Live Nation Entertainment Inc (LYV) 2009 Q2 法說會逐字稿

Good afternoon. My name is Lynn and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Live Nation second quarter 2009 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 risks and uncertainties that could cause actual results to differ.

Please refer to Live Nation's SEC filings for a description of risks and uncertainties that could impact the actual results. Live Nation will also refer to some non-GAAP measures on this call. In accordance with SEC Regulation G, Live Nation has provided a full reconciliation for the most comparable GAAP measures in the earnings release in their website. The release, reconciliations, and other financial or statistical information to be discussed on this call can be found on www.LiveNation.com/investors.

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 2009 second quarter conference call. I'm joined today by our CFO, Kathy Willard.

Our second quarter results were largely in line with our internal expectations and despite the global economic downturn we are executing our strategy and remain on track to achieve our primary goals; generate growth from our core business and increasing our adjusted operating income for the year.

We have entered into the third quarter, the most important period of the year, representing 40% of our annual contribution margin. Comparison Q1 and Q2 combined equal 40%.

We are heading into Q3 with considerable momentum. Our deferred revenue from tickets sold to date for upcoming summer events and our in-venue spending highlights the unrelenting strengths of our business going into our peak concert season. We're putting fans in seats and we're monetizing our platform.

As we discussed on our last call, we plan to generate growth in 2009 through three primary levers. First, we will grow International adjusted operating income through our 2008 investment in O2 Dublin, increased sponsorship, and a strong stadium line up.

Second, we will increase per head spend on site in our North American amphitheaters through simplified menu selection, increased point of sale, focus on hawking and increasing attendance.

And third, we will drive attendance in North America through aggressive fan focused promotions.

We also look to decrease show count in North America as we approach these tough economic times with a more disciplined risk/reward buying strategy. We had planned on offsetting these increases by a slight decrease in sponsorship and a reduction in North American ticket sales. Given current trends and visibility into third quarter, we continue to believe that we are -- we will grow our adjusted operating income for the fourth straight year.

Let me give you an update on the four main drivers of our core business; ticket sales, onsite revenues, sponsorship and e-commerce ticket fees.

As far as ticket sales and concerts, ticket sales during the quarter experienced a decrease of 2.5%. Through June of 2009 we've sold 16.3 million tickets for events through June of this year. These sales exceeded our plan for that period by 1 million tickets.

Across our global concerts, we have sold 83% of our total planned tickets for the year as compared to 77% the same time in 2008.

Concerts. We'd expected the North American concerts would be down since we had increased concert activity last year. Our total number of global events was down 2% for the second quarter, with International Music up 19% and North American down 11%.

Pollstar reported industry media data showing total industry events were down 11.2% for the six months, so we're pacing ahead of the industry.

Overall for the quarter, our revenue per fan was $78.16 compared to $81.82 in the second quarter of last year. The drop of 4.5% is all because of declines in our revenue due to currency changes. On a constant currency basis, our 2009 revenue per fan would have been $84.24, an increase of 3%.

Looking ahead, our concert pipeline is very active and we're pacing ahead of last year, as indicated by the $894 million of deferred revenue on our balance sheet as of June 30, a 14% increase over last year. We currently expect to end the year with International Music ticket sales up around 6% year-over-year and North America to decline by 13%.

We have a strong line up for the third quarter, including U2, Madonna, Jay-Z and Nickelback; all four of our 360 deal artists. U2's current 360 tour is on track to sell 3 million tickets worldwide. Madonna extended her record-breaking tour and by the end of the year we expect to sell another 1.2 million tickets. Nickelback has sold over 1 million tickets so far in 2009.

And in addition to that, we have strong acts such as No Doubt, Phish, Blink-182, AC/DC, Coldplay, Depeche Mode, Toby Keith, Rascal Flatts, Kid Rock and Jonas Brothers among others.

Despite the economy, the fans are coming out and we have seen a dramatic impact from our successful value price ticket programs. In June we launched our "No Service Fee" Wednesdays to wide acclaim. Demand surged, as reflected by our increased ticket sales. We have now sold over 600,000 tickets via these promotions this year.

These sales represent an increase of 90% compared to historic Wednesday volumes. We believe our summer discount programs have shown a commitment to serving fans while expanding the recognition of LiveNation.com.

Our second driver is on-site spending. One of the core strategies in 2009 is to drive in-venue spending in North America. With the reduced attendance expected throughout the year in North America, we knew driving more dollars from each fan was key to supporting our growth for the full year. In North America, our in-venue ancillary revenue per head at amphitheaters grew 3.5% this quarter.

We are achieving this growth in two ways. First, through higher margins from our food and beverage operations as a result of our new concession deal with SMG/Aramark, and second, we are driving per head spend through a host of new on site initiatives, including the reducing of numbers of items offered, focusing on more popular items and the profitable items, increasing point of sale, portable hawking to sell food and beverages directly to the patrons in their seats, and adding new products like souvenir photos, early access passes, and bundling to create incremental revenue.

Our third driver is sponsorship. During the quarter our sponsorship revenue recognized held flat to last year. For the first six months of 2009, sponsor revenue is up 5% over the prior year and average revenue per sponsor is up 14%. Amazing numbers given the tough economic times for the advertising market.

As we previously stated, we believe sponsorship is the biggest challenge we have in 2009, given the broader advertising downturn. With the extremely challenging environment we are pleased with these results to date.

Our final driver is our e-commerce ticket business. Consumer traffic to our website continues to increase and to date we have sold 9.1 million fee bearing tickets to over 3000 shows since our launch in December of 2008. Our e-commerce division is focused on ways to generate increased awareness of our shows, increased sales, up-sell, and form direct relationships with our concert fans.

We are very pleased with how our website has developed. We've been selling tickets for only seven months and have already made terrific progress in establishing LiveNation.com as a consumer destination. Millions of fans now identify our brand and are visiting our site to buy tickets, learn about their favorite artist and purchase merchandise.

Through June 30, monthly unique visitors to LiveNation.com had increased 52% compared to the first six months of 2008. For the month of June we had 6.6 million unique visitors, up 61% from June of 2008. In addition, LiveNation.com was named the seventh most visited online music website in June by Nielsen.

As stated previously, the launch of our ticketing business and the build out of our e-commerce capability, completed our integrated platform and strengthened our growth profile. Our primary operating goal in 2009 was to ensure that our ticketing function launched smoothly. In the year ahead we are focused on further improving our website and strengthening the service and experience we provide to fans.

The second overall strategic priority is to maximize our cash flow. Our second priority this year is to maximize our cash flow with the goal of de-leveraging our balance sheet over time. We spent the last three years building our integrated platform. With all the pieces in place, we have essentially transitioned to running the core more effectively and reducing our capital expenditures.

During the quarter at North American Music, our average operating cost per attendee decreased 13%. The average marketing cost per attendee declined by 20% at all our promoted events, resulting primarily from our cost saving initiatives. We believe that our cost management efforts, combined with our new revenue streams, result in higher adjusted operating income for 2009, as well as provide improvement in our free cash flow from operations.

Turning to capital expenditures, we are now on track to decrease our CapEx in 2009 by 70% to approximately $55 million, a significant decline from our $187 million in 2008. We also expect that our debt reduction efforts will be supported by proceeds from the sale of our remaining non-core assets.

We announced last quarter that we had entered in an agreement to sell our interest in the Boston Opera House for a total of $22.5 million, plus an earn out. We are exploring the sale of our U.K. theaters as well as some other non-core real estate holdings. With or without these sales, we believe that we are well positioned in the year ahead to continue to reduce our debt and strengthen our financial profile.

To conclude, our second quarter results were in line with our internal expectations and we remain on track toward growing our business in 2009. In the current peak concert season, business trends remain healthy as demonstrated by our deferred revenue, ticket sales pacing, and success in driving increased per head spend at our venues.

The fans are coming out as a result of our strong artist pipeline, as well as our success in generating awareness for the shows and driving value priced programs that award fans in this tough economic time.

At the same time we are driving further efficiencies across our platform and we are taking a disciplined approach to managing our business. As a result, we continue to expect to drive growth in our adjusted operating income and cash flows in 2009.

Finally, we continue to expect to close our merger with Ticketmaster in the fourth quarter. Upon closing, we believe the combined company will accelerate the execution of our vision and strategy to build an artist direct company that provides a full service connection between the artist and fans. We believe this combination will provide us with significant strategic and financial benefits.

I will now turn it over to Kathy for a financial update.

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

During the second quarter, consolidated revenue was $1.1 billion, which was down $66.7 million compared to revenue in the same period last year, primarily due to a decline of $86.3 million from foreign exchange movement mostly in International Music. On a constant currency basis, revenue would have been up 1.7% over the second quarter of last year.

Positive revenue impacts included an increase of $26.8 million related to acquisitions in North American Music and International Music, and $12.9 million in ticketing, due to higher revenue from service charges due to the launch of our ticketing platform.

Adjusted operating income was $51.2 million during the second quarter of 2009, compared to $63.2 million during the second quarter of 2008. This decrease was due to a decline of $7.6 million from foreign exchange movements and a $19.8 million decrease in North American music, driven by a reduction in the overall number of events.

We also had positive changes in adjusted operating income, including a $6.3 million increase in International Music, driven by strong promotion and festival results, along with the reopening of the O2 Dublin, as well as $4.5 million in ticketing due to higher net revenue from ticket service charges.

Our operating loss in the second quarter was $3.4 million, compared to operating income of $27.8 million in the second quarter of 2008. Our operating loss was impacted by $14.9 million of acquisition transaction expenses related to our pending merger with Ticketmaster, due to a change in the accounting rules related to business combinations.

In addition, our operating income decline was driven by $3.9 million of increased depreciation and amortization expenses related to several of our capital investments from last year, along with the overall decrease in adjusted operating income.

Our net loss was $27.2 million compared to a net loss of $0.7 million in the second quarter of 2008. These results for 2009 were impacted by the decreased operating income, including the transaction expenses previously discussed.

For the first six months of 2009, consolidated revenue was $1.6 billion, which was down $100 million compared to revenue of $1.7 billion in the same period last year. This decrease was due to a decline of $134.9 million from foreign exchange movement, primarily in International Music. On a constant currency basis, revenue would have been up 2.1% over the prior year.

Positive revenue impacts include an increase of $38 million related to acquisitions in North American Music and International Music, and $22.2 million increase in International Music, due to stronger promotions and improved festival activity, and a $17.3 million increase in Ticketing revenue due to service charges and ticketing related sponsorship revenue.

Adjusted operating income was $16.6 million during the first six months of 2009 compared to $32 million for the same period in 2008. This decrease was due to a decline of $8.9 million from foreign exchange movement and a $22.4 million decrease in North American Music, driven by a reduction in the overall number of events and attendance.

We also had positive growth in adjusted operating income for the six months from a $9.9 million increase in International Music, due to strong promotions and festival results along with the reopening of the O2 Dublin, and a $2.1 million increase in ticketing from higher service charge revenue and ticketing related sponsorship.

Our operating loss for the first six months of 2009 was $87.9 million, compared to an operating loss of $42.5 million in the first six months last year. This year-over-year decline was driven primarily by $18.7 million of acquisition transaction expenses, most of which related to our pending merger with Ticketmaster. It was also impacted by the decrease adjusted operating income and increased depreciation and amortization expenses of $13 million related to several of our capital investments from last year, along with an impairment for an asset we were selling as discussed last [quarter] (corrected by Company).

Our net loss for the first six months of 2009 was $129.9 million, as compared to a net loss of $37.9 million last year. The net results for 2009 were impacted by the increased operating loss, including the transaction expenses, while the results for last year benefited from $28.9 million of income from discontinued operations, net of tax, for the businesses we sold last year.

Our other key financial information is as follows. As of June 30, our cash and cash equivalents balance was $469.8 million. Our free cash, which is essentially cash less event related items, was a negative $91.7 million as compared to a negative $83.1 million for the same period in '08.

As you know, we recently -- we generally receive cash related to ticket revenues at our own and operated venues in advance of the event, which is recorded in deferred revenue untill the event occurs. At June 30, our deferred revenue was $894.1 million as compared to $782.3 million at June 30, 2008, a 14% increase year-over-year. This increase is driven by the amount of ticket sales for future shows as of the end of the second quarter. Of this increased deferred revenue, only $13.5 million is related to service charges that we have received but haven't yet recognized due to selling our own tickets in '09.

Total CapEx for the first six months of '09 were $24.7 million, compared to a total of $76.1 million during the first six months of '08. For the six-month period in '09 we've incurred $8.7 million in maintenance expenditures and $16 million related to revenue generating projects. We continue to expect total CapEx to decrease significantly in 2009, to approximately $55 million for the year, as compared to a total CapEx of $187 million during 2008.

Free cash flow was $23 million for the second quarter of '09, compared to $31.2 million for the same period in '08. We currently expect that free cash flow will be positive in '09, exceeding last year's free cash flow, adjusted for discontinued operations.

Moving into 2010, we currently expect to outperform our 2009 free cash flow results based on our current asset mix, as we see further gains from our core business. In addition, we anticipate seeing further benefits from the recoupment of payments under our 360 deals in 2010.

As of June 30, 2009, our total long-term debt, including our outstanding redeemable preferred stock, was $831.5 million compared to total long-term debt of $864.1 million as of December 31, 2008, a decrease of $32.6 million.

As we have previously stated, we have no significant debt maturities under our primary debt instruments until June 2012. We continue to remain comfortably in compliance with all of our debt covenants.

We continue to selectively divest non-core assets and are currently exploring strategic options for our remaining theater assets in New York and the United Kingdom. We continue to focus on our debt as we look to earnings growth, continued cost controls, both in terms of expenses and capital expenditures, and these potential sales of non-strategic assets, to provide the means to deleverage our balance sheet and put us in a position to ultimately refinance as a standalone company or under a merger with Ticketmaster.

Finally, we currently believe we'll deliver adjusted operating income growth in the high single digits for the full year in 2009. Considering the economy's impact on sponsors and other media company results, we are encouraged to be able to be in this position to show positive growth over the prior year.

I will now open the call up for questions.

(Operator instructions) Ben Mogil with Thomas Weisel Partners.

Hi guys, good afternoon.

Hi Ben.

Hi. So a couple of questions. In terms of the sponsorship, Michael, I know in the past you've talked about -- you did $172 last year, understandably it would likely be down because of the environment this year and you were looking for $150 as kind of a rough target for the year. As you sort of sit here now, the beginning of August, do you think that target is still achievable as far as you can tell?

As we said, we're mildly surprised that we're flat year-over-year. We have a 12-month business in sponsorship, which people kind of think it's a summer sponsorship business, but most of our deals are ongoing.

So as we're sitting here right now I think we're going to end up slightly below last year. We've got some risk and some remaining big deals to close. We think we'll get close to it. But right now, again, in context going into the year, we're not going to be in the 10%, 20% or 30% decline like most of the advertising businesses. I think we'll be flat to 5% down.

Sorry, that's flat from like the $170 number from last year?

No. There's two sponsorship numbers. There's $100 million and then there's premium seats which we calculate to get to that full $170. So my premium seats are over and done with this year because they're the summer activity. So the remaining number that we think about from pure sponsorship, is $108 million from last year if you take out the premium seats. And we're tracking flat to that right now, on forecast, but we've got to close some deals to deliver that.

So I would say, if you were using the number, I originally said for the year we may be $20 million down. I think we're looking better than that and we'll probably end up $10 million down.

I'm guessing a lot of the premium seats for the year are largely sold. How did they fair in this current climate?

Again, we'll assume they might have been a bigger risk than they were, but we would end up, again, we're going to end up flat, by the time we're down maybe $3 or $4 million down from last year. So nothing substantial.

I mean, if you look at our sponsorship, there's kind of an international business and Simon Lewis runs that, and we're going to grow that business this year substantially. So they're just having great success over internationally. And mostly because it was a fairly underdeveloped market and they've been able to get the low-hanging fruit.

We have national sponsors, local sponsors and premium seats. Premium seats, basically if you look at all three of those, and they're all relatively flat to maybe $3 million down each, so we didn't have any disasters on a national deal basis or a local deal basis or a premium seat, we just got clipped. We're probably going to end up getting clipped $3 million each and end up $10 million down if you add up those three.

Okay, that's helpful, thank you. In terms of the Wednesday sales that you were running, obviously Wednesday was going to see good growth. But if you look at lawn ticket sales sort of overall, how did they fare, just looking at that and sort of being a little more price sensitive kind of customers? From the overall selling perspective and what you see through now to Labor Day, if you will, any kind of thoughts on how that market fared in the summer?

I mean surprisingly, we looked at data 100 different ways, whether you look at Pollstar's 100 tours, if you look at the top tours versus the mid shows, we haven't found any trend yet, whether it's regular priced or not, where the sales were considerably down; whether they're A shows, Bs, Cs, lawn seats or reserved. So generally they were flat.

Now we knew going in this year that we were going to probably book 100 less shows in our amphitheater because, as we said in the last quarter, those extra 100 shows you chase could be winners or they could be the losers, so we really wanted to go in safe this year in North America.

So basically, to deliver the attendance we're going to deliver in amphitheaters, we're going to exceed last year's attendance if you look at per show attendee. And listen, we've sold 600,000 tickets in those service fee Wednesdays. A wild success, but it's only 5% of our overall business. It couldn't make or break the difference if your core 95% was trending down.

So overall, we were kind of seeing business flat and we knew doing something spectacular around promotions might gain us another 600,000, 700,000, 800,000 incremental tickets through the year. It would just be some icing on the cake on our amphitheater season.

And one of the biggest challenges was, what would be cannibalization rate? Would they buy on Wednesday but not buy in the end? And we have seen exceptionally low cannibalization rates on these Wednesday shows, which has been really encouraging.

Okay, Michael, thank you, that's great. Then I guess sort of shoot something over to Kathy.

Kathy, I just want to make sure I heard you right. Your deferred revenue number included, if you were looking on a year-over-year basis, included $13.5 million of service charge, is that correct?

That's right, from the Ticketing operations, that we wouldn't have had last year. So that's not our total but what would have been new.

Yes, that's right. So then if I look at it from that perspective, you're up about 12.5% on deferred revenue year-over-year apples to apples, that's about what you're getting?

Yes, that's right.

Okay. Did currency have an impact positive or negative?

It's not significant. I mean this is really just you're seeing the timing of the Q3 shows and the way the ticket sales have gone. They were up from 83% sales versus 77% last year.

I mean, Ben, it was no mystery in how we planned the year. We purposely knew Q2 would be slightly down from last year, because it wasn't hard to figure out that when Madonna and U2 are starting a stadium tour on July 1st worldwide, that your Q3 revenue is going to be big. So you don't have to go for the kill in Q2, when you know you have that size of revenue coming in on July 1st Q3. So that's what is driving that business in terms of the top part.

Okay. You've talked about it before in calls, that you kind of need to look at 2Q and the deferred revenue, because that kind of encapsulates the summer season, if you will.

Absolutely.

And then I think last for Kathy and then I'll just let someone else go in the queue. Can you just give us an update, if you look at the LTM EBITDA from a bank perspective and sub out the 150 of cash that you're allotted to sub out, what number are you at from a covenant perspective?

Well, I won't give you the exact number. You can do the top-level math, but we're definitely very comfortable with where we are, not only in Q2, but for the rest of the year.

Okay. And then do all these sort of one-time charges from Ticketmaster, from the proposed merger, do they get factored into calculations or not?

No, we add those back. So they are not an impact to debt covenants.

Okay, great. Thank you very much, I'll let someone else get on the queue.

Thanks Ben.

(Operator instructions). David Kestenbaum with Morgan Joseph.

Okay, thanks. Can you just elaborate on who you think you'll capitalize in 2010 on the 360 deals with, which artists in particular?

It's several of them. But, the one that's different is Shakira will be out on tour for the first time, U2 will be continuing their tour. Those are the two biggest ones.

And Jay-Z will have a record out.

Okay. Given the tough economic times, has artist expectations changed at all? Are you able to negotiate maybe more favorable terms with them?

And then exactly how do the economics work when you cut the price in half, since that's the artist's bread and butter? Are they willing to take a pay cut on that or do you have to compromise and pay them something else to offset that? How does that work exactly?

Sure. On the first question, unfortunately the answer is, no. I mean you can see our talent costs. The good news is the last couple of years our talent cost to revenue has remained fairly flat, so there hasn't been any increase. But now when you're an artist that can demand ticket sales, you're going out expecting to get paid what you've always got paid. So we have not had any success in artists reducing their cost structure, given the economic times.

But if you're running less shows, and I assume some of your competitors are running less shows, doesn't that simple law of supply and demand help you in the equation a little bit, maybe with the weaker artists?

With the weaker, yes. I mean, listen, we hope that this year and onward that the artists, the agent, the managers and everyone starts to realize that it's not healthy for the industry for the ticket prices to increase. We know that ticket prices remain a main issue on consumers coming to shows, so we know that in order to sell those 40% of unsold tickets, we as an industry have got to be smarter on our pricing. So some managers, some artists are more proactive and understand it and think through it and some don't.

But I'm just saying that overall, the overall economics of the percentage of guarantee versus revenue hasn't shifted, but we would hope that over time all promoters and others figure a way to bring the prices down.

As far as the promotions, it's a combination. A lot of what we did was called the No Service Fee, so we took that service fee and took it right off of our bottom line. So that didn't affect the band because they still got the face value of the ticket.

Now again, why would we do that? Because if we can give away a $5 service fee in contribution margin but get one incremental person through our amphitheater that spends $15 on ancillary, it's a good trade-off for us.

So going back to the first part, it's all about if it was incremental and what your cannibalization rate was. In this case, we put 600,000 people through the door. We've not done our assessment and analysis complete for the year, but we're talking somewhere on a 30% cannibalization rate, a 70% incremental ticket rate. So, the math works for us. But, whether the artist participates or not, at what point can you drive new customers in to buy on site.

Now, in some cases the 4-packs, the 6-packs, the two for ones, artists do participate. If a show's been on sale for a month and the artist and the promoter know that you're only going to sell another 2000 seats but if you could put 4000 in, let's all take a slight reduction on the gross. Most bands are very proactive at understanding more people in is going to need some level of price promotion, especially this year. So, they have participated in that end.

Okay. And then finally, can you talk about how you're doing on the ticketing initiative. I know you gave detailed numbers at your analyst day a few years ago. Are you going to hit those numbers? And then how about for '09 and for '10 too?

Yes. The '08 numbers weren't quite as big of a loss as we expected them to be and the '09 is not quite the same. So it's a little bit of a less. We've cut into a $30 million movement, David, when we did the original way back in January of '08. It's probably closer to $20 to $25. Probably closer to $25 million mark this year, as far as the swing.

And then 2010, it's really going to depend on North American ticket sales. So, I don't really have better data for you on that right now.

Let's just be clear. The biggest challenge from day one was, would it work, would we sell tickets, could we handle the load, could we get our summer season up without any issues? Remember, back in October the world was debating, would it work?

So the most important piece that is an accomplishment for us, our biggest strategic priority of the year was, could we sell 10 million plus tickets on a platform without any consumer issues? We're at 9.1, we haven't had an issue since early January with Phish. So Nathan Hubbard and the team have done a great job of seamlessly selling lots of concert tickets. And you can imagine these Wednesdays have been a heck of an experiment on our load and we've handled those Wednesdays on sales perfectly.

So, executionally we've been delivering. And then as far as the revenue generated, we haven't had to overstaff any more than planned or fix a little lower than we had planned overall. So we're running at basically the amount of people we need, the fixed cost structure is about the same as what we expected, and we're charging the same service fee to the fan as expected. So net-net, our efficiencies running it and also monetizing it, are 90% on plan, you could say.

And David, remember Ticketing recognizes their revenue just the same as North American Music does, it's when the events happen, so, most of theirs will also be in Q3.

Okay, thanks.

(Operator instructions). Mark Wienkes, Goldman Sachs.

Hello. So, two questions quickly. First would be, as you've been sort of divesting assets over the last couple of years, can you talk about how your returns have changed and what the plan is, I guess, over the next, I guess, sans merger, the focus on returns and how you see that improving over the next couple of years?

And then just the drivers and the differences in the attendance trends internationally versus domestically or in North America, they're just pure content-based?

Yes, in terms of our returns on our asset sales, we're still seeing -- obviously they're strategic sales for us, so the ones that we have out right now, the U.K. theaters and potentially the New York theater, we're expecting returns, yes, very accretive returns and so really aren't seeing the impact of that. Obviously there are strategic buyers that are involved in this.

And then the differences in attendance trends?

Oh, two fold. One, in Europe, Madonna is touring Europe, not America. Two, festivals have just been very successful this year in Europe and they're having a really strong year on the festival market. And festivals are the amphitheaters of Europe for us, so when they're strong our business is strong. And three, U2 is starting in Europe for Q3 and will be here in the fall. So those are the three that would drive International.

And North America, we have U2 coming in the fourth quarter. And we purposely, as I said, went into the year not trying to break the show count of last year and purposely kind of dialed down our aggression on how many shows we would fill the amphitheater with and at what economic risk.

So we went in this year knowing that North America didn't have to over deliver, that Europe would, and we wouldn't take that unnecessary risks on some tours and some shows that could have been a negative on us.

Right. And I remember last year there was an increased focus on more festivals, bringing more festivals to North America. I guess, what were the lessons learned from that and is that something that you're continuing this year?

Well, we like to fail fast. We did one in Vancouver that didn't produce the returns we wanted. We lost a couple of millions dollars. Also, last year it seemed to be the strategy of the year, because every promoter tried a festival last year and very few succeeded. So we decided again with the economic crisis, back in October in planning season, we decided to shut down any risky capital initiatives around launching new festivals in North America in 2009.

And from the looks of it, you know, there's a few established festivals that do great, Lollapalooza and Bonnaroo and Coachella. Other than that, the North American market, there are a lot festivals that are out there and just not succeeding. So, we are not robust on the idea that festivals are a growth opportunity in North America.

Okay. Then sorry, just one last one. I guess you just talked to the actual logistics or the issues or hurdle that you see in terms of flipping the switch on the House of Blues and the international ticketing at the end of this year. Like lessons learned; what did you learn this year in North America? Obviously you mentioned Phish. And are there any significant or different things you need to think about, with respect to turning on the rest of the network?

No, we have a software platform from CTS. It's technology, so it's definitely -- we have an ongoing relationship with them. Week by week we are demanding more and more from the system and week by week Germany is adjusting and trying to make it better and better. So we've had a year of learning. We've got a long way to go still to becoming a top-notch technology company.

But it works, it sells tickets. And the biggest part we've learned is the real fruit from the exercise comes from your e-commerce storefront and your dynamic pricing. I mean this no service fees was just continual testing around the dynamic pricing that says, can we motivate purchase?

We found two pieces of information in research this year that just drive everything we do. Sixty percent of our fans said they would have went to the show but they didn't hear about it and 40% of our inventory's unsold. We think there are millions of dollars of upside if we can, one, get to the fan more efficiently and affect some of those 60 that want to come. And then, through dynamic pricing, chip away at that 40% of unsold.

So the lessons really are just more around how do you become a great e-commerce website to motivate purchase, give a better experience, and that learning. The bottom line platform called CTS, it's a software that works well, works good enough and we'll continue to innovate it. But we don't see any fundamental problems in adding more to it.

I guess I do have one more. Have you seen a difference in the secondary ticketing market with respect to what you're seeing on your

We don't really have any secondary business right now. We've decided this year isn't the year. We're going to try to figure that piece out. I've read the different reports from StubHub and others, who it looks like business is still healthy on their end, on the top end of the site. So, we haven't seen any new insights either way that would suggest the business is growing or declining. It looks pretty stable amongst -- that business at the end of the day is the big cities, the big tours, and the great seats can demand a great premium.

Okay, all right thank you.

David Joyce with Miller Tabak.

Thanks. Could you discuss how your Latin American partnership has been panning out according to your, I guess, original expectations and what sort of impact that would have had in the second quarter, portion of deferred revenue and what other territories we could consider you looking into in the future?

Yes, I mean our partner, CIE, is a great partner. As everyone would know, it wasn't the best year to be a promoter in Mexico, with the swine flu and others. So, this year we had a great success by bringing Madonna down to South America in last year. And basically, since January the Mexican business has been shut closed for the business on a concert perspective. It's now heating back up and we have some stadium shows planned and we'll continue to move forward.

We have no real impact on deferred revenue. It's not a big enough piece of business. That strategic relationship is about having that distribution pipe when you have shows like Madonna or the Jonas Brothers, that when you're promoting in Brazil or Mexico or Chile, you're now not just selling off the show but you're actually participating in a local revenue. So it's new revenue to us but at the end of the day, Latin America in general is a $5, $6 $7 million EBITDA business a year. It's not a big piece of business right now.

The places, Europe is doing really well. As far as expansion, we're continually looking at Australia, Japan, Germany. Those are the big markets that we really don't have any presence in that we'd like to find the right way to get to at the right cost one day.

Okay, thanks.

(Operator instructions). Alan Gould with Natixis.

Thank you. Michael, it's been a couple of years now since you've started these 360 deals. You've had Madonna, Nickelback, I guess, U2 all on the road. How have they performed relative to your expectations in the first year or two of those deals?

They've exceeded our original plan. As you remember, when we signed Madonna there was a lot of debate on how big she was touring, what her age was, would she tour, and she went out and broke all history records in the largest tour in history from a solo artist. We had not planned on it being that big, so that over delivered on our return.

Jay-Z toured and sold out every arena. That again, we didn't have 100% sell out in there so that worked. Nickelback is just -- they're dead on plan. We knew they were a sleeper and a big band and selling a million tickets right now is unheard of in today's economy.

And then U2. Listen, we always believed that they were going to be as big and as long as they want, would we have thought that this tour -- when we did that deal did we know they were going to do a worldwide stadium tour? No. So, we would have never built into a plan that aggressive scaling and size. So U2 will over deliver completely on our original plan.

Now, the easy part of what those deals were, we believed here from our history that those would be strong touring acts and having them under contract would benefit us. It has. They've kept the price of talent down and also they've all over-performed.

And then the real test will come when our first real album comes out that we have to do some level of distribution on. We had our first Jay-Z album. We've outsourced that to Warner Records. So, again, we've always said when we took these over, the cost of the album was the marginal small part of the overall deal, and we don't plan on building infrastructure and cost structure to become a record distributor. We're finding that there are a lot of distributors who want the Jay-Z, the Madonna, the Nickelback records. So we're pretty confident that we will be able to find our returns on the record by outsourcing that.

Quick follow-up. How have the other ancillary businesses gone? Have they also outperformed like the tours have, the merchandise and etc?

Yes. I mean most of our deal is all tour related, so at the end of the day if you sell the tickets, the fan site works, the membership works, the merchandise works, the sponsorship works. I mean the Blackberry sponsorship on U2 over delivered. Shakira will be coming out this year. We believe she'll be a gigantic star worldwide again. So, the business has over delivered on all of those pieces, given the size of the ticket sales.

Okay. And one other question. I apologize, I missed the first part of the call if this was already asked. How is sponsorship going, given the softness in overall advertising in the economy?

Well, we did cover it but just a summary. Given the trends on advertising down, the 15% to 30% depending on which medium, we are tracking flat right now year-over-year, which we're surprised by honestly.

We don't know if that'll hold through the rest of the year so we are building our plan to assume that sponsorship will be down somewhere in the range of 5% year-over-year is how we've built our plan. We originally built it being down about 10% but we're feeling at this point that we may finish the year only 5% down.

Okay. And one last question, I'm sorry. Did you lower the guidance to high single digits as opposed to low double digits?

Yes, that's correct.

Yes, correct.

Okay, thank you very much.

Robert Cathey with Walker Smith Capital.

Guys, it's Reid Walker. Any update on just the merger? I saw that there's not much -- no questions yet.

Yes, nothing. We're in the process, the usual process of the DOJ and we're moving on that. The S-4 we'll finalize up soon. When will that go out?

Forty-five, 60 days probably.

Forty-five, 60 days for final as far --

It's out on amendment one, but still not effective.

Forty-five to 60 days on this one. And has there been a second request for data?

Yes, we did that back in, I think, March. So we're on full second review and everything's going -- I could say we're very confident and optimistic still that we'll close this in the fourth quarter, and the DOJ when it's all said and done, will see the benefits of the output.

Okay. Thank you very much. Good luck.

And there are no further questions at this time, I would now like to turn the call back over to management for any closing remarks.

Thank you everybody. We'll talk to you in Q3.

This concludes Live Nation's second quarter 2009 earnings conference call. You may now disconnect.