Live Nation Entertainment Inc (LYV) 2010 Q3 法說會逐字稿

Good afternoon. My name is Ashley and I will be your conference facilitator today. At this time, I would like to welcome everyone to Live Nation Entertainment third quarter 2010 earnings conference call. All lines will be placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer period. Before we begin, Live nation Entertainment has asked me to remind you that this afternoon's call will contain certain forward looking statements that are subject to the risks and uncertainties that could cause actual results to differ.

Forward looking statements include statements relating to the Company's anticipated financial performance, business prospects, new development, and similar matters, and or statements that use words such as anticipate, estimate, expect, intend, plans, believe, and similar expressions. Please refer to Live Nation Entertainment, SEC filings including the risk factors and cautionary statements set forth in the Company' most recent filing on forms 10K, 10Q, and 8K.

For description of risks and uncertainties that can impact the actual results. Live Nation Entertainment will also refer to some non GAAP measures on this call. In accordance with SEC regulation G, Live Nation Entertainment has provided a full reconciliation for the most comparable GAAP measure on in the earnings release on their web-site. The release reconciliation and other financial or statistical information to be discussed on this call with be found on www. livenation.com/investors. It is now my pleasure to turn the call over to Mr. Michael Rapino, Live Nation Entertainment's Executive Officer, go ahead, sir.

Good afternoon everyone and welcome to our 2010 third quarter conference call. I'm joined today by our Executive Chairman Irving Azoff and our CFO Kathy Willard. Declining industry volume in 2010 continues to be the primary impact on our revenue performance which is down 14% for the quarter. During the quarter, our team worked aggressively to execute several targeted promotions to improve attendance, particularly in our North American amphitheaters. These efforts reduced revenue per ticket but helped support our on site ancillary business and assure our attendance based target was achieved for our sponsorship business. As we stated previously, fan ticketing purchase behavior was impacted this year by the global economic slow down combined with pricing that was too high for a number of tours, especially mid-tier artists. Dealing with this issue is front and center in our 2011 plan.

During the quarter, we took additional steps to implement across the board fixed expense controls, freezing all essential new hires and aggressively reducing nonessential spend while focusing on our high margin businesses, Sponsorship and E-commerce. Now, I'll take you through our division highlights compared to last year on a combined basis, as well as our action plan for the remainder of the year. I'll also provide insights in 2011 and what we are doing to drive improved performance. First, of the concert division which has three metrics, that drive its AOI, show count, attendance, and on site spend. On a global basis, Q3 showed show count was up 3% for the nine months it was up 1% over last year. So the pipeline was full. Our issue was the fans pulled back.

Concert attendance decreased 16%, and for the nine months it was down 10%, still slightly better than the industry. In a positive note, the fans spent once they got to the show. North America ancillary net revenue per head in our amphitheatres was $17.80 for the nine months, which is in line with the prior year. International ancillary spend at our festivals was $15.50 for the nine months, up 7% and on a constant currency up 17%. Our outlook of Q4 as of November 1, concerts have 1,662 shows on sale for the remainder of the year, versus 1,800 for the same period in 2009, a decline of 8%. For the Q4 shows we have sold 6.1 million tickets, versus 7.2 million in 2009, down 15%. This reduction in ticket sales is driven by less arena and stadium events in 2010. Our outlook for 2011, early signs for international concerts are encouraging with ticket sales up 17% versus the same time last year.

For North American concerts there are too few tickets on sale to draw any conclusions. Historic for concerts is simple. We lost four million global tickets in mid year and with fixed and variable talent cost in place for the year you have little opportunity offset that revenue decline in the mid. For 2011, we will ensure our cost structure can absorb this revenue level if industry volume is soft.

As we head into 2011, we are expecting another tough economic environment and we are ensuring we are ahead of the curve by one, going in with a reduced fixed cost base, two, reducing our show count and low margin or money losing shows, and three, driving volume through value offered promotions versus service fee reductions. We organized North American music and are confident the new leadership will be equipped to drive improved results. The ticketing division has three levers that drive its bottom line, ticket volume, venue rentals, renewals, and royalty rate.

And we have made progress addressing the historical royalty increase and obtaining menu contracts. Global sales volumes was down 4% for the third quarter and 10% for the nine months, mostly driven by the concert industry which was down 12% and arts down 15%. Our renewal rates are tracking very close to last year which is success given the increased competitive ticketing landscape. Our focus on key clients and segments is working, in 2010 we haven't lost one building in our major US arena segment. On the international front, our ticketing team won more new tickets than they have lost. Q4 ticket sales is projected to be down 13% versus prior year, particularly due to a large number of on sales and stadium sales in 2009.

So much like concerts, historic for ticketing is similar. We lost 9.4 million tickets globally and replacing that revenue mid year is challenging. Our ecommerce division continues to generate robust traffic with a combined database of more than 200 million. We had an average of 27 million unique visitors in the first nine months of 2010 across our combined businesses. A 7% increase in compared to last year. Total gross value of all tickets sold was $5.1 billion for the first nine months versus $5.6 on a combined basis, a decline of 9% driven by reduced ticket sales. Online advertising increased 13% from $23 million to $26 million in 2010 and the sponsorship team focused on driving more value here while working with technology group to create more sellable assets. Our online strategy is to continue to improve our technology and our product offerings to sell more tickets and to drive conversion. We continue to elevate our technology in our online business in order to innovate that ticket purchase and drive revenue from the artist to fan connection.

Our shopping cart in the process of launching, will drive our upsell opportunities and improve the overall consumer experience. We hope to have that launched in Q1.This week we will launch a very integrated Facebook and social media program. These are becoming an increasingly important fan touch point, as a result we start rolling out new ways to share their live event purchases, favorite artists, and event recommendations with their friends of Facebook.. Fans can easily share their show review, photos, invite friends and talk about the show and that will go live this week on livenation.com and Ticket Master later in the month. Our database marketing program we continue to invest in and drive a sharper focus around how to target fans for our artist and venue clients to drive sales.

On a sponsorship front, adjusted operating income for the quarter was $53, up 10% over 2009. And $88 million for the first nine months up 8.2% over 2009. Our robust consumer basis is attracting more advertisers and we continue to look for high growth in this segment from companies like HP, State Farm, Vodaphone and Absolute Vodka. Our sales teams are fully engaged on 2011 and we are encouraged by the progress we have seen so far. As of November 1, contracted revenue for our sponsorship division is up 24% versus a year ago. In closing, Q3 finished strong enough to keep us within our full year target. However, Q4 is pacing below expectations so far.

This is being driven by lower ticket sales and a lack of shows, which was driving down all three of our major segments, ticketing, concerts, and artists nation. As a result, we are currently, after October, within 5% of our target for the year and hope to mitigate any remaining risks. We're tackling the near term challenges, facing our business head on, and aggressively executing our strategic plan. We are also investing in our higher margin businesses, especially our online store front and sponsorship. We continue to actively review opportunities to complete out concert and ticketing platforms internationally. Our international business is thriving and we believe continued strategic expansion will strengthen both our margin and free cash flow. We expect 2011 to be another challenging year for the industry, and we have adjusted our plans to focus on main five main priorities.

Number one, lower our fix base across our North America concert head office and ticketing divisions. A more measured and profit driven approach of how we buy shows, reducing our low margin money losing shows and markets, aggressively push sponsorship online and E-commerce revenue. Aggressive ticket selling and value added promotions to drive volume but not at the expense of revenue, and continue to invest in modernizing our ticket technology and revenue products. With than I will pass the call over to Irving Azoff to discuss Artist Nation.

Thank you, Michael and thank you to everyone for joining us today. I remain optimistic about the future prospect for our merged businesses and I'm pleased with the progress on the merger integration projects. Clearly the adverse economic environment had a negative impact on concert attendance in the concert business during the year 2010 so far. A knock on impact has had a similar impact on artist businesses as well. Artist Nation's results for the quarter were below last year, primarily due to the economic impacts as mentioned and also due to the timing of major artist's touring schedules. Strong tours last year from Kenny Chesney and Fleetwood Mac by way of example. Our merchandise business has been additionally negatively impacted with soft retail market conditions.

Some of the Front Line key artists including tours in the fourth quarter and international from the Eagles, Chicago, Louis Miguel, and Smashing Pumpkins, and domestic tours by Sara Barailles, Three Seconds To Mars, GodSmack, Dirks Bentley and Weezer. Some of our key artists have had significant number one new albums released in charts this quarter including Sugarland, Kenny Chesley and Kings Of Leon. Although record sales continue to contributed diminishing source of revenue to our artists and management company. The fourth quarter month appears early next year with Kenny Chesney, the cast of Glee, Journey, Kid Rock, Kings of Leon, Neil Diamond, New Kids On The Block and the Eagles to name a few. We continue to grow our Artist Nation businesses with new signing and acquisition. We are delighted to announce that Gale Galeman, the manager of Sugarland has joined our group and entered in to a joint venture with Corey Shapoff one of the leaders in event talent marketing.

We are also close to announcing the completion of several acquisitions in Europe as part of our international expansion. While our roster and super star clients and tours schedules for 2011 remains very strong, we need some improvement in the overall economic environment in order to optimize profits going forward. In addition, we have been informed that, Barry Diller our former chairman has sold approximately 2.5 million shares of Live Nation Entertainment, representing virtually all his shares in the Company to Liberty Media. With that, I will now turn the call over to Kathy Willard for an overview of our financials.

Thanks, Irving and good afternoon, everyone. Our third quarter revenue increased to $1.84 billion up from the prior year reported revenue of $1.79 billion, but down from the 2009 revenue in a combined basis, including Ticket Master of $2.1 billion. This decrease over last year's combined revenue is primarily driven by $233 million revenue decline in the concerts division due to reduced ticket sales and lower average revenue per ticket. Adjusted operating income for the quarter was $192 million as compared to $156 million as reported in 2009, but down over the combined 2009 results of $222 million. This decline over the prior year was driven by a decrease in concerts primarily related to lower ticket sales, partially offset by the impact by the positive impact of the Company over all by our synergy initiative, purchase accounting impact, and other cost reductions.

We also saw an increase in sponsorship driven by strong international festival sales. Our operating income was $110 million in the third quarter compared to $108 million as reported in 2009, but down compared to operating income of $130 million on a combined basis. This decrease results from the items impacting the lower AOI partially offset by lower acquisition costs in the quarter. For the first nine months of 2010, consolidated revenue was $3.8 billion as compared to $3.3 billion as reported in the same period last year and $4.3 billion on a combined basis. This decrease on a combined basis is driven by a $303 million revenue decline in the concert segment, due to reduced ticket sales and lower average revenue per ticket, as well as a $122 million dollar decrease in ticketing due to lower ticket sales, primarily in the concerts category. The decline is also driven by a loss of $63 million lost in Artist Nation's revenue, primarily due to the reduced volume of their artists touring this year. Adjusted operating income for the first nine months of 2010 was $306 million, as compared to $161 million as reported in 2009, but down from the $341 million in AOI on a combined basis.

This decrease in a combined basis is driven by a $67 million dollar decline in concerts and artists nation in total due to reduced attendance, timing of artist's tours, and the $13 million non cash artist advance reserve we recorded in the first quarter. This decline in AOI was partially offset by an $18 million dollar increase in ticketing, driven by our synergy initiative, purchase accounting impact, and other cost reductions which help to offset the loss of ticket sales. We also saw a $7 million increase in sponsorship from strong international festival sales and reduced corporate costs by $10 million primarily through synergy efforts. Operating income was $39 million for the nine months compared to $12 million on a reported basis in 2009 and $69 million on a combined basis. This decrease is driven by the lower AOI in the period. At September 30, we had total cash of $856 million.

Excluding the $350 million in client cash and the other event-related items, our free cash was $425 million. Free cash flow for the third quarter was $147 million as compared to $153 million on a combined basis in 2009. The slight decrease in free cash flow was primarily driven by the reduced AOI partially offset by a reduction of cash taxes and maintenance capital expenditures. This give us free cash flow for the nine months of $178 million. We believe we are on target to benefit from approximately 40 million of merger related synergies we have discussed before and through September 30, we've actually realized approximately 27 million of these savings.

As of September 30th, our total current and long-term debt, including capital leases was $1.74 billion with no balance outstanding on our revolving credit facility. Our weighted average cost of debt, excluding debt discounts and premiums, was 6% as of September 30th. With respect to our senior secured credit facility we continue to remain comfortably in compliance with our debt covenant requirement. Our total debt to EBITDA ratio is slightly over four times versus a maximum of 4.9 times and our interest cover is over four times versus a minimum ratio of two and a half times.

The EBITDA used on our covenant calculations is based on both trailing results, and forward expectations. As a result the full annualized synergy benefits from the merger is adding to our trailing EBITA to calculate covenance and we are able also adjust for certain noncash expenses. Our capitol expenditures for the first nine months are $49 million compared to $39 million as reported last year. A slight increase driven by the addition of Ticket Master. With the reduction in AOI that we've seen this year, we reduced our expected spend for total capital expenditures for the year to approximately $85 million from the $100 million we have previously stated. We will now open up the call for questions, operator.

(Operator Instructions). We will pause for just a moment to composite the roster. Your first question comes from David Joyce with Miller Tabak.

A little more color on the sponsorship, the number of sponsors was down year over year clearly an economic situation, where are you seeing more of the losses or what types of venues are you seeing gains because the average revenue per sponsor was still ticked up?

Thanks, David. I think I mentioned at the beginning of the year, our goal is those number of sponsors will probably continue to go down as we've been looking to upgrade kind our sponsorship category. So, we have three levels of sponsorship that we call local, regional, and national. And over the last couple of years our goal is to increase our regional and our national deals and reduce our local deals. So the national and regional deals are always a bigger deal so over time you'll probably see those number of sponsors go down slightly as the revenue goes up and the average per deal goes up. We've been making great progress in switching out six little guys who paid us $15,000 for one new sponsor that's paying us $1.5 million a year. That's the strategy and those numbers should probably continue in that form. As long as the per sponsor revenue is going up and the total numbers going up it just means we are changing our portfolio around.

Alright, and on the total number of concerts, the number of events that was up but the attendance was down. Is that simply implied that you were doing a lot more of the club-type venues?

Well, I think, as you know, from the industry number that says the industry is down 12%, and as you know sports is down and NFL et cetera. So what we would be seeing is there is just an across the board pull backs to whether it was few less club shows or your amphitheatre or arena show had 11,000 versus 13,000 show up, it would be a combination of all of those but most of ones that hurt us are obviously the arena and the amphitheater shows.

Thank you very much.

Your next question comes from Ben Mogil with Stifel Nicolaus.

Good afternoon. I'm kind of curious as you look back at the year. The concert business obviously held up okay in 2008 and even in 2009, but clearly didn't this year. When you talk to your troops on the ground or even the managers you talk to et cetera, what do you think changed this year? Was it duration of the recession? Was it pricing too aggressively? I'm curious, as you do a post mortem, what you guys sort of think changed this year given the year before where the economy wasn't great either.

We have to step back when we look at it, not to rationalize but to understand the consumer in general. If you look at what happened in 2010 versus 2009, when we all kind of thought we were going to feel the effect. You look at categories like the NFL where they had more blackouts than any other time. Viewership up attendance down. NFL has traditionally been the one, they have a lot less inventory, some home games and they sell out. They seem to be in trouble. I met with the NBA, NHL, twenty main teams a couple of weeks go, they are having a tough season. NASCAR, as you know is reported down. So if you look in general, the comment is the consumer in general in 2010 for whatever reason of the delay has said I'm probably going to go to one less sporting event or NASCAR or concert this year.

When we dig in to the research on the concert and the purchase intent, the consumer says, I still rate going to a show a very high place in my life of what I want to do but the price point made me stay home this year. If we talked to the why-didn't-you come-this year category. Saving my money spending less on leisure entertainment. I don't know exactly. There's a lot of theories on why it took a year to kind of hit. We do know that wasn't an isolated event and we think that the reality is that they all got hit this year by a consumer spending a little less going up to any public event. Now, I think we all, as an industry allow ourselves in 2009 that we were fairly a little resistant to that trend and we've all kind of now seen the wake up call and we'll do what we can next year to address the pricing part to get some of them back.

Okay, that's helpful in sort of laying it out against some of the other out of home experiences, like sports and race car tracking, race cars. When you sort of now think out to next year and, obviously, you are not going to divulge what your conversations are with your artists, but when you think of sponsorship. Sponsorship was weaker the third quarter than it was in the first half of the year. How concerned are you that sponsors are sort of seeing the same attendance data that you just referenced and they are saying maybe this is not the greatest place for me to be blowing my ad budget because someone is staying home and watching the football game on TV and not in the game. How concerned are you about some of those issues?

Well, if the time was to continue over time, I'd be concerned. I don't think this is a long term trend. I think that between a business and a consumer making some adjustments this industry has 20 years of growth behind it. I think it'll kickback. Talking to sponsors, we believe we're completely bulletproof for 2011 in that the sponsor's main priority, you look where all of our money is. They are really interested in three things. They are interested in our festival and our venue network, our amphitheaters, so as long as we have the right shows, the right artists in those types, the money will follow and we know now from our pipe next year those two key assets will be filled from an artist's perspective.

Number two, they're wildly excited about our online business. We don't have enough content to sell them and right now they are lined up. We know that we have a great online consumer push. Then if you look at the one the sponsors that pay us for general like the credit card companies, our Citi Bank and American Express deals, which we will be in renewals on and expect to close. A sponsor like that who are looking far more general overall music buy and have access to certain shows. Again, the end of the day they buy and they come because of our top tier acts. The Madonnas, the Jay-Zs, the U-2s and the Eagles. We believe the pipe will be full next year with all of the right three key assets that attract the sponsors in one of those key categories. We have more than enough in the pipe to satisfy their needs.

And also Ben, one thing on Q3 sponsorship, the revenue is down but the AOI is up and the reason for that is there was a large tour-related sponsor last year in this quarter and, when you look at the Q you can see that direct operating expenses are down in 2010 as well because as you know most of that goes to the artists, so it did impact revenue but overall AOI went up which is showing that we are still getting more sponsors.

That's helpful. Thanks, Kathy. Thanks, that is it for me, thanks guys.

Our next question comes from David Kestenbaum with Morgan Joseph.

Thanks. First of all, can you talk about Artist Nation, what you expect in the fourth quarter, obviously a pretty steep decline in the third quarter, but do you think that business stabilized in the fourth quarter, sounds like you have a much better list of acts on the road.

This is Irving. It's all about timing. There's not a lot, as we keep saying, all the dire news that scared a lot of people from touring this year. I think as I stated the on sales that we will put on in the fourth quarter early next year, kind of ahead of where we thought we would be. From Glee to Neil Diamond, to the more Eagles to --

Kings of Leon, Kid Rock.

So, we have a bunch that went on sale for the quarter but the way the Artist Nation works, we don't see those revenues until the concerts are played in the first quarter. So fourth quarter, industry wide, there aren't a lot of big artists working and that's what impacted it. The management business is really hard cycle to watch year to year or quarter to quarter. The cycle of an artist when we make an album and go on the road is more three years. So, we'll call it some delay but fourth quarter is not a lot of people out.

Okay. And Kathy, can you talk about where you will be getting the $15 million dollars savings in CapEX, and where that's coming from?

It's across all of the divisions. We've gone back and asked them to look a little closer at some of the projects they were doing and decide if we can cut them out or delay them. A lot of that is coming from the clubs and theaters group which is the low margin buildings where we are not making as much money and really just trying to reduce that.

Are you going to disclose the price that Diller sold the shares to Liberty?

I'm sure that's going to be in the filing.

We will get a form 4 out in the day or so you can see that.

Okay, can you just clarify so your guidance are 5% lower than it was. Are you indicating 385 the new number here?

Well, I want to be very clear because after the summer we spent a lot of pain trying to be clear this year whether it's good or bad news. We want to be clear. So I think on the last earnings call in the September, I can't remember Bank Of America conference, I would have said we had two challenges, how are we going to do in Q3 and how are we going to finish the year? And Q3 being the biggest one as anyone knows it's the most money we make and we can either really lose it or really win it in that quarter.

So the good news is, as bad as some of the ticket sales were in the industry, we scrapped and fought our way through Q3. Headed out of Q3, I would have told the street that we were still on track and the only thing that is making us feel a little bit off that guidance is October was down, for example at Ticket Master, ticket sales were down 9% in October. That would have been the second worst month of the year other than March which was down 15%. We were tracking 6% or 7% down every other month, so October hit us a little harder than we had expected by a bit, and that's why we're saying now that hitting that number just scared at what will happen in November or December if that trend continues. It probably puts us somewhere in that number you mentioned if November and December play out as October did.

Okay, the final question. You seem sanguine about 2011, if you read all the stories in the press and it seems like 2011 could shape up as a big year. You don't seem as optimistic as least.

We are optimistic because, I've said in this report, this is a variable cost business. When you start buying and build your machine to service 22,000 shows or 11,000 clients, you start that in January. Once you've committed to the venues and bought the shows, you need that fixed and variable to get done. So after 20 years revenue increase and you build a business model that says if revenue is up 5%, show count will be this, attendance will be that and the numbers will work. So obviously in a mid year, when history becomes upon us and tickets die you are just stuck without any levers because the shows have to play out the staff has to be there.

So what we are making sure about is, we're reading the economic reports as well as anyone else saying I don't think all of a sudden the U.S. economy bounces back and consumers are running to sporting and concert events like a few years ago. So what we are going to make sure we do is, we will make sure that we fix our costs, we have cost savings in the bank on January 1. We are going to make sure we reduce some of those shows that are the ones that can hurt you if you lose the 2,000 tickets of venue. We will go in with the lower cost base, better buying which means lower variable and lower risk and keep the high margin shows. And we're going to expect it. We think that ticket volume next year is probably flat to this year. We hope this year was kind of the fall.

We will go in assuming a little bit of the worst on a few points in terms of volume and have our cost structure ready to absorb. We get a little tail wind and industry bounces back 1% or 2% it's great. We don't want to sit in June with the industry volume down 3% and not equipped to digest that revenue loss. As far as the pipe-full, yes, everything about the tours, the concerts, we know that we are all going out. We know that the pipe will be full and we believe that by talking to the artists now and thinking about how we priced those shows to drive that extra 1,000 tickets per show. We are going to be able to bounce back regardless of whether the industry volume is up 11% or down 2%.

Thanks a lot.

I want to add to what Mike is said that the pipe is full. We just can't be sure that the tickets will sale. Everybody wants to work, and everybody that we can find shows for is going to work. Part of the problem, you get below the major headliners is, when the public municipalities can't afford to pay police and teachers and the environment, the budget is all a go. Whether it's to the university or whether its a casino or whether it's a municipally-owned performing arts center, there just aren't as many shows around. This impacts all areas of the Company. So, if the shows are out there we are going to find them. It's not going to be like this year where a bunch of artists were scared to go on the road. They all have to go, and they all want to go. It's just a question of distribution pipe can handle.

Your next comes from Daniel Friedman from Corsair Capital Management.

Hoping you can identify the specific drivers of the decrease in direct operating expenses year over year in the concert segment and Artist Nation segment. I want to see what other concert segments was it an issue of the number of concerts and an issue of volume. The other side I was going to ask about ticket pricing and for revenue for ticket trends and revenue for ticket trends and what your expectations were and if you see any evidence of lower ticket price attracts more attendees and encourage higher spending on (inaudible) revenue.

To the first question was what is driving the direct operating expenses to be down I think year over year and yes, that's driven by direct costs on the show. Part of that is a mix of the shows we had out. We had some large, several large touring artists last year that will drive out the direct operating expenses which you would not see repeat year over year.

Number two, the two I know what the third was about pricing. Number two was spend per fan.

The ticket pricing trends and revenue per ticket and whether lowering the ticket prices are getting more people in and getting them to spend more ancillary revenue.

We absolutely know we've researched it to death. We know that if you lower the price they'll come. This is a category where they want to go to the show. It's just a matter if you price yourself out of their desire they won't. So, we know for example in an amphitheater, we have done it this summer. You want to make sure you are doing it ahead of the curve next year. We know in our amphitheatres, we have done a ton of research that says if you are trying to motivate the casual buyer, the committed are going to come no matter. If you want to get a casual concert buyer to come to a show that he's debating. We know in the amphitheatres, that if you price it at $20, all in, they will come. If you price it at $25 onward their participation and desire to purchase dramatically declines. So, we know that this year when we would have went to a $20 all in lawn seat, we'd go from selling a few hundred tickets to 2,000 in the next day. We know it's a price elasticity business. We know that they want to come but we have to make it affordable for them.

So, that's a big conversation we're having with a lot of artists on how we price the show at the amphitheaters next year. We will go to an all-in pricing model as we wait for the rest of the industry to follow us. We want to make it a clear simple transaction for that consumer to come to the show and we know if we price it right at the beginning, they will come and what we have to get the artists and the industry around is, you can't price it high at the beginning and then when they don't come start declining ticket price. So, I think everyone learned that lesson last year and there's a lot of smart bands that we are working with that are looking at making sure the back half of the house gets priced right. That will be the big conversation we have ongoing this summer with the artists and we think we know we can drive purchase. We know we will get enough bands to participate.

As I said from numbers, once you get past the threshold that they are coming to the show, we are finding that the revenue per head is holding up strong. Once they commit to making that night out with their family or their friends, then they go out and they spend. It's just like saying, once you go to the restaurant you have the steak. We know once we get them they've committed. It's a fun night and they will drink and eat and have fun. That's held up well. Now, we just have to work on making sure that we get a few extra casual buyers to the turnstiles next year.

Thank you.

Your next question comes from John Tinker with Maxim Group.

Hi, thanks for taking my question. You mentioned that one of the areas you would still be spending was Ticket Master and upgrading some of the systems. Can you talk about that in the timing and when you expect to see some changes? Thank you.

Sure. I think the team has done a fabulous job in the last six months. One of our core strategy in this Company is, it's ticketmaster.com, the third largest E-commerce site in the world $164 average consumer spend, you think that 150 million people buying. We know we have an opportunity to talk to those 150 million consumers and upsell them a dollar, a t-shirt, a ticket, a travel package. And we know that you have, like any e-commerce site, 95% of the people are abandoning their cart while they are at the site. If you can get conversion going 1%, things start to happen.

So our priority this year has been from a clean sheet we sat down and said let's look at development. What are we doing? What do we have to roll out at ticketmaster.com and our technology to start leading the way on purchase intent and conversion? Irving has started it and we have taken the ball on seat maps, that's a huge priority for us. We've been spending a lot of energy getting those rolled out to as many venues as we can. The seat map technology statistics are amazing. If you have a seat map versus no seat map your purchase intent and your conversions go up 10%, 15% alone.

So we know that every time we have a seat map installed on a venue page on ticketmaster.com for a show, we will sell more tickets. So, we would be continuing investing on rolling that everywhere and upgrading that. As I've said many times, the other priority is a shopping cart. Typical ecommerce sites should be have a shopping cart. We should be figuring out to put more products in the store, so you can add those to the cart. We have spend a lot of energy around rolling a shopping cart out and figuring out to roll a shopping cart out as also in this category you have to think through the challenges.

We have to figure out how much time we give you to put that ticket in the cart before others want it. We've spent a lot of energy about it and we are excited about it. We have a bunch of beta tests that show at time of purchase if you are a committed fan going to the show and we offer you five or six different items you have a huge intent to purchase those. That's been a big priority for us on that front. Our database, we've hired, rounded out our team, brought in a super star to lead that and we have some pretty exciting plans around how we take those 200 million names and start becoming a world class database marketing company. Both helping our clients through an e-mail marketing service platform as well as just using that to start driving loyalty cards and other programs on Ecom. Those have been the three major focuses on technology.

How do we start adding on new technology, upgrading certain features and functionalities to drive the business. And then on the under belly, we'll partake over the next couple years on a modernization of the core ticketing platform that will take a longer process to get done as we are still upgrading the feature and functionalities and that's something that we are working hard and looking at the best way to accomplish over the next while.

Thank you.

Your next question comes from Brad Percell with Goodnow Investments.

Actually, it's Randy Heck.

I was trying to understand the cash flow statement. It says cash flow from operations were $13 million for the nine months with accounts receiveable going up $150 million dollars. Is that because were not looking at pro former numbers here?

2009 is as reported, that's correct. So it would not include Ticket Master.

Right. So, if we had a pro-forma of cash flow statement, what would the numbers look like because it doesn't make sense to me that your revenues would be down 11.5% and yet the accounts receiveable would be up so much?

There's a timing around because of the end of our busiest season of the year that September is typically going to be a peak there. As you're collecting on upon sponsorships, you are collecting on tickets that are sold through stores internationally et cetera, so it' really just driven by the seasonality of our business with the increased impact of Ticket Master's AR related to client funds as well.

Okay. Thank you.

The next question comes from Adam Feldman with PPM America

Thank you. I just want to clarify a couple of earlier questions, one I am a little confused on the guidance. I think, Michael correct me if I'm wrong, you started at around $400 and then there was a downside case to $300 something, so when you were saying 5% off of the 400

5% off of the 400.

5% off of the 400. Okay, and then I'm sorry, I have a follow-up on that cash flow question too and I understand you provide very helpful disclosure on the cash versus the free cash

Right.

But if we are just, and again if this is in here, just please point me to it and I'll do it on my own. If I am trying to reconcile cash from operations less CAPex kind of reported free cash flow to the free cash flow that you provide. Can I do that with playing around with these client fashion deferred revenue because it seems to be, it's a pretty big disparity.

Well the reconciliation for how we get to free cash and free cash flow are in the earnings release, and then the other details is the biggest difference is going to be working capital change because that is not part of that calculation, when we do free cash flow. Because our working capital will change depending on timing of artist advances and ticket sales.

Okay, let me try it this way. Third quarter was a large use of working capital, that's correct?

Yes, that's correct.

Should that turn around in Q4 typically?

Again it is going to depend on timing if you look at our working capital flow year over year, quarter over quarter it moves around depending on timing of artists, but I can take you through more detail on that separately if you like.

Okay and then final one, if I look at the free cash, $425 million. One might look at that and say that's a pretty big cash balance. Maybe you should do something with that like prepay some debt. Do you look at it that way or is it kind of trapped different domiciles and it's not as much cash as it looks like.

No, it's not trap we are concerned about. We talked about over the year that we are looking at ways to invest that cash. We probably won't use it for debt repayment right now. We are looking at international expansion in some of our businesses and so that is kind of what that money is earmarked for, as well as just operations of business

Thank you very much.

I would now like to turn the call back over to Michael Rapino for any closing remarks.

Thank you everybody.