Officials at Live Nation (LYV) can’t figure out why investors have bailed on the company since it signed a $120 million deal with Madonna. But that’s easy enough to figure out: Live Nation keeps telling people the truth, which is that the concert business is a lousy one. From a long profile in the WSJ today:
According to a slide displayed during the investor conference, the company typically ekes out just 4% operating profit on revenue that last year totaled almost $3.7 billion. All of that profit comes from parking fees, sponsorships, beer sales and a cut of the service charges imposed by Ticketmaster, a unit of IAC/InterActiveCorp.
Live Nation was formerly a unit of Clear Channel, which had tried to beat the crappy economics of the concert business via scale: It rolled up a series of regional concert promoters in the hopes that it would have more leverage when negotiating with big acts.
That didn’t work, and the company has since been spun off. The new theory: Expand beyond the concert business and get into merchandising, ticketing, and music sales — hence the Madonna deal (and more big deals to come). But when your core strategy involves betting on the music business, hard to blame Wall Street for scepticism.
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