Live Nation Entertainment Inc (LYV) 2006 Q2 法說會逐字稿

Good morning. My name is Eduardo and I will be your conference facilitator today. At this time I would like to welcome everyone to the Live Nation second-quarter 2006 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer period. (OPERATOR INSTRUCTIONS). It is now my pleasure to turn the floor over to your host Michael Rapino, CEO and President. Sir, you may begin your conference.

Thank you and good morning everyone. Welcome to our second-quarter 2006 conference call. I'm joined here today by Alan Ridgeway, our Chief Financial Officer. I will begin today's call with a brief overview of the recent developments, provide some color on our progress in implementing our strategic plan. Alan will then provide a financial overview. And then we will take questions.

Before we begin, let me remind you that this morning's call will contain certain forward-looking statements that are subject to risks and uncertainties that could cause the actual results to differ. Please refer to our SEC filing for a description of risks and uncertainties that could impact the actual results.

During the quarter we continued to make significant progress in the implementation of our strategic plan. We view 2006 as a rebuilding year and believe we have made the right combination of investment and growth. We're pleased with the trends we are seeing in the third quarter which is the most important season in our industry and we're optimistic that we will gradually begin to witness the benefits of our investments as the year progresses.

Following is our three-prong strategy for transformation and growth. Our first strategy has been centered around defining and communicating our core business and strategy for growth. We have spent six months on the road engaging our employee base and communicating the newly defined vision mission values and roadmap for success. In defining our clear focus, we have reduced our business from 10 business lines into three concerts, venues and digital. We now have a clear mission with a reenergized employee base and new momentum.

We continue to divest noncore business lines. Last quarter we reported the sale of an interest in a couple of theatrical projects in Las Vegas and of our L.A.-based sports representation business. Since then we have divested more of the sports business, golf, football and tennis and are actively working on the disposal of other parts of this business.

We now are 90% done staffing our global corporate and music management team which we truly believe are the best in the business. With close to 100% turnover in senior management when we took over and the added public company demands, we are proud to assemble such a diverse and innovative team in the last six months.

Our second strategy is centered around growing our margins in North American live music. We are market leaders in the U.S. and growing the profitability of this business will continue to be driven by reducing costs, tighter concert and geography focus and revenue expansion. We have implemented new strategies this year to drive tighter focus on high margin markets, venues and shows and I am pleased with the progress we have seen to date.

And our third strategy is centered around expansion of our core live venue business. We believe there is great opportunity to continue to transform our company into a vertically integrated live music company capturing all live revenue generated between the artist and fan. We made several strategic acquisitions that will improve upon our ability to connect with the customers in areas where we see the greatest potential to drive growth.

Our business model is driven by three product lines, concerts, venues and digital. I will take you through each division right now and give you a summary. Our first division is the events/concerts. Our concert division is a critical link in our business model that feeds our distribution network with live entertainment. As such we are sharply focused on expanding our position as the global leader in this field. It involves three strategic initiatives.

The first initiative is centered around increasing our North American music margins. The key to this is better alignment of our events division, resources and activity around our venue utilization goals. As we discussed on our last call this year we provided all of our bookers with clear show volume and profit targets based on our venue network utilization. This marks a fundamental change in the way this business has historically been approached and brings a focus on driving a bench through our venue network.

I'm pleased to announce that we have achieved our targeted show volumes for the critical summer amphitheater season with the majority of the additional 200 plus shows coming through in the third quarter. This is certainly encouraging but it still remains to be seen how successful we are in bringing the fans to the actual shows in the third quarter.

Our second strategy is growing our concert vision to continue building on our high margin global touring and international concert network. During the quarter we announced the acquisition of a controlling interest in the touring division of Concert Productions International, a world leader in global touring. CPI significantly strengthens our position as a producer of global tours, has produced some of the largest grossing tours in history including the Rolling Stones, Pink Floyd and U2 and we will be promoting North American tours by the Rolling Stones, Barbra Streisand and the Who in the second half of this year.

As part of this transition, Michael Cohl, the founder of CPI, has joined our Board and will continue to oversee CPI. Michael is an industry visionary and has been a pioneer in the development of the world touring model. His leadership and experience will truly be invaluable as we implement our strategic plan.

We also announced Arthur Fogel recently entered into a long-term contract extension that will ensure he remains guiding the force of Live Nation for the next decade. Arthur retains his role as President of the next adventure, our global touring company, as well as named Chairman of Global Music. Arthur started his music career at CPI with Michael and is one of the top producers in the world. These talented managers truly provide Live Nation with two of the leaders in the global touring industry and we're fortunate to have them as part of our Live Nation management team.

Our third strategy in music is in the expansion centered around a live concert. During the second quarter we have taken significant steps in adding to the services that we are able to provide artists and fans therefore extending our relationship beyond the two-hour concert. A month ago we announced the acquisition of a majority stake in Trunk, a leader in high-end specialty artist merchandising, more than 600 exclusive licenses and some of the largest superstars in the world. This acquisition marked our entry into the artist merchandising arena.

Earlier this week we also announced we agreed to acquire a majority stake in Musictoday, a world leader in connecting artists directly with their fans through online fan clubs, merchandise and film and VIP packages and ticketing all centered around the tour. Along with Trunk, our investment in Musictoday will enable us to access additional revenue streams centered around the live music experience.

As we enter in the heart of the busiest period of the year, we are encouraged by the breadth of our tours and the overall momentum in our business. Polestar continues to view the 2006 concert season as healthy. We remain committed to delivering an unforgettable live experience for our customers. I can report that our revenues from North American amphitheater and arena shows in the first half of the year grew by 32%.

Our second division is our venue management division. This division includes our clubs, theaters, amphitheaters and arenas and is truly the cornerstone of our business model as we seek to maximize the value of our venue network. At our venues we are focused on improving the fan experience which will support our efforts to increase our per head revenue and profits. Bruce Eskowitz, newly appointed CEO of this division has spent the first half of 2006 building a world-class venue management team with most positions now filled.

This team has made great strides that review in our entire portfolio and identifying areas of growth for the future. These areas include one, increasing our per head revenue, our efforts with Aramark to improve product offerings point-of-sale and customer service are moving forward. We are seeing encouraging growth in spend per head at the amphitheaters events that have occurred to date and most importantly, we're receiving positive feedback from our customers.

Our second strategy in venues centers around new revenue streams from our 28,000 concerts. By transforming our venues into live digital studios, we remain on track to have more than 120 of our venues wired by year end. This initiative gives us the opportunity to expand our relationship with the artist and provides an avenue to tap new developing distribution channels with the unique and high-quality content that flows through our venues.

Our third initiative in our venue division is expanding our music network and diversifying into mid-sized venues. We have excelled this objective by an announcement on July 5, an agreement to acquire House of Blues for $350 million. We expect this to close by the end of the year subject to the usual closing conditions. We believe this is an attractive transition from both the strategic and financial standpoint. It is a highly complementary fit with our existing business segments. House of Blues will expand our mid-sized venue portfolio which is right in line with our venue expansion strategy and to strengthen geography footprint of our amphitheater network.

Due to confidentiality agreements, we are limited in the amount of financial details we can provide to the closing. However, we expect House of Blues to be accretive to earnings per share and free cash flow within the first year.

Our final strategy in venues involves our portfolio review. We have received initial results from CB Richard Ellis on their assessment of our venue portfolio. We're now in the process of overlaying this with our own assessment of the profitability and strategic importance of each venue to determine where we should make changes to our venue network. We expect to update at the end of the year.

Our third division is our digital distribution division. This encompasses our websites, database and ticketing. Our goal call for Live Nation.com is to provide fans with the leading concert ticket portal for live events. We have made substantial progress in this regard. We launched the beta version of Live Nation.com in June as we outlined our first quarter. We are uniting our 200 plus brands and websites under this now single Live Nation.com banner. The site is already the third largest event ticketing site in terms of unique visitors which is the foundation of building a leading global database of added music fans.

We believe the site provides the fastest route to locating and buying your tickets online and the number of people buying tickets through our site has already increased by 84% over prior years.

In summary, we have had a solid second quarter with results in line with our internal forecasts. To conclude, we are very pleased with the progress we're making in implementing our business strategy. We believe that this clear roadmap and focus will allow us to create a unique business model servicing artists, fans and corporations better than any live entertainment company in the world that position us for growth in the ever-changing global music business.

I'll now turn it over to Alan for a review of our financial results.

Thank you Michael. Good morning everyone. Before I begin, let me point out that we will refer to some non-GAAP measures in this presentation and in accordance with SEC Regulation G will provide a full reconciliation as to the most comparable GAAP measures in the earnings release. This release can also be found on LiveNation.com under the [investor] subsection.

I should also point out that on July 14, we filed an 8-K which contained 2005 results for both the quarters and full year under our new financial reporting segments which were adopted at the beginning of 2006. As already noted, these segments are events, venues and sponsorships and digital distribution as opposed to segments of Global Music and Global Theater reported in our last 10-K.

Turning to our financial results, our second quarter revenues increased by 4% to $768 million, the increase being primarily due to our event segment. Operating income for the quarter was $12 million, a decrease of $3 million compared to the $15 million in the second quarter of 2005. And our OIBDAN, defined as operating income before depreciation, amortization, non-cash compensation and gain on sale of operating assets amounted to $27 million, a decrease of $4 million compared to the same period in 2005. This decrease was principally driven by a reduced volume in quality of events in a few of our larger theatrical venues in North America and the U.K.

In addition, our free cash flow for the first six months which we define as net cash from operations less maintenance CapEx, improved by $131 million to an inflow of $180 million compared to the same period of '05. This improvement was driven by a combination of the improvement in net income and an increase in deferred income from advanced ticket sales for the third and fourth quarter events.

Turning to our segments, the event segment. For the fourth quarter, events revenue increased by -- sorry. For the quarter, events revenue increased by 3% to $594 million. This increase was a result of four factors. Firstly, the Werchter Festival in Belgium took place at the end of June as opposed to the beginning of July in 2005. Secondly, an increase in the number of events at our amphitheaters arising from the focus put on booking these shows that Michael mentioned earlier. Thirdly, an increase in the average attendance at our arena shows, this been largely driven by the Tim McGraw tour. And fourthly, an increase in the number and quality of tours presented by our Global Theater business being led by tours such as Spamalot moving out within (indiscernible).

The revenue growth from these items was then tempered by our decision to reduce the number of domestic music events held in third-party theaters as we focused on booking our own venues and cutting out unprofitable third-party club and theater bookings. In addition, we exited a number of unprofitable domestic festivals that we hosted in 2005 which consequently reduced our revenues for the quarter.

Although our revenues from events increased by $18 million, we experienced a $1.5 million decline in the operating income for events compared to the second quarter of 2005. This is due to a number of factors. Firstly, as many of you know, the increased amphitheater events act as a loss leader for our venue segment. So although events experienced a loss from these events, the venues segment makes a profit from the ancillaries. You'll see from our 2005 segment data that this continues as we move into the third quarter.

In addition, our operating income for the quarter was reduced as we recorded a reserve against a receivable due to the bankruptcy of one of our vendors. We also experienced increased costs as we invested in our marketing function and incurred incremental overheads from the 2005 Mean Fiddler acquisition, whose principal events, the Reading and Leeds festivals occur in the third quarter.

Finally the event segment shows a gain on sale of operating assets of $1.8 million. This arose from the sale of some of our theatrical interests in Las Vegas at the beginning of the quarter.

Moving to venues and sponsorship, venues and sponsorship revenue increased by $8 million or 6% to $147 million in the three months ended June 2006. This increase was largely due to the Mean Fiddler venues acquired during the third quarter of 2005 and the commencement in April of our 15-year operating agreement, the Wembley Arena in London.

Revenues also increased in our amphitheaters due to the increase in the number of events and the average attendance per event. As Michael mentioned earlier, we also experienced an increase in spend per head at our amphitheaters following the initiatives that Bruce and his team have implemented this year. However, this organic increase in operating income was offset by a reduction in revenue at some of our larger theatrical venues such as the Hilton Theater in New York and the Apollo Victoria in London where they have not had the same volume velocity of content as last year. We're optimistic that both of these venues will show improved results towards the end this year with the Grinch opening in New York in October and Wicked opening in London in September.

In addition, we experienced a decline in sponsorship revenue during the quarter due to some delays in signing contracts. We believe this to be just a timing issue and expect to make it up in the third quarter.

Operating income for venues and sponsorship decreased by $4 million in the quarter to $26 million. This was mainly due to the reduced activity in our theatrical venues and a reduction in sponsorship sales in the quarter. In addition, the quarter included increased costs from growing our global venue management team and higher depreciation expense resulting from the upgrade to our North American amphitheaters. Offsetting this decline were the improved operating results from our amphitheaters and our results from Mean Fiddler and Wembley.

Digital distribution. Revenues from our digital distribution segment increased by $3 million or 16% to $21 million. The revenues for this segment principally arise from ticket service charge rebates and therefore grow in line with our events and attendance for both promoted events and events within our own venues. The percentage increase in these revenues exceeds the reported growth for our event segment during the same period due to the events revenue increase being driven by events with higher service charges. I should also clarify that we book these revenues when the event occurs as opposed to when the ticket is sold.

Operating income for digital increased in the quarter by $1 million to $17 million. This was due to the additional ticket service charge rebates offset by the increased costs related to building the digital distribution management team and developing our online presence.

Turning to other operations. Other operations merely consist of our sports representation business and a number of businesses that were sold or terminated in 2005. Net revenue decreased by $1.9 million and operating losses decreased by $0.9 million in the quarter largely a result of the sale of part of our sports agency business earlier in the year.

Our corporate expenses in the quarter remained pretty flat as compared to the same quarter of 2005 at a total of $8 million. We are pleased to have held the line on corporate expenses in spite of incurring approximately $1 million of costs in the quarter due to being a public company. Our balance sheet remains very strong but our cash balance at the end of the quarter amounting to $603 million compared to $404 million in December 2005. And our debt including preferred stock remains at $407 million. This increase in cash has been largely driven by our advanced ticket sales for third and fourth quarter shows.

At June 30, our deferred revenue totaled $622 million in prepaid expenses which is largely artist deposits and other prepaid show costs for those third and fourth quarter shows, totaled $323 million. I would expect these balances and our cash to reduce over the course of the third quarter as we get to the end of our big season.

Maintenance CapEx for the half-year was $24 million, a reduction of $2 million from the maintenance spend in the first half of 2005. New venue expenditure reduced by $15 million in the first half of the year to $8 million. This is due to several venue developments being completed last year and our limiting these projects to 2006. Our exit from the Planet Hollywood venue in Las Vegas significantly reduced our planned venue spend for this year.

In regards to our stock repurchase program, since the program was authorized on December 22, we have acquired 3.4 million shares for a total price of $42.7 million. This equates to an average price of $12.65 per share. This is the same number of shares that we reported in our last earnings call.

Regarding guidance, as Michael explained, we're in the early stages of transformation of our business and having just implemented new segment reporting a number of initiatives across our businesses we will not be providing specific guidance at this time.

That concludes our prepared remarks and we would be happy to take your questions now. Operator?

(OPERATOR INSTRUCTIONS). David Joyce, Miller Tabak.

I have a few things. I know you can't talk about the financials of House of Blues. Is there anything else that you can disclose on Musictoday or Trunk in terms of percentage ownership and revenue? Also was wondering if there is an update on contract negotiations with Aramark and Ticketmaster? What sort of share arrangements do you have now with them?

I will start on the acquisition front. There is nothing more really we can say on the House of Blues other than what we have included in the initial press release. And we will obviously say more once that deal has been closed probably towards the end of this year. In terms of Trunk, I can say that we have acquired 51% of Trunk. We haven't announced the purchase price but I think you'll see in some press reports that their revenues are about $12 million. So you can see that is not a large acquisition.

And in terms of Musictoday again, there's not much more to say other than what we have put in the press release in terms of the financials. The deal hasn't closed yet and we would expect that to close toward the end of August.

Michael, do you want to talk about Aramark and Ticketmaster?

No update since our last call. We have been having great discussions with both of them about our long-term and future and really this summer we've just been focusing with both of them on our 2006 transformation in what we can do better in both our food and beverage per head and our effective selling of tickets. So that has been the summer conversation and we will get more serious about longer-term discussions in the fall time.

And in terms of free cash flow, will there be essentially offsetting effects in the third and fourth quarter of the deferred revenue is up or down?

That's right. Like I said, the free cash flow increases during the first half of the year as you build up ticket sales for those third quarter shows mainly. And so over the course of the third quarter as those shows play out and we start paying out artist fees and show costs, then that cash flow comes down.

And would you expect to have sufficient cash on hand for the House of Blues acquisition or would you plan on taking on debt for that?

We have sufficient cash and resources within our current credit facilities to fund the acquisition.

William Drewry, Credit Suisse.

Just two questions. First off, I jumped on just a minute late so I apologize if this is redundant but can you talk about, Michael, the Musictoday acquisition you announced the other day? I think that was for $100 million. Just any financial impact from that and what it means strategically?

And then the second question, just wondering if you guys are seeing continued increasing gas prices or energy costs affecting any of your attendance trends? Thanks.

Musictoday, I might have heard it wrong but I think you said $100 million purchase. Just to clarify, it is nowhere near that. I think we reported in one of the releases they have revenues of $100 million.

Right, right. That's what I meant.

Musictoday and Trunk are smaller acquisitions. Today they are building steps. One of the holes we have had in our live concert business for the last three or four years is when we acquire the rights to do a tour or a concert we pay a fairly high number for the rights to sell concert tickets. And over the last four or five years there have been a lot of boutique and other services that are bolted onto that concert that we haven't participated in. So it has always been our desire to build a more vertically integrated business and when we are soliciting an artist to do his concert or his tour and we have bought the rights to sell the concert tickets which is -- let's call it 90% of the deal -- we want to be able to at the same time has a menu and to be able to offer to also execute the merchandise, execute the fan club, the tour fan club, the VIP packages, any other of the services and products that are directly linked to that exact concert.

So Musictoday has really been the champion in creating this business model where they have over 300 artists where they would manage their websites from an e-commerce perspective and manage their direct relationship with the fan whether that is selling them T-shirts, selling them concert packages, VIP packages, fan club access to the tour, all products centered around the tour. And Musictoday being the leader in that business is a very complementary product that we can now add and offer to artists when we are soliciting their tour. And all of those product lines are higher margin than the concert ticket product. So it helps round out our full live concert portfolio of services.

So we will continue to build those in what we call our artist service division and Trunk being the start of our merchandising entry.

Sir, did that complete your question?

Yes. I was just wondering the other part, energy, rising gas prices. Any effect on the business?

You know, we can't say directly that we have felt it yet. We are always doing research, (indiscernible) interviews with our consumers and we will have a better feel in the next month as the shows, as we get our data back from the month of June and July. But we haven't heard it directly yet affecting our attendance.

Gordon Hodge, Thomas Weisel Partners.

Just a couple of things. One, I think you mentioned that sponsorship revenue might have been down at the venues. And I am just curious hearing or I guess hearing the ad market is pretty tough out there for traditional media but thought maybe yours being somewhat of an alternative media might be getting some of the pickup from the losses on TV or something. And I guess that may not be the case. So if you could just comment on that, that would be great.

And then in addition, I think Alan, you mentioned that there is timing issues obviously with the ticket sales revenue versus when you book revenue through the venues which is when the event occurs. It looks like based on your digital revenue if I'm interpreting this correctly, that the up 16% could be a bit of an indicator of how strong you think the third quarter might translate into at least in part. If you can just comment on that, it would be great. And also the deferred revenue being so high.

On the sponsorship revenue, it is we think there as being purely a timing thing. We book our sponsorship revenues when the contracts have been -- signed contracts have been received or if we get the cash before we will book it then. And then it is sort of across the season for the amphitheater sponsorship. And in the second quarter is merely the fact that we didn't get some of those contracts in in time to book in June. So we certainly believe that is going to come back in the third quarter and we are certainly not seeing any indications of sort of softening for the full year on that side.

And on the digital 16 revenues, I think you misunderstood. We book the service charge rebates at the same time that we record the show, so as the show plays out.

And that's different than ticket Ticketmaster I think -- don't they book when they --?

That's right. They will book when they actually sell (multiple speakers).

Okay. I didn't realize the distinction. Okay. That's what I was curious about. I guess last question, just curious if you can talk about pricing, ticket pricing trends? I think I don't remember if it Polestar or Billboard or somewhere I think is indicating pricing is up again this year. I'm just curious if that is something you are seeing as well?

We are definitely seeing -- I think in the last couple of years in the concert industry it is getting a bit more robust on all scalings which is the good part. I mean overall the industry still has some work to do to ensure that the entry cost to a concert is affordable. There are superstars who can demand great ticket prices and what we are really working with the artists on is making sure that the house has the proper scaling for all fans.

We do know that we typically don't have a hard time selling the front house the front part of the venue. That is where the avid fan is usually coming to the show and willing to pay the right price and auctions have been an example of that. We've been working hard with Ticketmaster in the last six months and we have really stepped up including auctions in a lot of our concerts now and we see that the 200, 300 tickets that we put on auctions that are getting premiums to 100% to 200% of the ticket price don't usually have a problem selling.

Where we need to work with the industry is from the middle to back part of the house, the casual fan, and we have been very aggressive in the summer on our amphitheaters on creating some national promotions to really drive that casual consumer and impulse buy and get them out to a show on a Friday night if there is an attractive reason to get out there.

So we have seen that the ticket prices that have gone up tend to be just the superstar artists who quite honestly are the easy part of the business. The artists that can demand the high ticket price usually doesn't have a problem selling out the house. Where we have our issues is the middle to lower end of the business where some of the artists have to be more sensitive to ticket prices and we have been working hard to ensure that we have multiple scalings, multiple promotions and multiple incentives to drive that back end of the house and some of the mid to lower performing artists to drive attendance.

Andy Baker, Cathay Financial.

A couple of questions. First, you announced a bunch of acquisitions recently. I was wondering if you could talk to us a little bit about how you feel about your balance sheet pro forma? I guess, given the cash is big the adjusted cash looking at the receivables and the deferred income, it's probably about $300 million -- it puts you in a net debt position of about $60 million before House of Blues. So past House of Blues, how much more incremental debt capacity do you think you have?

And then second, when you talk about the wiring of your 120 venues [floor], of 120 venues wired by the end of a year for streaming concerts, how should we be looking at the economics of concert streaming in terms of -- yes, you have the venue but there is also the intellectual property still belong to the artists and you have to negotiate a large part of that goes to them or how should we be looking at that?

I'll start on the first part. Like I said earlier on to David, the House of Blues acquisition can be funded out of our excess cash and the balances on our credit facility. That's obviously the substantial acquisition that we have done. The other acquisitions of Trunk and Musictoday are significantly smaller than that and also can be funded from those, from our current resources.

Does that put you in a position where okay all of a sudden you're at $450 million of net debt? I mean beyond that point do you still see -- how high up can you leverage your current operating cash flow do you think?

I think there is still room in terms of our leverage ratios to increase our debt if we see the need. Yes, you are right that obviously the Musictoday deal will use up a lot of our cash and therefore increase our debt and our leverage ratio. But still we are still well within our limits within our credit facility and like I said, we've got capacity to increase that as well if we see that we need to if there is ever opportunities that arise. So I certainly don't feel that any of these deals are limiting our opportunities for the future.

[Michael Shapiro], Lazard Asset Management.

Hi, it's actually Charlie Weissman. I guess the first question is just on sales. On your overall sales if you look at the Polestar numbers, you know I think the first half of year for the top 100 they talked about close to 40% growth in the industry. And I know you talked about a part of your business being up 32% but just reconcile your overall top line with what Polestar is talking about?

Yes I will. Just for Andy who is still on, I will come back and answer your venue wiring question. Which we missed that. Do you want to give, Alan, the revenues.

Like you said, I think Polestar quoted about a 38% increase in revenues for those top 100 shows. Like Michael said earlier on -- the Polestar numbers are North America -- like Michael said earlier on, our North American amphitheater revenues are up about 32% in the first half of the year. So on the face of it, slightly down on the Polestar numbers. I think you need to factor into that that within the Polestar numbers you have got I think it is the fifth draw was Cirque du Soleil Delirium and that doesn't actually appear in our revenue because that is a joint venture that we have with Cirque du Soleil. So that appears sort of down below EBITDA. But once you factor that in and then you get us back pretty much close to the Polestar 40% number.

Okay and can you give any more color on the vendor bankruptcy?

All I can say it is within our DVD distribution segment is one of the distributors there and we are -- it wasn't a significant number but we are actively pursuing that. So I would hope to get some better news on that later in the year. But we thought it was prudent to provide for it.

Then just the largest jump in the deferred income line, is that generally a good sort of indication of bookings for the back half or is it too timing related?

Its obviously got to be a good indicator certainly for the third quarter as that is basically the tickets that have been sold in advance for those shows.

I mean also just on the cash flow statement, I am just looking at it says proceeds from disposal of assets of about $37 million, If I recall, the sports business was significantly lower than that. Was there anything else in there?

Yes. You are right. That is a combination of the sports sale that was done back in January I think it was now and then the major part of that is our exit from those projects in Las Vegas, Planet Hollywoods and our part of the Phantom of the Opera project.

Okay. And then I am looking, it says the contribution from minority interest partner, is that the Cirque du Soleil?

That is actually related to the sale of some carpark land that is our arena in Ireland which is we own in partnership with somebody else there and it is basically his share of that profit and that is how that has been treated in the cash flow.

I guess just an update. I know that in some of your amphitheaters you are testing some new ticketing strategies like I think in Charlotte and some of the others, you are selling the field seats for like $10 in an attempt I would think to try to increase some of your food and beverage and ancillary revenues. And I am just curious if you have had any -- what the experience has been from those tests and whether they have net net improved profitability?

Yes, absolutely. We have been very aggressive this summer on our North American turnaround and the amphitheaters are the heart beat to turning around the North American margin. We think we are in year one of a couple year turnaround. The first year it was really important to increase our show count in those venues as I indicated earlier. We think we have now got an organization that is very focused on our concert division delivering intensely against our amphitheater show count. So we have seen an increase in that that will help revenue and margin.

And we have been very aggressive on a centralized promotion strategy run through our marketing and database department and we have been really aggressive on whether it is price points on the lawn, whether it is targeting past users who haven't come this year and offering some set of motives and incentives, we have got about five or six different programs we are testing throughout all of the markets to drive that casual consumer. And we have seen some very encouraging results that we can affect entry in and purchase intent if we get to them and offer them some value. So we have seen some good walkups and some good sales result of these promotions which we will really learn research through and institutionalize better for next year.

And I just want to make sure I understood the timing difference of some of the I think you said of the European festivals this year, right? Was it stuff that was in the second quarter last year that's moving to 3Q this year?

Yes, its basically one festival in Belgium that is always held around the end of June, early July and depending on which market falls into you get a slight movement in the quarters.

Can you give sort of an order of magnitude on that festival?

No I can't.

What is it called?

It is the Werchter Festival. We don't really want to give out information about the specific events.

Understood. Thanks.

While I have a minute then, Andy, if you are still listening, you asked about our wired strategy for our venues. We think it is a very exciting initiative. As we have stated in our three-prong strategy, one of the keys to growing this company and transforming it, we have a credible leadership position in global concert promotion and now we have to look at ways to leverage that scale and competency.

One of those is the reality that we have over 28,000 concerts happening throughout the world in our various network and we have seen an incredible increase in the appetite by all of the media distributors from Internet companies and mobile phones and TV broadcasters to want pieces of live content which you know really didn't exist for 20 years. There was not historically a demand for repurposing a live show beyond the odd HBO special and we have been in the last year working with some mobile companies in America, Cingular and Verizon, have strained over 500 to 600 shows in the last year to these mobile phone companies for a very healthy fee. And we have been able to steer through and partner up with artists and we have had great participation by the artist community because of the extended reach and awareness that these shows now have been able to get.

So we believe that by institutionalizing and formalizing a venue network strategy where we are able to record video and audio shows from all around the world that happen every day, centralize that into our studio in L.A. and feed it out to multiple distributors, we think that is a business on its own. And we know that as we start looking to sign up our distributors that we will be able to drive some revenue both from a sponsorship subscription basis for this live content. We also look to put it on our LiveNation.com Website to continue to drive that live portal.

So we believe that the opportunity is right, the production costs have dropped dramatically that we can scalably shoot and record shows. The distributors are lined up to want to have chunks of live content and we think there is great ways too monetize it whether it is through partnerships, fees, subscriptions, pay-per-view, depending on the median and the artist, we'll participate but we believe that there is enough on the table to make a new business for everybody and monetize it and provide another extended marketing reach for these artists.

Operator, are there anymore questions?

Yes. Thank you. Andrew Goffe, OSS Capital.

This chart you have at the back of the press release that talks about the free cash flow of $180 million in the first six months of '06, how do we think about that? I mean how much of that just is reverses in Q3? Just how do we interpret them?

I think if you specifically look at the actual cash flow statement itself you can see the increase in the deferred revenue compared to the same period last year is about $50 million. Clearly as I said earlier on, that is going to reduce as the year goes on. It's always hard to predict because you just don't know what shows are going to go on sale for the fourth quarter and for the beginning of next year. But in terms of a normal concert cycle, you would certainly expect it to increase over quarter one and quarter two and then come down over the Q3, Q4 period.

I guess what I'm trying to understand is when you look at this 204 cash from operating activities at the end of June, if you were to mentally adjust it to kind of normalize it for the seasonality, how would you do that?

That's a tough one. I think you'd probably have to go back to -- if you went back to the December numbers that is probably when you have really gone through a full constant cycle and sort of adjust those deferred revenue and prepaid lines back down to maybe where it was at quarter four. I think that is one way of doing it.

It is just confusing based on the '05 10-K because there is a lot going through there. Well thank you.

[Ben Metz], [Ravana Capital].

A quick industry question. How do you see the summer concert season compared to last year, where we are now?

Well to date our revenue is up and our show count is up so we have had it seems like slightly ahead of last year. Polestar, the industry magazine as we have said earlier reported that the first six months versus last year, the revenue was up in the business over 30%. So I think the year will end up as good as last year or slightly up from last year on overall concert gross.

And kind of a long-term trend, are you guys concerned that the top acts are getting so old of the top 10 last year, six are over 59? Do you think that the Rolling Stones actually won't be able to tour in the future?

You know it is definitely a concern in the industry. One of the advantages of being a global company is around the world there are a lot more opportunities and a lot different of a product mix than there are exactly happening in North America everyday. So we found our European business is very strong. Countries like Germany and the United Kingdom are very leading-edge right now on developing their own talent and have created a whole host of their a new superstars that are filling venues. We are looking to Asia and Japan and Australia where we are seeing a very strong market.

So we think it is definitely a concern that we look at continually and that is why we are looking to continue to do the three-prong strategy. We have got to make sure we expand our venue network into more middle to smaller music clubs where there is increased activity, where there is a lot of bands that maybe don't make it to our amphitheaters but they certainly make it into 3000 seaters. So we have been very aggressive to diversify our North American venue portfolio so we have less reliance on our 10,000 seat amphitheaters.

We are continuing to look internationally to grow where we see huge opportunity. And three, we have got to continue to grow our margins by not being solely driven by the concert ticket revenue but being more diversified around the live concert experience whether that is as we said from our database to our digital to selling tickets on our Website to selling artist tour merchandise to selling VIP packages around that concert. So we think those are the three ways that we build a much better model that leaves us less at risk for the 10,000 seat amphitheater.

And on the margins, do you have a long-term target? I know you're trying to improve them. Is this something you can see as sustainable going forward?

Not that we would be willing to give out at this point in our first building year.

I appreciate it. Thanks.

[Liz Barney], Eagle Capital Partners.

Just a quick question. I am trying to reconcile the decline in EBITDA in the first half from the first half '05, $44 million, to the second half or the first half '06, $37 million, in venues and sponsorship. Some of that is timing it sounds like and then I guess there is some fixed expense in there from Mean Fiddler that we should expect some revenue from in the back half. But how much of that of the decline is associated with the fact that you just don't have that many artists wanting to go through or maybe not even not wanting not being able to go through the larger venues? And is that something that is just happening this year or is it something indicative of a change in the industry where going forward there just might not be as many artists going through those venues?

You are just focusing on the -- you are talking about venue sponsorship?

I'm talking about venues and sponsorship. Yes. So I mean I don't know I eyeball it -- maybe it is a $4 million difference or a $2 million, a $3 million difference on the timing.

I think you are right on the timing in terms of sponsorship and some of the costings in that. I think the bit you missed was the impact of some of our theatrical venues. I mentioned the Apollo Victoria and the Hilton in New York, I was speaking earlier on. And the problem with some of those larger theatrical venues is that like last year, we had some very good content in them running for the whole year which froze off good cash flow and then when you have a changeover in shows you go for a period when the shows -- when the theater is dark and that does have quite a significant impact on the cash flow.

Like I said, both of those venues have content coming into them in the fourth quarter and so they will pick up again. But that is one of the larger driving forces on the venues and sponsorship EBITDA.

Okay. So that is the larger pace. Thank you for clarifying. I did miss that.

You commented about artists not coming into our larger venues. As Michael said, the initiatives we have undertaken in terms of driving more shows into the amphitheaters has been successful and we are looking at he mentioned 200 plus additional shows in that third quarter.

So you think it is really just making the amphitheaters more customer friendly?

We believe that the amphitheaters, you know as we said they are up 200 shows this year which is somewhere in the 15% increase so it is a sizable increase when we focused on them. We don't think that there are any new pieces of information this year that we didn't know going in. We know that we have 42 amphitheaters and they require incredible amount of attention and focus to drive both show count and ticket sales which we have not had historically this level of focus in the organization that we do now have.

And we are going -- we think over the next year we are going to -- with House of Blues we get to add some new geographies that we are currently not in which are some major markets. We think we have some portfolio work to do with the amphitheaters. We think we have got some great amphitheaters and great markets and we think we have got some bad amphitheaters in the wrong markets which drive down our margins. So over this next six months that is part two of our plan in North America is really to review our forty markets and start to fish where the fish are and get out of some markets that are not going to be a growth for the future or are not strong margin markets.

So I think with the new market combination, the new intense focus around filling the venues and driving our show count with our event division and expanding into our midsize music markets venues, that we will be able to start affecting the margin in North American music over the next couple of years.

But this year we are very encouraged that with the amount of time we had to get the year going we were very committed to building show count and ticket sales with our new organization and we have achieved that. And we also know, Liz, we have talked about, we purposely have spent 2006 as a building year and we have put a lot of fixed costs into the business to build our database division that we never had before. We never had a digital IT division before we built. We never had a marketing division we built not to mention the public company requirements to build.

So we are looking very encouraged in a year where we are doing lots of building and investing. We are still on line in our forecast for the year to deliver a nice balance of both investment for the future and some growth.

Terrific. Thanks so much guys. I appreciate it.

Andy Baker, Cathay Financial.

I actually just had relogged in to answer the question that Michael went on to answer but since you let me on here, a couple of follow-ups I guess. One, when you talk about rationalizing the portfolio of your North American amphitheaters and looking to maybe perhaps get out of some unprofitable markets, for a place where you operate and you don't own, but you just have a long-term operating agreement, how easy is it to get out of those contracts?

And then secondly, you have talked about reducing the number of dark days and the goal being to have as many people coming to your venues as many nights as possible. Can you give us any qualitative or quantitative possible sort of feel of the how many -- what is happening with dark days and how many days you have these things filled and how many days you don't?

Well you know as I have given you on our amphitheaters I have -- we have indicated that we have increased our utilization by 15% in our first six months of getting at it. So we are encouraged that we have over 100 bookers throughout the North American market wake up every day booking shows. We think now that they are very focused that we have three product lines. We have our amphitheaters. We have our theaters and clubs and we have our high margin arena tours. We never had that level of focus historically. It was much more of a geography marketshare strategy of do it all versus this year driving those three product lines.

So we think the new intent focus around those product lines has shown us that when focused with the right targets and compensation we can affect utilization and we have done it with the amphitheaters so far. And the first part of the question -- the portfolio.

Even though there is a whole combination of owns and leases and etc., and we are looking at all those options. We historically as I said have not really had a very smart top 25 market strategy. We have been very fragmented in our portfolio and we are now going to build a very smart organization in North America around where the money is in the markets and look to consolidate our fixed costs, centralized them, some of the regions and look to whatever venue portfolios we need to do alternatives with we will. So whether they are leased or owned, there are better ways to manage them in the future if they are not going to be part of our long-term strategy than we are currently. We kind of treat forty amphitheaters the same right now and we should be treating the high-growth markets much differently then the harvest markets.

And then it is easy to get out of a lease even if it is a long-term deal if you determine it is not a focus area?

No, nothing we are not really even getting specifics on which ones are in or out of our leases or not. They all have their own certain circumstances. We are just staying at the 10,000 feet at this level and just saying our priority throughout this year has been to look at our North American portfolio and market mix and with the intent to continue to focus around the major markets with the right real estate and the right organization and longer-term exit the markets and the real estate that are not providing the best returns. And that is kind of the game plan now and the specifics we will deal with as we get into each one of them.

Fair enough. Thank you very much.

(OPERATOR INSTRUCTIONS). Michael Shapiro, Lazard Asset Management. Mr. Shapiro? You may ask your question.

Sorry about that. It's Charlie Weissman. I guess last year you took some restructuring charges and if I recall, they were supposed to produce something like on the order of $20 million in annual savings. Is that right?

That's what was said, yes.

Is that hitting? I mean is that flowing through in the first half of this year or is it not hitting yet and if it is, where is it hitting?

I think we said on previous calls the savings -- the cuts we made last year generated annual savings of about $20 million. So they are flowing through on a monthly basis. But like Michael pointed out, we have been reinvesting in other areas so that is why you're not seeing that $20 million dropping through to the bottom line. So we have invested in the digital division which you can see in the statement data we have provided obviously building the venue management team and strengthening our marketing group within the events segment and then of course, the additional public company costs that we are incurring.

Dax Vlassis, Gates Capital Management.

Two questions. I think I read in your 10-K that about 14 of your amphitheaters at that time which I think you had 37 were owned. How many of those owned facilities are not in the top 25 markets?

We are still working through our portfolio mix so we are not that far to start getting to that level of detail yet. Just continuing to look at the marketplaces.

Okay. Maybe I can ask this in a broad kind of way because I don't really understand the plan as far as the real estate goes. I understand you are looking at it to maximize venues and events and profitability and return on capital and that is the focus but as far as you have 119 venues, how many of those total 119 our owned?

(inaudible) 119?

That's what I had at the 10-K. What is it --?

In the 10-K, it was 153 total venues and from memory it is about 40 of those that are owned.

40 of them owned.

Obviously not all the amphitheaters, that's spread across the whole portfolio.

Understood. And if from an outside investor looking in, are we talking about wholesale changes in the venues or are you talking about one-off opportunities to incrementally improve and maybe taking that capital and employing it in other venues that would be more productive?

Yes, that would be the plan. We are continuing to looking at adding new venues in the right markets with the right return. And as we said from day one, we have a wide portfolio that we are doing a full assessment on this year and we think that there is opportunity in that portfolio to look at some of the bottom performers and look to exit those bottom performers and continue to reinvest in the priority markets if that is the right option for that capital.

Understand. And with the new segment data that was provided in the 8-K and the two -- the data that you have provided. In past conference calls, you have sort of illustrated certain costs that were flowing through there that could be construed as non-recurring some of them in terms of severance definitely non-recurring and some of them in terms of some of the costs in terms of legal that appear to be trailing off. Is there some way that we can get clarification on what the true operating results are excluding those charges? Have you gone down to a segment level on that basis and if so, who should I talk to that about?

We haven't actually put anything out yet on that but we certainly are looking to do that sort of in the next month or so.

Will that be in an 8-K or you just talking about a press release or something?

We are updating our investor presentation at the moment so I imagine we will include something in there that will give you some help.

Right.

It will be posted on the website.

It will be posted on the website. Okay. Thanks.

I will now turn the floor back over to management.

Thank you everyone for your time today. We are excited about our year and our progress and we look forward to talking to you again in our third quarter. Thank you.

Thank you. This concludes today's Live Nation second-quarter 2006 earnings conference call. You may now disconnect your lines and have a wonderful day.