Live Nation Entertainment Inc (LYV) 2009 Q3 法說會逐字稿

At this time, I would like to welcome everyone to the Live Nation third quarter 2009 earnings conference call. After the speakers' remarks, there will be a question-and-answer period. (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 measure in the earnings release on their Website. The release, reconciliation 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 third quarter conference call. I'm joined today by our CFO, Kathy Willard.

During the third quarter, we generated robust growth across our business, including substantial increase in our adjusted operating income, driven by focusing on superior execution across our core business platform. Our divesting of non-core, distracting assets over the past four years is paying off as we now have the entire Company pointed in a unified vision towards driving growth from our global concert platform via increased ticket sales. Our ability to grow in these tough times, even as the whole industry declined by 15% in terms of ticket sales, demonstrates the strength of our platform and superior management team. Our two objectives for 2009 were to grow our core business and increase our cash flow. And we have successfully executed on both of these objectives year-to-date.

Let me give you an update of our core business performance and the five drivers of our business model. Our five drivers are, first and foremost, we have to buy the right show at the right price. Second, we sell direct to the fan and drive ticket sales. Third, we maximize on-site spend once they're in the building. Four, we sell sponsorships around this entire experience. And five, we do all this with tight cost controls.

So, the first area I'll take you through is attendance and events. During the third quarter, we increased our music attendance globally by 12%, compared to a decline of 30% for the rest of the industry as reported by Pollstar. In North America Music, our attendance increased 2%, as compared to a 32% decline for the rest of the industry. While International Music grew 45% versus a 12% industry decline.

For the nine months, we increased our global music attendance by 2%, as compared to a 15% decline for the industry. Our North American Music attendance was down 5% during the period, compared to a decline of 18% for the industry. While International Music was up 20% versus a 5% growth for the industry.

In terms of number of events during the quarter, our total global number of concerts was down just 1%, while Pollstar reported global events down 27% for the industry. In North America, our show count was flat versus a 27% decrease by the industry. And international shows declined 1% versus a comparable 28% decline in the industry.

For the nine months, our total number of shows is down 1% versus a 10% decline in the industry. North American shows are down 7%, compared to a 10% industry. And international show count is up 14% versus the decline of 3% in the industry.

Overall, we are tracking ahead of the industry in both attendance and number of events, as we continue to fill our distribution pipe with the best shows and help drive ticket sales through aggressive promotion and marketing. Our fourth quarter line up is currently tracking on plan with touring artists including U2, Jay-Z, AC/DC, Metallica, Rascal Flatts and Brad Paisley.

The second piece of our business model is to sell all those tickets to those shows. This is done this year through the new piece of our business model Livenation.com. Through September 30, monthly unique visitors of Livenation.com increased 55%, compared to the first nine months of 2008. The number of unique visitors continued to increase, over last year, with a record 7 million in July. In addition, Livenation.com was named the fifth most visited online music Website in July by Nielsen and the number of repeat visitors to Livenation.com has grown more than 500% since the beginning of the year. We are pleased with this progress to date. We've been selling tickets for less than a year and already Livenation.com has become a leading online destination for music fans.

We have a differentiated offering in the marketplace that is resonating with fans and building strong brand equity. We will continue to evolve Livenation.com to meet the new needs of the artists and fans, centered around the live experience. We've already begun offering ticket and music packages. We've opened up our platform, so all bands can list their concert events. We've opened up the platform to fans, so they can post reviews, pictures and share with other friends via social network integration.

The third piece of our business model - and the most important - is the on-site spending. Once the fan is in the building, we're focused aggressively on offering high value products that drive revenue per head. In North America, our ancillary revenue per fan at amphitheaters grew 3% this quarter. International festival food and beverage net revenue per fan increased by 2% for the quarter and 9% for nine months. On a constant currency basis, it improved 14% this quarter and 23% through September. This is a substantial achievement for our organization, given the state of the economy and the overall pullback in consumer spend.

The fourth piece of our business is sponsorship. Revenue totaled $78.5 million in the third quarter, an increase of 4% compared to last year. Our average revenue per sponsor for the year increased 2%. Overall, we believe the performance of our sponsor business is outstanding, given the economic downturn and the impact on the overall advertising market. Most recently, we formed a strategic sponsorship and marketing alliance with the Coca Cola Company. And we continue to expand our relationship with other key companies such as Comcast, Microsoft and Starwood.

The final piece of executing our business model is ensuring our costs are in line. During the quarter in North American Music, our average operating costs per attendee decreased 6% and our average marketing costs per attendee declined 11%, across all our promoted events resulting primarily from our bookings strategy and cost saving initiatives. Despite attendance being up only 2% in North America, we were able to generate 14% revenue growth, overall, including acquisitions, and 47% growth in adjusted operating income for the Company as a whole, which demonstrates the progress we have made in running our core business. Our revenue per fan was $90.18, up slightly compared to $89.60 in the third quarter of last year. On a constant currency basis, our third quarter revenue per fan would have been $0.9455, an increase of 6%.

Our second priority this year is to maximize our cash flow with the goal of de-levering our balance sheet. Our three point plan was based on - One, increasing our adjusted operating income through our core business, as outlined above. Two, reducing capital expenditure. And three, selling our non-core assets. On the capital expenditure side, we remain on track to decrease our capital expenditures by 70% in 2009, to approximately $57 million, a significant decrease from $187 million last year.

We recently sold our remaining UK theatrical venues and operations, in two transactions, for a gross sale price of $160 million. These sales represent a multiple of approximately 10.4 times the estimated 2009 income. After expenses and fees, we received approximately $111 million of net proceeds, 50% of which will be used to pay down debt. We also closed on the sale of our interest in several non-core real estate holdings in Boston, for a total of $22.5 million. Following the close, we applied 50% of the proceeds from this sale as a permanent reduction of our term loans.

To conclude, we believe that our third quarter results demonstrate the strength of our global platform and management team. We generated record adjusted operating income, drove double digit worldwide attendance growth and continue to grow our sponsorship revenue, despite the challenging landscape. Livenation.com is gaining increased prominence as a major online destination for music fans. And as result of our high level of execution in 2009, we currently expect to drive growth in our adjusted operating income in 2009 for the fourth straight year in a row. As we stated three years ago, 2009 would be the year our platform was complete and we would start driving free cash flow and de-levering our balance sheet. Both of these strategic imperatives will be realized this year.

Finally, we are currently expecting the close of our merger with Ticketmaster in the first quarter of 2010. We, along with Ticketmaster, are continuing to cooperate with the review of the Justice Department and other anti-trust regulators. Upon closing, we believe the combined Company will accelerate the execution of our vision and strategy to build a live music Company that provides a full service connection between the artist and fan. And now, I'll turn it over to Kathy.

Thank you, Michael. Good afternoon and thank you, everyone, for joining us. We've completed our strongest quarter of 2009 with great results. During the third quarter, consolidated revenue was $1.8 billion, an increase of $220 million or 14% compared to revenue in the same period last year, primarily due to an increase of $218 million in International music resulting from the reopening of the O2 in Dublin, as well as strong festival and stadium events. Other positive revenue impacts include an increase of $82 million in North American Music related to the opening of the House of Blues clubs in Houston and Boston; higher attendance at arena shows and third party venues, along with the 2008 acquisition of Deluxe; and a $24 million increase in ticketing due to higher revenues from our ticketing platform. These increases were partially offset by a decline of $88 million from foreign exchange movements, mostly in International Music.

Adjusted operating income was $161 million during the third quarter of 2009, compared to $110 million during the same period of 2008. This increase of $51 million or 47% was driven by a $24 million increase in North American Music due to increased show results from arena tours, as well as our cost saving initiatives. Other positive changes in adjusted operating income include an $18 million increase in International Music due to the reopening of the O2 and strong stadium shows and festival results, and an $18 million increase in ticketing due to higher net revenue from ticket service charges related to third quarter events. These increases were partially offset by a decline of $9 million from foreign exchange movements, primarily in International Music.

Operating income in the third quarter was $115 million, an increase of $39 million or 52%, compared to $76 million in the third quarter of 2008. This growth was driven by the $51 million increase in adjusted operating income for the period, partially offset by $8 million of acquisition expenses, primarily related to our pending merger with Ticketmaster, due to the change in accounting related to acquisition costs. In addition, we had a $6 million increase in depreciation and amortization expense driven by higher amortization of intangible assets associated with artists' rights agreements.

Our net income was $69 million, as compared to $138 million in the third quarter of 2008. This quarter was impacted by the acquisition expenses previously discussed. In addition, last years result's benefited from $48 million of income from discontinued operations for the businesses we sold last year, as well as an income tax benefit included in continuing operations of $64 million related to the gain on the businesses sold last year.

For the full nine months of 2009, consolidated revenue was $3.4 billion, an increase of $120 million or 4%, compared to revenue of $3.3 billion in the same period last year. Our revenue growth includes an increase of $240 million in International Music related to the reopening of the O2 and strong stadium tours and festival results. We also had an increase of $64 million due to the acquisitions of Deluxe and DF Concerts, as well as smaller acquisitions in North American and International Music.

Other positive revenue impacts include a $41 million increase in ticketing from ticket service charges due to the launch of our ticketing platform and related sponsorship revenue. And in North American Music a $38 million increase, primarily related to the opening of the House of Blues Clubs in Houston and Boston and increased attendance in share related revenue at third party venues and arenas. The increase in reported revenue for the nine months of 2009 was impacted by a decline of $223 million from foreign exchange movement, again primarily in International Music.

Adjusted operating income was $178 million during the nine months of 2009, compared to $142 million for the same period in 2008. This increase of $36 million or 26% was primarily due to a $29 million increase in International Music related to the reopening of the O2 and the strong festival and outdoor show results. We also had positive growth for the nine months of $20 million in ticketing due to increased service charge revenue and related sponsorship. These increases were negatively impacted by a $17 million decrease due to foreign exchange movements.

Operating income for the full nine months of 2009 was $27 million, compared to operating income of $33 million for the same period last year. This year-over-year decline was driven primarily by the $27 million of acquisition transaction expenses related to our pending merger with Ticketmaster. It was also impacted by increased depreciation and amortization expense of $19 million related to several of our capital investments from last year, along with increased amortization related artists' rights agreements.

Our net loss for the first nine months of 2009 was $61 million, as compared to net income of $100 million last year. The net results for 2009 were impacted by the acquisition expenses of $27 million previously discussed. In addition, last year's results benefited from $77 million of income from discontinued operations, as well as an income tax benefit included in continuing operations of $83 million related to the gain on the businesses sold last year.

Our other key financial information is as follows. As of September 30, our cash and cash equivalents balance was $258 million. Our free cash, which is essentially cash less event related items, was $10 million, as compared to $50 million at the same date in 2008. At September 30, our deferred revenue, which includes cash received related to tickets sold at our venues in advance of the events was $276 million, up slightly compared to the $256 million at September 30 in 2008, an 8% increase year-over-year. This increase is driven by the amount of ticket sales for future shows as of the end of the third quarter. Of this increased deferred revenue, $1.4 million is related to service charges that we have received but have not yet recognized due to selling our own tickets in 2009.

Total capital expenditures for the first nine months of 2009 were $39 million, compared to a total of $139 million during the same period in 2008. Of these 2009 capital expenditures, $14 million have been incurred for maintenance expenditures and $25 million related to revenue generating projects. We continue to expect total capital expenditures to decrease significantly in 2009 to approximately $57 million for the full year, as compared to total capital expenditures of $187 million during 2008.

Free cash flow was $123 million for the third quarter of 2009, nearly twice the amount of the $64 million we achieved for the same period in 2008. For the first nine months of 2009, free cash flow was $94 million, as compared to $44 million in the same period of 2008. Free cash flow for the nine months of 2009, adjusted for working capital changes and acquisition expenses, is also positive and greater than the same period last year. We currently expect that free cash flow will be positive in 2009 for the full year, exceeding last year's free cash flow. Moving into 2010. We currently expect to outperform our 2009 free cash flow results based on our current asset mix, as we anticipate further gains from our core business, along with continued benefits from the recoupment of payments under our 360 deals in 2010.

As of September 30, our total long term debt including our outstanding redeemable preferred stock was $895 million, compared to total long term debt of $864 million as of December 31, an increase of $31 million. This increase is primarily due to draws on the revolver to fund working capital needs this year. As we have previously stated, we have no significant debt maturities under our primary debt instruments until June 2012 and we continue to remain comfortably in compliance with all of our debt covenants.

We continue to selectively divest non-core assets. And as Michael noted, last week, we completed the sale of our UK theatre division in two transactions for an aggregate gross sales price of $160 million. We believe we secured a very attractive price for the assets, as the sale represents a multiple of approximately 10.4 times estimated 2009 operating income and 7.4 times our estimated 2009 adjusted operating income. After payment of fees, expenses and other adjustments, including working capital and replacement of cash for future shows, we currently estimate the net proceeds to be $111 million. 50% of these net proceeds will be applied as a permanent reduction to our term loan and the remainder will be used to fund working capital.

Overall, we continue to focus on our balance sheet, as we look to earnings growth and continued cost control, both in terms of expenses and capital expenditures, to provide the ability to continue to deleverage our balance sheet and put us in a position to ultimately refinance as a standalone Company or under a merger with Ticketmaster. For the continuing merger process with Ticketmaster, we completed the review with the Securities and Exchange Commission last week. And our joint proxy statement is now complete and being mailed to stockholders. Our stockholder meeting to vote on the merger, along with other matters, is now scheduled for January 8, 2010.

Finally, we currently believe we will deliver adjusted operating income growth in the high single digits for the full year in 2009. We are extremely pleased with our third quarter results and our ability to achieve growth over the prior year in this tough economic environment. Looking forward, the fourth quarter is historically a seasonally low quarter for us and we currently expect that this year will not be any different. And in fact, lower than the prior year's last quarter, based on the timing of events in 2009. Operator? Can you please now open up the call for questions?

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

Thank you. A few things. I was wondering if you had any recoupments from the Madonna and U2 tours that may have helped EBITDA in this third quarter?

David, those recoupments are more of a cash basis. They wouldn't actually help the EBITDA. Obviously, there are results coming through for the Madonna dates, as well as U2 dates for the actual events. But the recoupment itself doesn't impact the EBITDA.

Okay, that's why it's helping free cash flow next year.

Yes.

You talk about the amphitheater ancillary revenue. How would that have looked if you would have included all ancillary, both, say, online as well as all venues, how is that comping year-over-year?

It would be up. If you include -- most of -- the reason we include amphitheaters is because the amphitheaters are where we control most of the ancillary revenues. So if you go to our amp, we obviously control the parking, the merchandise, the food and beverage and etc. If you go to the Madison Square Gardens, we're just the renter, so we don't really have any ancillary revenue. So if the amps are up, that's the best thing for us. That would intend to indicate that all of the others are up but that's the biggest driver for us by far.

And you can see that kind of across all of the buildings by looking at the revenue per fan, David. I think that gives you a good indication overall.

I think we're $90.18 versus $89 of revenue per attendee. With constant currency, we'd even be higher.

Okay. So, that's all in that number. I was wondering on the sponsorship side, is that all North American or do you have some internationally, as well, for venues that you manage internationally?

Well, we have a large international sponsorship business. We're up internationally, even more than North America. International had a very successful year. Ballparkish, we would generate -- we're generating close to over $100 million on sponsorship. We're going to do $40 something million in international. So, it's a big number international.

Okay, great. Thank you very much.

(Operator Instructions) Your next question comes from the line of David Kestenbaum with Morgan Joseph.

Okay, thanks a lot. Can you just talk about, it seemed like you did really well in the margin, just where that cost cutting exactly is coming from?

Yes, we've talked the last couple years about one of our biggest costs, if you look at our variable business, there's talent costs and then there's show costs. So, we have over $3 billion in those two items. So a good 50% to 60% of that is talent cost, which is really not that affectable but another $1 billion is in the show cost. So, we've been very effective, over the last two years, of just benchmarking. Making sure we're paying for the same cost of all of the show costs across the country, whatever, from catering, to buying garbage bags, to staff costs, to security costs. We had a very fragmented business historically and we've been doing a great job on doing best practices across the country and finding a lot of variable costs that we've been able to increase. Kind of controls and discipline on. So most of it has come from show costs, variable, would be our biggest bucket that we continue to increase our business.

And going forward, do you think you've extracted all that costs or do you think there's still things that you can do?

No, we've got a three to four year plan that we think we can continually grow the business through a lower fixed and variable cost basis. Again, now, that we've got kind of the entire Company focused on it.

Okay, and now that you're far along on the acquisition -- the merger, can you just talk about what excites you most about it? And particularly, how instrumental is the artist management side of the business to this whole merger?

Well the artist management business is incredibly high margin business and a very low capital. It produces incredible free cash flow and high margin. So, it's an incredible financial piece of the pie to drive your business. So, in the concert business, where we're the lowest margin of the troops and then ticketing being better and artist management being the highest, it's just a great business for us to kind of diversify and grow our overall margin business from a financial. From an operation and strategic, any time that you can get closer aligned with the artist and figure out what their needs are and how to drive a better concert or online experience, it's going to benefit us in the future.

And the most exciting piece for me, so you'll hear it, is just -- it's all about the online business. Being the business right now where no other music company has successfully launched a real storefront. Universal and some of the record labels will try next month with Vivo, based more around the music video. But for us to have a store front and become a true eCommerce Company, where the consumer is purchasing the ticket and from there, more items, it just takes our Livenation.com strategy, put that together with Ticketmaster.com's credible leadership position and start putting innovation towards that site and that experience. And I think that is the future in how we can sell more tickets and market to the consumer in a more unique manner.

And related, can you talk about what effect this has had on the ticketing initiative? You actually posted a pretty good number on the ticketing side. But Ticketmaster has done a pretty good job renewing some of their contracts recently. Whereas, you had initial success. So, have you slowed that down and maybe just talk about your own ticketing effort? Thanks.

Somewhere last year, we would have said that the most important thing in 2009 was just making sure we did two things right. That we can run our Website, Livenation.com and build the right eCommerce team. Get some innovative thinkers thinking about that business every day. And number two, is make sure we have the ticket operation, the mechanics, working well from our CTS license. So, we're very happy about our online business. We think we've done a fabulous job of taking a pretty static site and every month innovating it. And more importantly, driving these numbers that we drove this year is all parse and parcel of being in direct contact with the consumer. Having those levers to be able to look at your service charge as maybe one lever in the pricing

and we drove some incredible numbers this year through our direct relationship with the fan. So 2009, was truly about, make sure we can execute and start learning and pricing and be experimental on the promotions side with the fan direct. And show our business that we could drive more of our own business first. And that's been our focus and we're proud we got that done. And we think we got a lot to go on Livenation.com. And now, with the merger and process, we will wait for the outcome of that and then we'll move on from there.

Okay, thanks.

Your next question comes from the line of Ben Mogil with Thomas Weisel Partners.

Hi guys, good afternoon and thanks for taking the call. A couple questions. In terms of the free cash number, sort of significantly down year-over-year, despite the fact that the business is clearly tracking better. What's the large delta, if I look at it the year-over-year, you called it $40 million decline in free cash?

Well, a lot of that is going to be timing of those last artist related payments and how those flow in.

Okay. And when you say you think you're going to be free cash flow positive this year, are you backing out both non-cash comp and the Ticketmaster merger fees?

I'm backing out the Ticketmaster merger fees, not the non-cash comp.

Okay. And then, Michael, can you talk a little bit more about sponsorship? I think you talked about $100 million in sponsorship and I think the press release had the $144 million. And I think you've mentioned, in the past, there are differences in things like between premium seats. But in general, how are you seeing sponsorship? Can you give us any color, regionally or by genre or by category, just kind of curious where you're seeing sponsorship in general?

Well, as you know, in the last couple of calls, we kind of built a plan that thought we might be down 10% or so. So, we're just thrilled that we've been able to deliver these kind of numbers. We would have thought, going into this year, that we might have got hit on the national level, some of the bigger companies. Obviously, losing the car companies and some of the financial institutions, we thought that would have been a bit of a hit to our national number. But we've been picking up.

There's a theory that says, maybe as some of the companies are spending less on TV and radio and some of the more expensive mainstream media, they've shifted some dollars to the events side. So, they can get still some kind of ground roots touch. So, we've been successful local, regional, national. It's a -- if you look at what our business is, there's an international component, a national, a regional and a local. And they're all split up fairly equally. And right now, we kind of delivered on all four of those. And we don't have any big surprises on any category that kind of declined dramatically. We're able to find new sponsors and others that came into the marketplace.

Are you still putting tickets on sale? I know that, starting in the first quarter, you started putting tickets on sale a lot earlier than historically you had. Are you still planning to do that for 2010 even if the economy gets better? Is this sort of the new normal for you guys?

Yes, first of all, I want to back because I just make sure because you and I have had this conversation. So I want to give you the sponsorship numbers, so we have them right.

Sure.

So historically, we had -- on a contribution basis, so revenue less the cost to execute them, I'm going to give them -- so locally, we did about $40 million locally. So that's a local or regional, a $20,000, $40,000, $50,000 deal on a local company, does a little thing at the venue. $45 million in national. That's just like you know it is, the cities and the Coca Cola's. $47 million internationally.

Okay, great.

So, that will give you $134 million. Then, we do another $46 million in PSS or premium seats, which is again, kind of like a local sponsorship. Somebody buys the box, plus a sign, for a premium price. That puts you up at about $180 million for the year versus $179 million last year. So, if I looked at all four of those year-over-year, our international was up substantially. We had some great international growth, Simon Lewis and the team have done an amazing job.

Premium seats, which you would think would be down. Right? That's the buy the box, buy the seat for the year. That's basically almost flat year-over-year. National is basically flat down $1 million or $2 million. Which again, you would have thought the big checks that that incorporates might have gone away. And locally, we were down $46 million to $40 million. So, some local sponsors but that's just the high volume business. If you add up all of these, there's 800 sponsors that add up to that $134 million. So, we have -- the good news about our businesses is it's not concentrated. You can lose 15 little guys and pick up 15 new guys. It's not one big guy or 10 guys that make up your business. It's a very diversified business.

Thanks, that is helpful. I'm actually, probably like you, sort of actually pleasantly surprised that local is actually not down more, given what you sort of hear from a lot of the local advertisers.

Absolutely and especially, if you look at premium seats because that's really local. The people that buy the boxes and the premium seats are local businesses usually. And we would have thought, going into this year, that that might have taken a hit but we're basically flat.

And then, on the sort of earlier on-sale dates, this is something that you're going to keep regardless of the economy? Is that kind of fair to say?

Absolutely. We're so thrilled we did it last year. I think the marketplace was so scared last year that everyone wanted to get ahead. And I would just say that the new trend we're seeing already is we have more shows booked in our pipeline for next summer than we can remember in history, at this point in time. So not only are the bands are getting in early, the bands are lined up now saying, "I want to tour next summer. Let's get the deal done. When are we going on sale? Let's get the marketing plan in place." So, I see bands and managers and agents being very responsive to the economy, both in, "Give me time, give me good marketing and let's talk about pricing."

Okay. And then I think last question and I'll hop off for someone else in the queue. A number of us just got off the Ticketmaster call. In terms of things all-in pricing, paperless tickets, dynamic pricing; what are your thoughts? Irrespective of the fact that you've got a proposed merger with Ticketmaster, what are your thoughts on all of these in terms of how it impacts your core business?

Well, it's all fabulous. We have to do it. The bottom line of our business is, the reason we feel confident about our business model is we have an incredible platform. And going back to that earlier question, we know we can cut some variable and fixed because we can still run it better. But more importantly, with 80% of shows not sold out, a historic number, 40% of your inventory unsold, and 60% of your fans said, "I didn't know about the show." We think there's just incredible upside if we start treating the concert business like some other smart industries that have depreciable assets, whether it's hotel and airlines and others. That it's just crazy that at midnight, we've got a venue with 4,000 empty seats.

If they walk in the door, they're spending $17 or $18 for us. So, if we can find ways to start innovatingly selling to the fan, both from a price promotion and a convenience perspective. This has been a category that has not been innovative for a long time. And any innovations on the ticketing, paperless, dynamic pricing, seat select map, bundle with CD, buy your pass before, just a host of innovations. A lot of the sports leagues have been much better, Major League Baseball and NFL's and et cetera and have done a great job, over the years, of driving sales. So, we support all those innovations and more because the more people that get in that venue, will make -- will drive the efficiencies of our model.

Okay, that's great, Michael. And thanks, again, for the clarity or the color on the sponsorship. I think that gives me quite a lot to work with. Thanks again.

Thank you.

(Operator Instructions) Your next question comes from the line of Tuna Amobi with Standard and Poor's.

Sorry, I have a few as well. First, how much service charges or service fees were included in deferred revenue? Just so we can get an apples-to-apples comparison.

$1.4 million, Tuna.

$1.4 million, okay. Next, on the no service fee promotion, I think last time, you talked about the incremental rate being around 70%. Is that -- the first question, is how many customers were you able to drive through the door, to date, on that promotion? And secondly, are you still seeing that 70% incremental rate ticket?

Yes, absolutely. We figure it's from our exit service and et cetera, it's about 30% cannibalization. We sold over 800,000 tickets to that event. The numbers really speak for themselves. So, if you look at what we delivered this quarter versus the industry, we just blew it out of the water. We have -- from a ticket perspective, the industry was down year-to-date 7% and we're up 5%. If you look at the quarter, our tickets were up 14%, the industry was down 9%.

So, in order to beat the industry, that handily, we absolutely, not only as we said did we drive some incremental tickets on the no service fee. We just brought a ton of attention to our Website. And we've sold, as we said last time, we were selling lots of regular priced tickets on that Wednesday. Because the amount of traffic that came to the site that day to talk -- to look at a show, many people got there and said, "Well I'm not going to buy the cheap price. There's still a good seat available." So we drove over 800,000, incremental, 70% of that, some premium seats on top of that or regular priced added to that, which all added up to our overall increase in attendance.

Did any of that spill over into Q4?

A little bit. Most of the summer season was over at that point.

Okay. And just switching gears here. I wanted to get a sense of, I think you talked about the upside on the artist management part of the merger. But given the momentum on your site -- on the tickets and site, do you feel as strongly today about that deal as you felt months ago when it was announced, as far as the traction that you're gaining on your own site? Is there something that maybe kind of effects your overall view of potential benefits?

No, I think the principles are why we think this merger makes sense, for our Live Nation shareholders, are strong as ever. I think it's a -- 1+1 is an incredible new financial combination for the shareholders. So, if we've been sitting here talking to you the last three years about how; We will be drive free cash flow, how will we drive our margin business up? Combining with Ticketmaster, which has a much higher margin and a great free cash flow business, at this exchange rate, is a heck of a deal for us to kind of propel our business needs.

Do you get a sense that there might be major regulatory conditions, particularly given what's going on in Europe right now? And do you feel that Europe really is going to drive what might happen in Washington in terms of the review process itself?

I doubt the DoJ is going to be run by the Brits but I would just say that Irving and I and our Boards are very clear on what we will do and what we won't do to get the deal done. We know where the threshold is. And we don't expect, at this point, to be putting a deal together that doesn't make financial sense for each other. So, we're pretty confident that once the reviews are over that, we'll both be able to find that happy medium to get these deals done.

Can you remind us when the SMG deal kicks in? I know it's supposedly in Q4 some time. Has it kicked in already?

The SMG deal has been an ongoing deal. We started this year with the food and beverage part of the SMG deal.

I was actually referring to the long term ticketing part of the contract, the ticket sales.

Yes, I was just giving you the -- it was a double side deal that's all.

It was always a small number of tickets in 2009. With the majority of them really coming in next year and 2011, Tuna.

There are no further questions in the queue. I would now like to turn the call over to management for closing remarks.

Thank you, everybody.

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