artists with open arms, but Live Nation still has other solutions up its sleeve.

Lowering the cost of ticket prices is naturally, the backbone of Live Nation’s austerity program for 2011.  And not only does this measure attract more consumers which in turn will attract more investors, it will also mean more sponsorships, especially for its sister company, Ticketmaster which is the third biggest e-commerce company and the nation’s leading online ticketing company at present.  Live Nation is looking to expand Ticketmaster’s domain, from selling solely show tickets, which accounts for the latter’s $8 billion worth of yearly transactions, to offering artists’ merchandise like shirts, memorabilia and other tangibles through the addition of an online shopping cart.

The shopping cart, according to Rapino, will not only increase Ticketmaster’s sales one to ten-fold, but will also improve customer transaction experience.  “We should be like Amazon.com…Our belief from day one was that in music, to survive we couldn’t just be a ticket company or promoter, we had to be an e-retail, front-door marketing company,” Rapino explained.  To further improve customer experience, the company is also planning to set-up hotel and airline reservation facilities directly via Ticketmaster to go with the out-of-town concert tickets they wish to purchase.  This measure can be easily actualized or leveraged considering that Ticketmaster accommodates countless advertisements from tourism based establishments like hotels, airlines and even restaurants.

The company is also looking to cut costs by slashing the number of its marketing affiliates – thus, decreasing the efflux of money amounting to $15 to $20 million towards these – and by partnering instead with IT giant, Apple and its social network, Ping to expand its reach to consumers.  The same marketing strategy is being applied today by numerous companies through social networking sites like Facebook, among others.

Speaking of expanding its reach, Live Nation is also looking into expanding its artist base with the help of Front Line Management, a division of Live Nation, by signing acts from European countries like Spain and France and by tapping the highly potential South American concert market as well.