However, investors willing to bank on the selling power of their favorite artists under the Live Nation banner may be rewarded with future capital gains despite near term operating losses and in-house turmoil. (Learn more about this long-run profitability measure in Zooming In On Net Operating Income.)
|
Artist
|
Approximate Deal Date
|
Stock Price at Time of Deal
|
|
Madonna
|
October 16, 2007
|
$21.50
|
|
U2
|
March 31, 2008
|
$12.24
|
|
Jay-Z
|
April 30, 2008
|
$13.79
|
|
Shakira
|
July 1, 2008
|
$10.01
|
|
Nickelback
|
July 8, 2008
|
$10.69
|
|
-
|
-
|
- |
|
Recent Closing Price
|
Aug 6, 2008
|
$13.17
|
No Shortage of Talent
Subsequent deals for hip-hop star turned businessman and back again Jay-Z, Latin songstress Shakira, Irish rock band U2 and Canadian rockers Nickelback together represent a deep talent pool. Almost all of the artists mentioned have one or two existing album commitments to their current record labels before Artist Nation will be allowed to record any material. Critics who question whether the artists are past their prime may have already received their answer noting reports of The Rolling Stones "A Bigger Bang" Tour grossing over $550 million in August of last year.
Why Artists sign with Live Nation
The distribution of music has changed with technology and artists are eager to have centralized means of getting their content to fans. Artist Nation's services include merchandising, fan websites, artist ticketing, touring, publishing, media rights, event sponsorship and marketing.
Artist Nation is able to accomplish these tasks by acquiring established names in the business. For example at the end of last year Live Nation acquired Anthill Trading, a global merchandising company that already has relationships with artist ranging from AC/DC to John Legend and The Rolling Stones. Artist Nation also acquired Musictoday, a market leader in connecting artist to fans through various media outlets and the concert promotion company run by Michael Cohl. In June Cohl decided to leave the Live Nation’s board of directors apparently over the direction of Artist Nation’s rapid fire artist acquisitions.
Focusing on the Core
For the first quarter of 2008 Live Nation revenue increased 22% from the previous year to $636 million. Live Nation produced 2,100 events during the quarter in the U.S. with artist including the Jonas Brother, Van Halen and Jay-Z with Mary J. Blige. Due mainly to higher operating expenses Live Nation reported an operating loss of $38 million. The company is scheduled to report earnings after market close August 7, 2008.
As part of its stated three-year plan to focus on its core business interests, its theatrical businesses have been sold.
Final Thoughts
As in stock selection, Live Nation is also doing the best it can to pick a well diversified array of blue chip artists to help lead the company into a future of desirable live entertainment. Other live entertainment stocks to follow include World Wrestling Entertainment (NYSE:WWE) and Carnival (NYSE:CCL). WWE reported Q2 earnings of $7 million on August 5, 2008. That is 10 cents per share, which is 2 cents below analysts expectations. WWE shares are up 3.5% on the year (S&P500 is down 12.5% in the same time) and they have a 9.4% dividend yield but a payout ratio of 137%.
In a slowing economy it seems like there could be better places to put your money than the entertainment industry. As disposable income is reduced, these types of sectors should see reduced sales. Live Nation seems to be looking long term with its string of recent acquisitions. Evidently, it's attempting to buy low and sell high, too.
Find out how to ride a bear market in Recession-Proof Your Portfolio.
