Live Nation is forecasting a $25 million increase in EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) once it installs its own ticketing system, and the concert promoter calculates that through sponsorships that figure will double.
The truly uncharted territory, however, is the secondary market, in which Live Nation expects to become an active participant. Once its ticketing system goes online in 2009, the company will essentially be in line to profit from the initial sale of a ticket and then from its resale.
“The fundamental strategy is that we need to control our tickets, control the allocation,” Live Nation CEO Michael Rapino said in a conference call Friday with analysts and investors. “To date, we don’t have a lot of flexibility.”
Live Nation struck a deal last month with the German ticket company CTS to create an inhouse ticketing service that would replace the promoter’s deal with Ticketmaster, which expires at the end of the year.
Under the new, 10-year accord, CTS, which handles all of the software and ticketing infrastructure, will receive a licensing fee for every ticket sold in North America. In Europe, deals are structured slightly differently in each country; CTS and Live Nation expect to take their ticketing operation into Mexico and South America in the near future.
Rapino, joined on the call by CTS Eventim CEO Klaus-Peter Schulenberg and other Live Nation execs, said the new ticketing operation will increase profit margins on individual concerts, open sponsorship opportunities and allow the possibility of dynamic pricing, a strategy used by airlines and hotels. With the system, the promoter will be able to alter ticket prices up until showtime.
It also puts more consumer information in the hands of the promoter, and Rapino projects a time when Internet marketing and advertising will be the dominant source of information about concerts. That will most likely cut into radio and print advertising.
A major change for the consumer, beyond a bank of tickets for various prices on a single website, may actually become the point of purchase. While Live Nation intends to sell a significant number of tickets from its website, which currently specializes in premium packages, as well as over the phone, it will also be able to put tickets in the hands of outlets sponsoring a tour or artist.
If Wal-Mart, for example, sponsors a tour, it is quite possible tickets could be sold at the chain; Verizon, to use a viral option, could sell tickets to its phone customers on an exclusive basis.
To implement the system, Live Nation is budgeting $20 million in capital expenditures, mostly on IT, and projecting a $15 million drag on 2008 revenue and a rise of $15 million in 2009, followed by at least a $25 million spike in 2010. Company based its projections on the current Ticketmaster setup in which the company pockets $2 to $2.25 per ticket in service fees.
The company believes there is $75 million to $125 million in fee opportunities based on the number of tickets it controlled in 2006: about 14 million in North America and 7 million internationally.
Beyond that, Live Nation hopes to use its concert-biz relationships with the owners of buildings it does not control to bulk up its ticketing business, adding them as clients for non-concert events when existing agreements expire.
CTS, founded in 1989, had $500 million in revenue in 2006 and sold 60 million tickets. Its client base is about 1,000 promoters and 600 venues plus 200 theater and opera houses plus sports teams. In addition, it sold 4 million tickets to the World Cup last year.