Live Nation Entertainment Inc (LYV) 2008 Q3 法說會逐字稿

Good afternoon. My name is Erica and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation Third Quarter 2008 Earnings Conference Call. (Operator Instructions).

Before we begin, Live Nation has asked me to remind you that this afternoon's call will contain certain forward-looking statements that are subject to risk and uncertainties that could cause actual results to differ.

Please refer to Live Nation's SEC filings for a description of risk and uncertainties that can impact the actual results. Live Nation will also refer to some non-GAAP measures in this call. In accordance with SEC Regulation G, Live Nation has provided a full reconciliation for the most comparable GAAP measure in the earnings release on their web site.

The release, reconciliations, and other financial or statistical information to be discussed on this call can be found on livenation.com under the "About Us" section.

It is now my pleasure to turn the call over to Mr. Michael Rapino, Chief Executive Officer.

Sir, you may begin your conference.

Thank you. Good afternoon, everyone, and welcome to our 2008 third quarter conference call.

On today's call, I'll provide a summary of Live Nation's strategic progress. Kathy Willard, our CFO, will then provide an update related to the company's financials.

We reported solid financial and operating results for the third quarter despite the global economic slowdown. We executed on our strategic plan and delivered substantial progress across the majority of metrics used to evaluate our business. We believe our performance was among one of the best in the global music industry. We continue to see improved fundamentals in our core business as a result of our laser focus on exiting non-core businesses and building excellence in execution in our core business.

Our performance in the third quarter supports this. Our revenue and adjusted operating income margins grew during the quarter and our highlights include we produced over 4,800 concerts compared to 4,100 last year, representing a 17% increase. Total attendance grew by 6% to over 17.5 million. Total sponsorship revenue and average revenue per sponsor demonstrated strong growth during the quarter, up 13% and 5% respectively.

North American music operating increased $10 million over the year. And total ancillary revenue per fan in our amphitheaters and also total revenue per fan were both up compared to last year.

Live Nation's mission is to maximize revenue generated by the live concert experience. Our business model is driven by monetizing our global distribution pipe. During the quarter, it was all about execution. We continued to demonstrate tangible progress in executing against our three strategic priorities -- growing revenue and adjusted operating in our core business, investing in and developing our online ticketing platform for our 2009 launch, and strengthening our balance sheet through additional sale of non-core businesses.

And now I'll update you on the three priorities. Growing our core business model has two key levers. The first lever is filling the pipe, the cost to acquire the live show. We continued to execute on our strategy to fill our distribution pipe by a more effective buying of our artists' rights at the optimal economic price and locking in both near- and long-term revenue streams while minimizing our risk.

Through the quarter, we were successful in that we acquired over 4,800 live concerts versus 4,100, which represents a 17% increase in show count.

We are looking to add ancillary rights to the core live rights we are acquiring to feed our artist service platform. We have close to over 800 ancillary rights that we acquired in the third quarter of 2008.

Our concert lineup is solid for the remainder of the year and 73% of our total expected North American music shows and 65% of international music shows were completed as of the end of September. Our remaining concert schedule includes the North American leg of Madonna's current tour and fall dates for Coldplay's tour. Demands for artists touring later in the year -- including Coldplay, AC/DC, Elton John, and New Kids on the Block -- remained robust.

Madonna's current tour started August 23 in Europe and generated overall solid reviews, sellouts, and added dates. Ticket sales and fan demand for the tour have been strong around the globe. Tour highlights include the highest grossing show of all time at Wembley Stadium, the largest audience ever for a music concert in Switzerland, incredible fan interest in South America that has resulted in multiple dates in every market. All in all, Madonna's tour has experienced a phenomenal global response and we continue to believe this tour will be Madonna's biggest ever with the potential of grossing over $290 million in revenues versus $190 million from her 2006 tour.

The second lever of our business model is now monetizing the pipe. With our pipe full, our job is to maximize our distribution pipe to generate strong returns. We generate strong returns in the pipe by executing five strategies. One is expanding our pipe. Our pipe now consists of over 57 countries where we promote events. We continue to strategically review our distribution platform, taking expansion opportunities.

We expanded our pipe by signing an exclusive distribution deal with CIE, the third-largest concert promoter in the world, and T4F. This deal extends our global reach by providing entry into several top Latin American markets, including Brazil and Mexico. It provides us with new revenue sources as we begin monetizing our global tours in a region where we historically had a limited presence.

Our global distribution pipe has expanded into more than 25 new markets as a result of this partnership and we gained access to rapidly-growing music markets that serve a tremendous fan base.

We also continued in our top 20 US market expansion with an agreement to operate the Bayfront amphitheatre in Miami. We're currently making upgrades to the venue and look to open that in June of 2009.

And our House of Blues franchise, we opened a new one in Houston in October and Boston will open in 2009, giving us 12 locations.

Our second strategy is to increase in tickets throughout the pipe. We demonstrated our ability to do this by growing attendance to 17.5 million attendees during the quarter versus 16.6 last year, an increase of 6%.

Our third focus is reducing costs and improving efficiencies. Operating in North America, music increased $10 million in the quarter, increased the average profit per show by 33%, partially driven by improved cost controls around talent volume and venue operating costs.

Our marketing dollars are working harder for us and we are generating are more efficient reach as we continue to optimize our marketing mix. We have reduced costs by a shift from traditional media outlets to online. Our customer database continued to grow and we're focused on leveraging our database to more efficiently market our shows.

Our fourth strategy is increasing our in-venue revenues. Overall ancillary revenue per fan at our owned and operated amphitheatres grew slightly to $18.29 and total revenue per attendee and $89.79 in the third quarter versus $86.08 in the prior year, an increase of 4%.

Considering the environment we're up against, we are very pleased with this performance. Our focus here remains the same -- increasing ancillary sales per fan in the food/beverage category while also promoting operating efficiencies.

We reached a new concession contract with SMG-Savor and ARAMARK for managing food and beverage concessions at 34 of our North America amphitheatres. SMG and ARAMARK are two of the most successful and respected food and beverage operators in the world. We currently expect our new partnership to generate roughly 20% increase in adjusted operating income for our North American concession business while minimizing our business risk.

Our final strategy in growing our core business is sponsorship. We believe the global sponsorship market possesses high growth potential and we have continued to improve our ability to develop long-term national, multi-platform sponsorship deals.

Our sponsorship revenue recognized increased over 12% and our average sponsorship revenue per sponsor increased 5%, which we believe is noteworthy given the widespread decline in the advertising market.

We have 770 sponsors currently as of September, which is a 7% increase over last year. During the third quarter, we announced we entered into a ten-year agreement with Telefonica O2 for the naming rights sponsorship at The Point in Dublin, now to be called the O2 Dublin arena.

We also announced today that O2 will be a strategic sponsor, partnering with us on our AMG venues in the UK, which we will rename all of 11 of them the O2 Academy.

Our second priority is expansion into the ticketing and e-commerce platform to extend our pipe. Our ticketing platform remains on track for launch in January 1, 2009. The sale of our in-house tickets has increased 74% in the first nine months of 2008 compared to last year.

Over the past several months, we have substantially - we have made substantial progress implementing our third party ticketing strategy. We formed an exclusive agreement with SMG, the world's leading venue management company, which will allow Live Nation to sell North America facilities controlled by SMG. The first tickets will transition to Live Nation ticketing in late 2009 and we expect to ramp up to an estimate 5 million tickets annually by 2011. The total tickets included in the deal amount to roughly 25 million over the term of the deal. In addition, the incremental tickets included in the deal represent an estimated 25% annual increase over the 13 million tickets we expect in service in 2010 from our North American venues.

We also secured a five-year ticketing deal with Roseland Ballroom in New York that we'll begin to handle in 2009. The Roseland Ballroom is one of the premier midsize music venues in the country and hosts over 100 shows and draws over 100,000 fans annually.

We believe that these partnerships serve as a validation of our ticketing platform and demonstrate the benefits of offering a value proposition that combines a first-class ticketing service with a global live music leadership position.

Our third strategic priority is selling our non-core assets. Our final strategic priority is strengthening our balance sheet through these sales. With regard to asset divestitures, in early September, we completed the sale of our Motorsports division, which generated net proceeds of $168 million. We have also recently sold our non-music events division to Michael Cohl for net proceeds of $15 million. The proceeds from both of these non-core asset sales will be used to reduce our debt and enhance our financial position, as well as invest in our core business.

As Kathy will review in a moment, we are comfortable with our balance sheet and financial flexibility. We have now completed the majority of our non-core asset sales. While we will continue to explore select opportunities in the M&A market that will enable further our venue base, we have no plans or need to make any major acquisitions for the foreseeable future.

To conclude, the concert industry continued to grow during the third quarter in spite of the economic downturn. We are carefully monitoring attendance trends given the recession, but thus far, we have not seen any major impact.

Our balance sheet is healthy and we're going to remain prudent with regard to expense management without sacrificing our operating momentum. As I mentioned, it's all about execution for us at Live Nation. Our business model is producing tangible returns and our margins our improving. In addition, our pipeline is full, our share of artists is growing, and we're on track to launch our ticketing business in January.

At the end of the day, artists continue to receive the vast majority of the earnings from touring and remain eager to hit the road. And fans continue to come out and see them time after time. So we are optimistic about the near term and very confident that the steps we have taken to grow our business will in turn support our growth potential over the long term.

And now Kathy will take you through our financial update.

Thank you, Michael. Good afternoon and thank you, everyone, for joining us.

During the third quarter, consolidated revenue increased to $136.1 million or 9.4% compared to the same period last year. The higher consolidated revenues were driven primarily by increases in the North American and International Music groups due to show results along with some festival timing and the results from our newer acquisitions with a decrease in Artist Nation driven by the volume of tour activity.

For the third quarter of 2008, our adjusted operating income was $109.6 million, an increase of $15.4 million as compared to $94.2 million during the third quarter of last year.

This increase in adjusted operating income was driven primarily by the results of our newer acquisitions and improvements in both North American and International Music operating results partially driven by festival timing.

Adjusted operating income was impacted by declines in Artist Nation due to timing of tours and also an increase in fixed costs in ticketing of $4.7 million, primarily due to the cost of building our new ticketing operations.

Operating income increased 9.2% to $75.6 million from operating income of $69.2 million in the third quarter of 2007. This increase in operating income was due to the overall improvement in adjusted operating income partially offset by a $4.9 million reduction in the gain on sales as compared to last year, which included some small venue sales and also an increase in depreciation and amortization expense.

During the third quarter, we reported results from discontinued operations of $21.7 million. This includes the sale of our Motorsports division in September 2008, as well as the impact of the October sale of our non-music, non-core events assets.

The net tax benefit for the quarter reflects the use of NOLs to offset the majority of taxes that would otherwise be paid on the net gain on these sales.

Overall our net income was $139.9 million for the third quarter as compared to $41.6 million for the same period last year.

Turning to the nine-month results, consolidated revenue increased to $414.7 million or 14.6% compared to the same period of last year. This increase was driven by overall growth in North America and International Music due to strong operating results and the impact of acquisitions and to a lesser extent due to foreign exchange movements.

These increases in revenue were partially offset by a decline in Artist Nation due to an overall decline in the volume of global tours in 2008.

Our adjusted operating income was $141.7 million for the nine months, an improvement of $35.3 million compared to $106.4 million during the same period in '07. This increase was primarily driven by improvements in North American Music operating results and due to the impact of our North American and International Music acquisitions partially offset by the increased fixed costs of $11.8 million related to building the ticketing operations.

Our operating income for the nine months was $33.2 million compared to $39.3 million for last year. This decrease was primarily driven by a reduction in the gain on sale of operating assets due to a number of venue and other asset sales in 2007 and an increase in depreciation and amortization expense primarily for the amortization of intangible assets on acquisitions and certain artist right agreements. These decreases were offset by the overall improvement in adjusted operating income for the period.

For the nine months, we reported results from discontinued operations of $69.2 million, which includes the sale of the North American theater business, our Motorsports division, and the October sale of our non-music events assets.

The net tax benefit for the period reflects the use of NOLs again to offset the majority of taxes that would otherwise be due on the net gain on these sales.

Overall our net income was $105.8 million for the nine months as compared to $6.4 million in 2007.

I now want to spend a few minutes discussing our other key financial information.

As of September 30, our cash and cash equivalents balance was $205.9 million. Of this, our free cash, which is essentially cash less event-related items was $50.4 million. And free cash flow was $75.6 million as of September 30, which is a slight increase from the $70.1 million in 2007.

Capital expenditures for the nine months were $138.6 million, which includes $21.7 million of maintenance expenditures and $116.9 million of revenue-generating projects.

These revenue-generating projects are primarily for the development and renovation of various venues during the year, including the O2 Dublin arena, formerly The Point, and the two new Houses of Blues in Houston and Boston, and also for our ticketing rollout.

As Michael noted, we have completed the sale of our Motorsports business in September for net sales proceeds received of $167.6 million and a future performance-based earn-out of up to $30 million over the next five years. These proceeds were used to permanently reduce our term loan by $26.8 million and to improve our overall liquidity to fund our core music operations.

During 2007, this business generated approximately $24.5 million of adjusted operating income and was expected to generate around the same amount for the full year of 2008. This business has now been reflected as discontinued operations in the current financial statements.

We have also completed the sale of our non-core non-music events business in October 2008 for $15.4 million to Michael Cohl. This sale includes certain events assets, DVD projects, and other rights.

Based on the timing of this sale, the impact has been reflected in the financial results as of September 30, including the write down of the value of the sold assets and related goodwill and the movement of the events business to discontinued operations.

During the first nine months of 2008, we have incurred losses in this events business of approximately $11.6 million, which is now reflected in discontinued operations.

Both of these sales reflect our continued commitment to execute on our strategy to sell our non-core assets and to improve our overall liquidity.

As of September 30, 2008, our total long-term debt including an outstanding redeemable preferred stock, totaled $839.3 million. Overall we are confident that we are in a sound financial position as we have no mandatory debt repayments on our main facilities until 2012.

Our debt at September 30 consists primarily of $421.6 million of term loans under our Senior Secured Credit Facility. We have a small amount of annual required payments under these term loans with no significant required repayment until 2013; $40 million of revolver loans under our senior secured credit facility, this revolver facility does not mature until 2012, and the revolver is used as needed for funding working capital needs and other requirements. As of today, this balance is at $115 million. We have 13 banks and financial institutions that are lenders under this credit facility; $220 million under our 2.875% convertible senior notes. The holders of these notes can not request repayment prior to 2014; $40 million of redeemable preferred stock, which matures in 2011; and the remainder of approximately $118 million includes various other smaller notes and capital leases. Of this amount, a significant portion is related to AMG in the UK, which we don't own all of and the majority of the AMG debt doesn't have any required repayment prior to 2010.

Overall considering the impact of our interest rate swap agreements that we have in place as of September 30, 80.1% of our debt is at a fixed rate with only 19.9% of floating-rate debt. Our overall weighted average cost of debt as of September 30 is 6.41%.

Taking into account outstanding letters of credit of $41 million, as of today, we have approximately $129 million available for future borrowings under our revolver.

Our senior secured credit facility has three debt covenants -- a senior leverage ratio, a total leverage ratio, and an interest coverage test. In addition, our redeemable preferred stock instrument has a total leverage ratio, which has slightly different terms than those under our senior facility.

The calculations that support these are all as defined by the underlying agreements and I can confirm the terms are relatively consistent with other credit agreements that were entered into around the time that we became a public company.

On an ongoing basis, we perform detailed analysis of our business and overall trends and measure those against the available headroom under our covenants. We are diligent in ensuring we maintain a sufficient degree of headroom for each covenant through both a balance sheet and cash flow review.

Our analysis is measured both against absolute dollar flexibility and in percentage terms with a goal of maintaining a comfortable allowance to accommodate unforeseen events. Prior to making any acquisitions or divestitures, we run pro forma calculations for the effect of such events with this analysis in mind and also consider the effects of such actions on our overall liquidity.

Notwithstanding the fact that we are coming off the most capital-intensive year in our history as a public company, I can confirm that as of September 30, we remain comfortably in compliance with all covenants and based on our current projections for 2009 we have no concerns over complying with these covenants for the next year.

Finally, I would reiterate that we have no significant debt maturities under our primary debt instruments until June 2012 and that between now and then our covenant levels are set at today's level and do not tighten.

We will continue to monitor potential impacts to our business from foreign currency fluctuations. Currently we use foreign currency hedges short term to reduce the impact of currency fluctuations for shows where the artist is paid in a currency different than the tickets are sold in.

Overall for the nine months ended September 30, we experienced a positive impact of $3.9 million to adjusted operating income from foreign exchange movements.

We remain comfortable with our overall balance sheet and financial condition. We believe that our liquidity is adequate as we move into 2009. We don't feel that there is any immediate need to do any further acquisitions as we approach the end of our three-year build cycle, but we will continue to evaluate opportunities on a strategic basis for both acquisitions and use of revenue-generating capital.

Given the progress we've made over the past two years, we continue to believe that we will be in a position to deliver strong adjusted operating income growth in 2009 and beyond as we continue to grow our core operations, realize the impact of investments in venues, and launch our ticketing operations.

With that, I will open up to questions. Operator?

(Operator Instructions). Your first question comes from the line of David Joyce with Miller Tabak and Company.

Thank you. I was just wondering if there's any limitation on the volume of sponsorships? Like would there get to be a point where there's too much clutter?

Yes, well, thanks David.

We don't think we're anywhere near there. We have estimated if you look at the global sponsorship category and then break it down into the global music spend, various reports you can use. The global sponsorship category is somewhere in the $18 billion range. The estimate the music piece of that when you take all of the sports stuff out could be somewhere in the $1 billion to $2 billion range. So if we're somewhere - if we're the music leader in the world and we're still only running somewhere, you know, $100 million in sponsorships, we look at that as we're actually below market share and have a lot of room to increase the sponsorship.

Now one of our strategies is we hope in three years we don't have 770 sponsors. Maybe we have 370 sponsors. But we have gone into much deeper, longer relationships like Citi and O2 and Rogers that we're starting to do now that we have a much more online to onstage kind of sales onstage kind of sales platform.

Okay, thanks.

And on another topic, can you discuss where you are on digitally monetizing your venues for the live events?

It continues to be a project that we currently basically in this last year our Live Nation studio division filmed numerous shows. And the way we are currently monetizing that strategy is through our mobile division and online. So Rogers in Canada has a very extensive program with us where they - where we feed them online shows to fulfill that sponsorship agreement. We're looking - we have a deal in America where we have certain mobile carriers who pay us for online content. And we're looking at more mobile companies around the world who are looking for that online content.

We still are working on a much bigger project that says how can we institutionalize the sale of the live show online and through mobile from both the video and audio? And we believe that the future of that will come together soon.

Oh, thank you.

Your next question comes from the line of Alan Gould with Natixis.

Yes, thank you. A couple of questions. First, Michael, a number of companies are saying they saw a meaningful change in their business in October. Could you just confirm that your ticket sales, there was no real change after the month of October?

No real change. Now I'm not trying to deliver a message that we're somehow the only company in the world not affected by the economic downturn. I can only state the facts on what we've sold to date.

Now as you know, 75% of our business happens in the summer, so we really don't really start selling anything of magnitude again till March or April when we sell the summer season. So in October, Coldplay, I mean, AC/DC tickets, you can't print them quick enough. Coldplay sells out, sold out. Jonas Brothers sold out. So we have seen no ticket effect at all in October. And we hope that by the time we start selling tickets in the spring that this trend continues.

Okay. And can you give us your view of what the acquisition of Front Line by Ticketmaster does in terms of the competitive mix in the promotion business?

Yes, it - we think it kind of validates our model slightly. I have a ton of respect for Irving Azoff. He's one of the greatest managers in the business. And we do a lot of business with Irving. We love our business model. We think the combination spending over $1 billion a year directly with the artist and then delivering a ticketing platform for them is a powerful combination for venues. And we don't really see any change to our outlook. We still believe that the venue, the artist, and the fan would love an alternative ticketing company in this space. I think it's probably the only industry in the world that I can think of that doesn't have a good number two or a number three. So we're - we believe we still have a very powerful combination. I think Ticketmaster has over 9,000 contracts. So success to us is pretty small in their world. We pick up a venue a month. With our combination of real estate, content, and ticketing, our business grows nicely. So our outlook remains the same. We expected them to make some moves. We think it's good having Irving over at Ticketmaster because we have one common agenda. We do a lot of shows for Front Line and we would assume that the artists continue. So we'll continue to want to do what's right for the artists.

Okay, and last question, can you give us any idea of what the upcoming tour schedule? I mean, 2009's supposed to be a very big year. Is there any more information you can give us on that?

No. I mean, I wouldn't either the - we're in lots of conversation. There could be lots of tours happening next year. I wouldn't tell you that I - that anything I know to date says it's going to be bigger or smaller than this year, meaning there might be a couple extra tours. I think AC/DC will continue to tour will into 2009, which will be a gigantic tour. But we're - what we're seeing right now, the good news that we always go is will it be at least as good as this year. And everything we're seeing we see that next year should be as least as good as this year. And if we get lucky, we'll get a couple of extra tours that will put it over top.

Thank you.

Your next question comes from the line of Jim Boyle with CL King.

Good afternoon. How could this recession's likely impact compare to past recessions' impact in your core business since you've been doing this for a while?

Up until, jeez, a month ago, we used to say that historically the concert business is not affected by recessions if you look at ticket sales over the last 20 years that it's been recorded. I guess only in the last month I'd say we - it's gotten a little worse than just the average recession, so we don't want to over-promise. But factually, over the last 20 years, when a recession has come around, a - ticket sales have not been affected.

Now we go to two facts. One, the average customer goes to one or two shows a year. It's not like going to the movies. It's a very planned outing. So the show tonight in LA at Dodger Stadium with Madonna is sold out in LA and those people, that's their one or two chances a year where they have to go out and have that Kodak moment. We think the fan still wants to do that and is still motivated to do that.

And also people forget that the concert business, although it receives a lot of attention, out of the 300 million people in America if you want to use that as a base, we're wildly successful when we sell 40 million tickets. And the average customer buys two tickets, so that's 20 million tickets. He goes to two shows, so that's 10 million consumers out of 300 million make our business work. We think those consumers absolutely can still afford and will go to one or two shows next year. And we haven't seen anything in history that says they don't go when economic times are bad.

And although you mentioned all of 2009, you hope to see it be at least as good as this year and perhaps better if you get a little lucky, how does early '09 look if you have that visibility, perhaps just into Q1?

Yes, we've - historically haven't gone and given that kind of guidance. But, I mean, as I said to you, it's still quite early, believe it or not, for 2009 for artists. But we would - I would just tell you that the amount of activity, the chatter, the could-be deals, the talk about deals, the talk about tours, is consistent today as it's been last year and the year before, but what - how many and what tours will go out next year.

So we haven't seen any artists in any way not want to go out next year. If anything, as I stated in my release, I mean, remember, the - going on the road is the way the artist makes a living. And in most cases, this is why he'd want to get out next year and continue to find a way to make a living at least on the road while he may be finding tougher means through record sales and other categories in his P&L to make money on next year.

Okay. And finally, Kathy, although you mentioned there are several caps, could you at least remind us, please, on the senior leverage cap and the total leverage cap vis--vis what your Q3 position was?

You mean as far as it - where we are actually on the covenants?

Correct, versus the actual covenants.

We don't put out that kind of detail, Jim, but I would just tell you that we're in compliance and we're comfortable with the headroom that we have.

Okay, thank you.

Thank you.

Your next question comes from the line of David Kestenbaum with Morgan Joseph.

Great, thanks.

Michael, can you talk about the SMG deal, maybe give us some color on the economics or exactly how you won that deal?

Yes, the SMG deal is a - it's great - it's a great venue management company. They are - their core competency is managing venues. They are not in the ticketing business, so they outsource ticketing. Part of the SMG business model is when they go into venues to try to win their contract, the key to winning a contract is to convince that venue that you're going to increase that their revenue, so you're going to operationally do great by running a better ship, but the biggest way any venue is going to probably drive its economic bottom line is to put a few more shows in. So, again, our fundamental proposition that SMG was attracted to is can we help them put a few more shows in their existing client base. That's a big win for them.

So we approached them on that basis that said let us help put some shows in your buildings. In return, we want to be the preferred ticketing company. So I can tell you, we didn't pay a dollar more than market rate to get the ticketing rights. We don't have any contractual payments or mandates on how many or what type of shows we have to put in there because the third piece of the pie is SMG and ARAMARK bid on the concession, food and beverage for our amphitheatres. So as we went to market with doing a bidding war for who would be the new concessionaire at our venues, we had great leverage with SMG that if in return, they delivered market value on the concession business and we put them in our food and beverage business, we in turn would want to be in the ticketing business.

So it was a strategic move on how can we leverage outsourcing our food and beverage contract, not pay a dollar more, and get the ticketing rights to their buildings.

Okay. With this deal with Michael Cohl now, is he totally unaffiliated with Live Nation? Or is he still consulting or involved?

No, not at all. I want to make that clear as day. Michael still has an eight-year non-compete. We have a consulting arrangement with Michael Cohl. He is in Florida still in regular contact. We have been trying to for the last year sell - we used to have it in the other line in our P&L. We had a bunch of misfit, non-music events that have been accumulated over the Clear Channel days from theater and exhibitions, bodies exhibit, traveling dinosaurs, a whole bunch of events that are non-core, have drastically been a drag on our earnings, not performing, and we had been looking for a strategic seller for a while.

Michael has historically been in that business. And we sold him that business. It's a non-music business, event-driven. So he will own and run that. But as far as anything to do with the music business, we are bound to a non-compete together and hopefully Michael is out there trying to do what he does best for Live Nation and find the right tour to fill our pipe. And we will work together on that, those tours as he generates them.

Okay. And just a few for Kathy. Kathy, what happened to the fully diluted shares because they went up pretty significantly I think from 76 million, 77 million, to like 84 million during the quarter?

Oh, it was - it's various options and then stock under our artists rights agreements that we've announced.

Okay. So okay. And then could you talk about what happened to the cash? Because you received $200 million I guess from the two asset sales, yet the cash balance went down. I know most of that's related to deferred revenue, but I still would've expected maybe a little paydown in the debt this quarter.

Well, what you're seeing, though, is you're seeing the seasonal decline in cash that you would normally see in this quarter. And the sales proceeds basically allowed us to free up liquidity and pay down some of the use of revolver that we had been, in addition to the permanent term paydown of about $27 million that we talked about.

Okay. So $27 million. All right. And then do you think you'll give guidance on '09 on the - sometime during the first quarter like you did last year?

Yes, David, we're still talking about that. That would be the timing for it if we do it.

Okay, thanks.

Your next question comes from the line of Steven Pfeiffer with Wells Capital Management.

Hello everyone. Well, let's see, I had a couple of questions for you about the debt structure.

The - on your press release, you have on here on your cash flows from financing, I noticed that for the nine months you have a lot - $300 million of debt paid down and several hundred of long-term debt issued off of here. I'm trying to see if I can get a reconciliation between that and some of the numbers I've seen. I haven't - I can't quite get all of those numbers to add up.

Well, and what's going on there is most of that's revolver draws and paydowns. And so as we do that activity, they show up in those separate lines rather than getting netted down.

Okay, so it's basically revolver draws and revolver paydowns. They're not new leases or anything else being incurred?

Nothing substantial.

Okay. What is the current balance on the first lien term loan?

We don't break down between the two pieces, but the total's about $440 million.

You don't break down between which two pieces, the revolver and the term loan?

No, the - there's two pieces of the term loan. Sorry, I thought that's what you were asking. But the total term loans are $421.6 million as of September.

$421.6 million

Yes.

Okay. And that's breaking out - do you have a first lien and a second lien?

No. It's just those - that term loan that has two pieces that balloon in - six months apart in 2013.

Okay. And those are equally parity and priority?

Correct.

Okay. And your total debt outstanding is $839 million I believe you said?

That's correct. And that includes the redeemable preferred stock.

Redeemable preferred, okay, that's why on your balance sheet it does not add up to the $839 million. The difference is redeemable preferred?

Yes, you have to pick up that $40 million of redeemable preferred.

Okay. And what is the redeemable preferred on maturity?

It is in 2011.

Okay. Thank you very much.

Great.

Your next question comes from the line of Mark Wienkes with Goldman Sachs.

Yeah, the topic's a bit -- Michael, I was wondering, could you talk to some of the recent industry announcements, I guess like the SMG and Front Line that we were just talking about could be interpreted as a fight over the ticket. So longer term, can you help us think about where you think the right to sell the ticket will reside -- with the artist or the venue, the promoter? What's the difference? How does it shake out here and then internationally?

Thanks Mark. We believe that the - that there's two pieces of the business. Internationally the ticket is usually owned by the promoter. And in America, the ticket has been attached to the building, really a Ticketmaster strategy that was 20 or 30 years ago.

We believe a couple of things that say why we would want to enter that business. We believe that that business like anything, if there's only one participant in it, there's room for a number two. We believe that the opportunity to deliver a different model on pricing is a huge opportunity in the future for the fan and artist. And we believe ultimately that the artist that is going on tour and in partnership with whoever is writing the check for that tour will want to participate in the service fee and the secondary tickets of the future. Historically these secondary markets the artist has not participated in. And then services fee to date, there are zero participation by the artist.

So we believe that our cost of goods, which is the $1 billion-plus we're spending with the artist, gives us the incredible leverage to talk to the artist about the ticket and what we should do with both the secondary and the primary and how we can make both of our pots bigger. So I think you're going to see in the future the artists and the touring artist expect to be included in some level of the ticket and the secondary ticket. And we long ago believed that our value was those 1,500 artists that we're paying annually to go on the road and to make them as much money as possible and thus get our slice of the pie. And we think that's going to be important going forward is to be able to have a business model that can compensate the artist to participate in the ticket and still make your return.

So just wondering like hypothetically what happens today if an Artist Nation or not even an Artist Nation artist, a top ten artist goes on tour and says I want Live Nation to be my promoter and I want you to do my ticketing and then it goes to a third party venue that has a ticketing arrangement with XYZ Ticketing. What's the outcome?

Today the artist - the venue controls the ticketing rights and whatever relationship they would have with Ticketmaster. So when Madonna plays in a building, we honor whatever ticketing contractual arrangement that building would have. Some are Ticketmaster and some aren't.

Now the artist currently gets to at times sell up to 10% of their own tickets through a presale arrangement. And we think that's an incredible opportunity for us to service for the artist. And in most cases, the artists historically have had leverage. And we believe that the basics to our model is there are more buildings than there are artists and the artists have incredible power and leverage in the future. And we'll expect to be participant in that service fee in some sense. And to date, that has not happened.

Right. Okay, understood. Thank you very much.

(Operator Instructions). Your next question comes from the line of Robert Berzins with Post Advisory.

Good afternoon. A little bit of a follow-up to the discussion about the ticketing, I'm trying to better understand the competitive dynamics of the ticketing business. To the extent that your competitive efforts hit directly at Ticketmaster and other competitors, could that lead to meaningfully lower pricing and margins than you even expect and that basically lowers the potential of your business and obviates its worthiness as a business plan?

Well, that's a heck of a thesis. No, not at all. I think you - I think when we went - entered this business, business school always taught us all that competition will probably create a lower price and a lower margin. So we have no fantasy that we are going to take on the number one company for 30 years and not incur a margin contraction in that segment. We believed our competitive advantage is we are in a 4% margin business promoting 20,000 shows. We are - believe entering the ticket segment, which is a 25%-plus margin business, is a great vertical expansion for us. And we are very happy to enter that segment and grow our business model somewhere between 4% and 25% margin and have a very effective and a growing business as a result of it. I would not want to be in the business of trying to defend how I will maintain a 25% margin in that business because high margin has historically been a great result of only one player in the space. We believe that competition will drive a better price for the fan and more participation from the artist. And we believe that if we're paying for the artist to get on the road, we have a great advantage in entering that space and growing our 4% margin.

Okay. Thank you very much.

Your next question comes from the line Tuna [Amobi] with Standard Poor's, an equity group.

Hi. Thank you. Sorry, I kind of jumped on late. I apologize if you might've touched on that, but as you think about next year, right, I mean, can you perhaps talk about what you expect in terms of the number of shows that you expect to put on and what kind of attendance, I mean, if you - assuming that you have the same number of shows that you had this year, right, do you believe that the organic growth in attendance is going to be substantially better for next year? And if so, what are the drivers of that?

And I've got - the next question that I have is on secondary ticketing market. I know that, Michael, you just talked about your plans for that. But I'm just kind of - kind of larger picture on how you see that secondary market evolving. I know there's been a lot of noise earlier this year about some of the goings on, but do you see that it - I mean, in terms of how it evolves, do you believe that there's going to be more consolidation, because it seems awfully fragmented right now? And if you could also talk about your strategy to become a bigger player in that segment would be helpful. Thanks.

I'll try to summarize. I think your first question I can summarize into one category that says we expect the business to be as healthy next year as it did - as this year from both a show count, which obviously then drives an attendance result. So we hope to deliver a stable business next year in the same range of this year in terms of metrics. And then our job is to figure out how to grow the revenue per that attendee. And we've kind of laid out those strategies as - in my release on how we continually build that model.

The secondary, we've stated we absolutely believe it's a great opportunity for us, not because we think the category is that big in the end of the day, but we have a zero market share right now. So we do believe that the secondary market in the major markets around the great shows, we are currently not participating, nor is the artist participating on Madonna's secondary tickets in the marketplace in LA tonight. We would love to be in a situation to capture the thousands of dollars in premiums that are being spent in LA for the Madonna show to participate with Madonna and have our slice of that pie. So we will have a partner platform in the future where we will be able to sell and participate in those tickets and finally start gaining some of that revenue, high margin revenue around those great shows in the great cities and the great venues.

Are there any potential legal issues that you'd have to navigate maybe stateside or even internationally to be able to achieve what you just said?

No. No, it's a global business and globally --

Okay, thank you.

-- eBay has institutionalized that consumer trading business.

Thank you.

There are no further questions at this time. Mr. Rapino, do you have any closing remarks?

No. Thank you.

This concludes today's conference call. You may now disconnect.