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BofA Securities does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.
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Key takeaways
- Live Entertainment is currently the brightest star in the broader Media and Entertainment universe.
- In our view, there are several sustainable and longer-term key drivers that will fuel solid growth for a number of years.
- We discuss several public and private companies that participate in the rapid growth in live.
Funflation in full force: stage dive into Live Entertainment
Live Entertainment is currently the brightest star in the broader Media and Entertainment universe. In our view, there are several sustainable and longer-term key drivers that will fuel solid growth for a number of years, namely: (1) continued consumer spending shifts toward services due to favorable demographic trends and the continued rise of the "experience" economy; (2) healthy pricing power given the robust demand and opportunity to better implement dynamic pricing; (3) positive supply and demand trends as artist and event discovery is enhanced by social media and new platforms (e.g. TikTok), while artists are becoming more global and developing markets (e.g. Latam) offer new avenues of fan growth; (4) live is a relatively disruption proof business as virtual methods to generate similar experiences will likely remain incomparable to actual live events; and (5) sponsorship and the advent of experiential marketing. On the risk side, we see the macro environment/consumers' willingness to spend during a potential downturn and regulatory as the two biggest overhangs in the near term.
Not all areas of the chain are created equal
Overall, the live entertainment/concert value chain threads the fine line of making sure talent is compensated for their art while promoters are rewarded for their risk. Certain areas of the chain bear more risks vs. others. Not surprisingly, we believe talent, especially artists that command huge fan bases, will be able to increasingly extract incremental value out of the ecosystem (largely driven by increasing supply and ticket pricing), while venues, which have several independent revenue streams, accrue the most value. Conversely, the Promoter role appears to be the riskiest aspect of the business, with low-single digit margins, sizable upfront capital commitments (e.g. talent guarantees, venue rentals) despite uncertain ticket sales to recoup outlays.
In concert: vertical integration and scale provide benefits
Given the value chain dynamics, it is our view that scale and vertical integration across all aspects of the Live Entertainment ecosystem are means to diversify risk and maximize earnings potential from the live events business. In addition, vertically integrated operators can utilize certain areas of the business as a "hook" to acquire new business opportunities with the ability to recoup these economics elsewhere.
Step into the arena: Buy MSGE and EDR
There are several public and private companies that participate in the rapid growth in live. Most direct, is publicly traded Live Nation as they are actively involved in most if not all aspects of the Live Event ecosystem. AEG (private) is the most direct competitor to Live Nation. More indirectly, we believe talent agencies and managers such as CAA, UTA, The Azoff Company and WME (of parent co EDR) are also significant participants as representatives of top music stars who are generating significant touring income. Similarly, music labels and DSPs such as WMG and Spotify (among others) will also benefit from increased streaming engagement and album sales as popularity for their artists grow and touring increases fandom. Finally, venue operators such as MSGE/Sphere facilitate increasing supply for live events in desirable locations and can capture multiple revenue streams (e.g., rental fees, F&B, VIP Experiences, Merch, etc.).
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Media & Entertainment: Mr. Brightside
The Media and Entertainment (M&E) industry has been under significant secular pressure for many years with cyclical concerns also developing more recently due to the pandemic and its aftermath. The video ecosystem is undergoing an enormous transformation as distribution methods evolve, which is having downstream impacts on broadcasters, general entertainment cable networks, regional sports networks, and the broader studio and film businesses. While the industry is attempting to transform itself, there have been significant challenges to creating direct-to-consumer streaming platforms due to sizable start-up costs as well as lower profitability vs. traditional linear offerings. With video economics shifting, other issues have arisen, including the current writer's and actor's strikes. Similarly, many aspects of the music industry have been pressured as old business models were transformed and replaced with less profitable distribution. Recorded music sales have only recently surpassed previous peaks, which were established in 1999. However, one area in the Media and Entertainment universe that remains resilient is Live Entertainment. We believe several of the underlying supply and demand drivers will power growth in the coming years and will continue to be an area of relative outperformance vs. other segments of the M&E industry.
Live Nation is the largest participant in the concert industry, which has several underlying supply and demand drivers. Live Nation is one of the largest promoters in the world, owns one of the largest ticketing platforms (TicketMaster), and has increasingly expanded their venue ownership in the US and around the globe.  Live Nation's scale and vertical integration enables them to compete very effectively in the market on price as the company owns several parts of the chain, mitigating risk by managing several live events for several artists across several geographies. Absent any slowdown in consumer spending on live events and negative regulatory actions we believe there are several revenue and earnings drivers for the live concert business over the next several years.
Under our coverage universe, companies that have exposure to live music events (both directly and indirectly) include: IHRT, EDR, WMG, SPOT and MSGE. EDR via their WME talent agent business represents several of the largest music artists around the globe. To the extent live touring remains robust they stand to benefit from overall increases in earnings from talent, which could partially offset the headwinds within their TV/Movie rep business from the various strikes.
For WMG and the broader music labels strength in touring increases fan engagement with their artists which ultimately drives increased merchandising sales, digital streaming revenues and album sales of these artists. Spotify has a virtuous cycle with the concert business as fan engagement drives their MAUs but also leads to music discovery of new artists which ultimately drives concert attendance. This concert attendance reinforces overall consumer engagement with music which keeps users on music streaming platforms.
MSGE offers an opportunity to own a growth-oriented, pure-play live entertainment company with a strong set of venues in the #1 concert market in the world.
Show is just getting started
The Live Entertainment industry has been one of the most robust growth engines of the music industry over the past 20+ years. While, unsurprisingly, live events were dramatically impaired by COVID-19, consumer demand for Live Entertainment has come roaring back since exiting the pandemic. Driven by the pent-up demand for experiences, consumers have flocked in droves toward live events and concerts. In addition, the proliferation of streaming along with new social media platforms (e.g. TikTok) has accelerated artist discovery and have provided new mediums for artists to grow their fan bases globally.
This backdrop has supported supply and demand tailwinds which all appear to be sustainable over the next several years. We view several of these intermediate to longer term drivers as sustainable and believe this sub-segment of the music industry should continue to outperform driven by: 1) Consumer spending shifts toward services and away from goods, 2) demographic shift in preferences toward experiences among the younger millennial and Gen Z population - which are also becoming more important elements of the workforce with increasing incomes and wealth as a result, and 3) the intersection between social media and music which is driving artist and event discovery, and also helping to drive demand by enabling experience sharing.
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Money on my Mind-The value chain
In Exhibits 2-7 (beginning on page 6), we break down the various components of the economic chain within Live Entertainment. Robust demand for live experiences has expanded the opportunity to generate favorable economics throughout the live entertainment/concert value chain. However, certain aspects of the value chain clearly bear more risk vs. others and the overall costs for producing these events have increased considerably in recent years. Ultimately, as we consider the value chain economics, all the key constituents need to thread the fine line of ensuring talent is compensated for their services while promoters are rewarded for their risk. For this reason, we believe scale and vertical integration across the value chain can be advantageous as a means to distribute/withstand risks from individual shows and recoup economics from certain areas (e.g. Promoter) from more profitable ones (e.g. Ticketing). Notably, Live Nation has scale and breadth across all areas of the value chain.
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We caveat that there are several permutations, combinations, and structures to how concert deals can be constructed along with several assumptions ranging from venue size, ticket price, merchandise sales etc. Our intention was to create industry average type of events across Clubs, Amphitheaters, Festivals and Arenas and not include outliers such as Taylor Swift's current Eras Tour. Our key conclusions are:
- Vertical integration and scale are competitive advantages: The live events business is highly competitive and requires significant start-up costs/infrastructure (e.g. investments to build venues, relationships across ecosystem, etc.) along with well capitalized balance sheets to fund working capital requirements of production. For this reason, scale is a critical competitive advantage as larger providers can diversify their risks. If Live Nation has one or two shows that are not successful, the company has the balance sheet and other presumably profitable events that can cushion this blow. On the other hand, smaller promoters may not have the frequency of shows to recoup one big loss nor the balance sheet to withstand a failed event production. Along these lines, vertical integration across the value chain is another means to enhance competitive positioning. This enables larger providers to offer more competitive pricing and even utilize certain business segments as loss-leaders with the knowledge they can recoup these economics elsewhere in the value chain. We believe the combination of scale and vertical integration are the key moats that Live Nation has built over the last several decades which has enabled them to assemble such a strong competitive position in the market.
- Promoter business is most risky part of the chain. In our view, the Promoter business has the most challenged business model in this chain. Under what we deem to be favorable outcomes in the scenarios below, Promoter margins are only in the single digit range (in Festivals they are higher as we assume Promoters also own the Venue). With costs of concert productions escalating along with artist demands to retain and extract ever larger shares of the economics, we anticipate this part of the value chain to remain under the most pressure.
- Venues are highly profitable but require huge start-up costs. Our analysis highlights the reasons venue owners are eager to host live events. There is a tremendous opportunity to generate rental income, VIP/Suites revenue along with generating Food & Beverage, Merchandise, Sponsorship and Parking revenues for each event hosted at their venue. For perspective, we estimate an arena can earn nearly $400k for hosting a typical event. However, we acknowledge there are significant sunk/fixed costs and capital costs entailed with acquiring the land and building venues. We don't capture those elements in this analysis, which obviously biases the economic favorability toward already constructed venues.
- Talent is the key beneficiary of ticket price increases and dynamic pricing. "Funflation" and ticket price increases have been drivers of the Live Event industry exiting the pandemic. We estimate the overwhelming majority of income from these ticket price increases accrues to the Artist. Artists primarily earn their income from ticket sales and to the extent they can increase this pool of dollars it will most greatly impact their earnings. Similarly, and what we expect to be an additional driver in the coming years, dynamic pricing will be another tailwind to ticket pricing growth (as artists do not participate in the secondary ticket market) and will continue to drive an increased wallet share of economics toward the Artists.
Thinking through the concert economics
In Exhibits 2 & 3 on the following page, we summarize the hypothetical flow of funds for a typical event by venue. For the purposes of our analysis, we have included clubs, amphitheaters, festivals, and arenas and only contemplate the incremental economics associated with a new event. Assuming a 90% sellout rate we estimate the net margin from a live event can range from 35% for a club up to 48% for an amphitheater. This is driven by average ticket prices ranging from ~$70/ticket at clubs up to ~$134/ticket at arenas. Other notable drivers include ancillary per caps which range from $20 at clubs and reach to over $50 at festivals and arenas. Margins are largely captured by venue and the ticketer, while the promoter generally experiences low-single digit margins.
We estimate that the box office drives most of the total event revenue, accounting for between 50% to 67% of total revenues. Ancillary revenue streams, such as food and beverage and merchandising, can account for between 20% to ~35% of the overall revenue for an event. Festivals have a significantly larger sponsorship component than other events due to nature of the events (e.g. massive audience, larger event spaces, multiple simultaneous acts, etc.).
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Promoters: Livin' on a Prayer
Concert promoters are the constituents in the live event chain that pay artists to perform. These promoters can range from single individuals to multibillion dollar public corporations that encourage artists to perform at clubs, arenas, performing art centers, festivals, and stadiums (among others). For the purposes of our analysis, we assume promoters utilize the revenue from ticket sales to cover costs of acquiring talent, securing a venue and other costs of producing a concert.
Generally, the promoter pays an act an agreed upon price to perform at a venue on a certain date. The promoter then is highly incentivized to promote this event to generate interest and ticket sales to cover these costs. The fee paid to the artist is either in the form of a fixed guarantee or a % of net box office (typically split 90% to artist and 10% to promoter). By nature of guaranteeing a fee for talent along with assuming several of the costs to put the show together (e.g. venue rental fee etc.), the promoter business is a risky part of the chain. Net net, we estimate a promoter earns a low single digit margin on the average event. Given how narrow a margin this is, we would not be surprised if promoters lose money on several events if demand is not as strong as anticipated.
For this reason, promoters typically like to diversify their risks by organizing multi-city tours, where success in certain cities can cushion underperforming cities or promote several acts as a means to distribute their risks across several artists. Alternatively, promoters (e.g. Live Nation), expand their offerings across the value chain utilizing the promoter business as a "hook" to attract business and then use their scale across other business (e.g. ticketing) as a means to recoup these economics.
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Talent: Take the money and run
The most important business contract in a concert is the deal between the artist and promoter. Without it, nothing else exists. This deal is usually negotiated between the artist's agent and the promoter which is typically called the Performance Agreement. There are many components to this agreement, but for the purposes of our analysis the main areas we focused on include the: 1) total guarantee amount or overall fee structure and 2) the merchandising rate (or % of merch that is retained by the artist) along with the main expenses born by the Artist. Notably, many artist deals include net box office after consideration is made for rental fees, event advertising and local production. We assume artists retain 90% after these expenses for clubs, amps, and arenas while festivals retain 100% (due to unique attributes of a Festival).
As shown in Exhibit 5, the most important drivers for an artist's economics, are box office, a function of ticket prices and tickets sold, merchandise sales and any sponsorship income. Depending on the structure of the deal there are also significant expenses borne by the talent for live shows. In total, we estimate operating costs from arenas that are passed on to the promoters/artists are typically around $200k in addition to the overall rental fee for the venue itself (if artist deals are structured as a % of net gross box office (GBO) these expenses are deducted from ticket sales prior to allocating their % share). In addition to specific event related expenses, an artist will also pay their representation and other expenses which include a manager fee, a booking agent fee, a business manager fee and costs for production/travel. Specifically, a booking agent can be described as a talent agent who finds the work for creative artists, a business manager oversees the finances for the artist's tour, while the manager acts as a close advisor helping manage an artist's career.
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Growing green in The Garden and beyond
Within the concert economic value chain, venues take among the largest percentage of the total economics and at the highest margins vs. any other part of the ecosystem. Notably our analysis considers the economics from an incremental event at Venues and does not contemplate the significant startup/capital requirements and fixed costs associated with building and maintaining a large Arena. The ability for venues to capture multiple revenue streams from hosting events can be an enticing proposition, particularly incremental events if the primary use is for local sports teams.
Relative to other parts of the chain, the value accrued to venues is derived by the 8 potential revenue streams including: 1) Rental fees for the venue, 2) Parking revenue, 3) Food and Beverage (F&B) revenue, 4) Merchandise Revenue share, 5) Facility fees, 6) Ticketing rebate, 7) VIP/Suite Experiences and 8) Sponsorship revenue. In addition to the sheer multitude of revenue streams available for venues, in many cases venues do not need to share several of these income streams with other parts of the value chain. For example, VIP/Suite revenue along with rental fees (both of which can be considerable) are exclusively retained by the venues.
We highlight a few assumptions including: 1) our Parking per caps are reflective of several fans being in a car which brings down the overall per cap parking prices, 2) for music festivals the promoter owns the venue, 3) VIP experiences typically range from $50-$100k for Arenas and we use that implied per cap to assume VIP experiences for other venue types as well, 4) Live Nation has disclosed that Ancillary spending at Amphitheaters is ~$40 and use this to make reasonable assumptions for different buckets such as F&B, Parking, Merchandise etc.
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A winning Ticket in the chain
Within the Live Event business, selling tickets are the fuel that drives the engine as it raises an overwhelming portion of the revenues for the entire ecosystem. The ticketing business has evolved in recent years driven by the rise of technology and has several degrees of complexity along with increased regulatory scrutiny (discussed in more detail in our regulatory section). While the act of selling a ticket appears straightforward, there are underappreciated aspects considering the primary vs. secondary markets, the technology required to enable ticket sales/usage across different mediums (e.g. mobile), implementing new revenue generating opportunities such as dynamic pricing or simply having the server bandwidth to withstand incredible website traffic for a new concert release (e.g. Taylor Swift).
Just consider, years ago the only way to purchase a ticket was to physically go to the venue itself to wait on line and purchase it. That was an inconvenient and uncertain process for consumers as many could be traveling from far away with no certainty of knowing if tickets would be available. Now there are several avenues to purchase tickets-ultimately simplifying and increasing the number of tickets that can be sold. In return for this opportunity, ticketing companies offer Venues a rebate on tickets sold in order to have that exclusive right to sell tickets. For several venues that do not want to build the infrastructure of selling tickets, they outsource ticketing to companies such as Ticketmaster to control this part of the process. Ticketmaster as a result, is able to retain large processing fees (at high incremental margins) along with the underlying purchase/consumer data that also has value. This data now amplifies the importance of the ticketing business for marketing, as they can ascertain demographic, geographic and income levels of ticket purchases for various events.
As shown below, ticketers' two primary sources of revenue come from Convenience/Processing fees along with Online traffic (e.g. advertising). While there is variability depending on venue and ticket price, we assume average ticket processing fees range from $9-13/ticket. Conversely, on the expense side, we assume the ticketers need to pay the Venues a rebate of 35% of the overall processing fees along with credit card fees of 3% and other labor costs of 12%. This yields an ~50% incremental margin for the ticketing business which is directionally inline with Live Nation's ticketing business, per their segment reporting.
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Live music drivers: stage is set for growth
We believe the live music industry is well positioned to build on recent strength. There are a number of positive drivers for the sector moving forward including: (1) favorable secular demand trends, (2) a strong pipeline of touring artists, (3) an increasing number of revenue streams outside the bounds of a 2-3 hour show and (4) dynamic pricing opportunities.
Live demand trends remain exceedingly strong
The live event/concert space will benefit from both improving supply trends (i.e. more artists willing to tour) and consumer demand trends for a number of years, in our view. Indeed, the demand side of the equation has a number of elements which will drive continued interest: (1) the continued rise of the "experience" economy as approximately 75% of younger demographics (Gen-Z and Millennials) express they prefer to spend on experiences over tangible products in various recent surveys, (2) the continued impact of social media as surveys have indicated that ~60% of Millennials prefer to engage in experiences for the sole purpose of sharing them through social media and (3) the increased purchasing power of both Millennials and Gen-Z as they become more important members of the workforce and receive concomitant increases in income.
Since 2000, Personal Consumption Expenditure (PCE) data from the US Bureau of Economic Analysis shows that live entertainment spending (excluding sports) outpaces overall consumer spending (Exhibit 8). If not for the massive drop off during the pandemic, the gap between live entertainment spending and overall spending would be even greater. Live music appears to have an attachment to the fan experience that is rarely matched by other forms of entertainment.
A survey from Live Nation points to live concerts and music festivals as consumer's number one experience priority (Exhibit 9) and the last experience they'd cut back spending on (Exhibit 10). Further, in a recent Eventbrite survey, American consumers cited concerts and music festivals as the top two events they want more of in 2023 (Exhibit 12).
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Supply side and artist discovery
Live music plays an outsized role in an artist's overall strategy today versus the past, as touring has supplanted album sales as the main driver of revenue for top artists. As Exhibit 13 shows, when studying the top 20 highest paid artists of 2021 (the most recently available data), touring accounted for ~73% of overall earnings for the median artist. That number has likely grown in 2022 and 2023 given pandemic-era touring challenges in 2021. Additionally, artists are eager to get back on tour after years of being sidelined during the pandemic. Notably, Live Nation recently called out a growing pipeline for early 2024 in arena/amphitheater/stadium shows, while MSGE management noted on its F3Q23 earnings call that the company expects to generate a double-digit percentage increase in events in FY24 vs. FY23.
The globalization of music
The global growth of streaming and the prevalence of social media enable artists to gain worldwide popularity with unprecedented speed and scale. The more global nature of music broadens the overall pipeline of artists in the touring ecosystem and gives performers the opportunity to extend their tours to a range of international stops. Taylor Swift announced multiple extensions to her ongoing Eras tour with new stops in South America, Central America, Europe, Asia and Australia.
The globalization of music isn't just a growing demand story but a supply of music story as well. In Live Nation's 2Q 2023 earnings release, the company noted that international acts have doubled representation in the top 50 tours over the last five years. Digital Service Providers (DSPs) allow for an ease of music discovery previously not possible and significantly widen the pool of potential mega stars. LatAm in particular has been a major driver for new music and therefore, new global touring acts. Between 2020 and 2022, Latin music grew 55.29% in album consumption in the U.S., according to Luminate, versus the overall industry's 21.61% growth. Further, according to the Recording Industry Association of America (RIAA), Latin music revenue exceeded $1bn for the first time in 2022, a 24% annual increase over 2021. Almost all of that revenue was from streaming. The highest grossing tour of 2022 belonged to Latin artist Bad Bunny, the poster child for the boom in Latin music and one of the most popular artists globally. Bad Bunny's album, Un Verano Sin Ti, became the first non-English language album to ever top the Billboard 200.
Social media virality can transform no-names into stars overnight
For years, the objective of discovering new talent was the purview of recording or publishing Artist & Repertoire (A&R) representatives, but today, social media has become a major driver of new artist discovery. Social media virality can break new careers and make relevant music long forgotten by general public. An excellent example of a rise to stardom out of obscurity is Oliver Anthony. In August, Oliver Anthony became the first artist to ever launch at No. 1 on the Billboard Hot 100 songs chart with no prior chart history in any form, after a video of his song "Rich Men North of Richmond", originally posted to YouTube by radiowv, went viral across social media. Additionally, the song sits at No. 1 on the Billboard Streaming Songs chart indicating how social media and streaming popularity feed off each other.
TikTok's growing role in talent discovery and fan connection
As TikTok's culture footprint grows, so does its importance to the music industry. Songs that trend on TikTok often make it to the charts. And according to a November 2021 study conducted by MRC Data for TikTok, 67% of the app's users are more likely to seek out songs on streaming platforms after hearing them on TikTok. Record labels now have dedicated teams to monitor TikTok, in an attempt to capitalize when a new trend or artist gains traction on the platform. Additionally, music marketers have struck song promo deals with influencers to tap into the mass number of followers on the app. As a sign of the platform diving deeper into the music, TikTok has launched a platform to sign and develop new artists called SoundOn, and there have been rumors that the social media platform may eventually roll out its own streaming competitor to Spotify and Apple Music.
The increasing presence of social media will play a major role in ensuring the next generation of stars are there to fill the shoes of legacy, stadium-filling rock stars (The Rolling Stones, Paul McCartney and Elton John) as well as today's megastars (Taylor Swift, Harry Styles, Drake and Beyoncé). Social media isn't just a tool for discovery, but it can also be used by existing artists to develop even stronger relationships with their fans. For example, K-pop band BTS reaches fans globally through the South Korean app Weverse. The app specializes in hosting multimedia content and K-pop artist-to-fan communications. BTS even launched a program called "Learn Korean With BTS" for free for anyone who signs up on Weverse. The video content, designed to help break down the language barrier for fans of the band, represents an intersection of the growing global nature of music as well as the ease of communicating with fans made possible by social media.
Stuck in the middle (tier)
Still, while the rush to tour again coming out of the pandemic has led to a robust recovery in live music, certain artists are finding themselves squeezed out of the touring ecosystem. Economics for those at the top of the music industry keep improving, but post-pandemic inflation has hit middle tier artists, making profitable touring a challenge. As Exhibit 14 shows, the prices of certain items, like speaker rentals and lighting boards, needed to put on a concert have ballooned since 2019. While these extra costs are not likely significant for megastars like Taylor Swift, Beyoncé and Bad Bunny, they make a big difference for the average artist. In addition, performers or crew members testing positive for Covid can shut down entire shows, which can turn a profitable tour into a money loser. Recently, the independent artist Santigold publicly announced she's simply unable to make the new realities that come along with touring work. The announcement prompted an outpouring from fellow musicians in sympathy. One solution for middle tier artists to potentially see better economics is to structure tours with multiple performers and join festivals bills in order to share costs and cast a wider net for interested fans.
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Ancillary revenue opportunities abound
The show itself is only part of the business of a live concert. Food & Beverage, merchandise, as well as VIP and suite packages all drive economics above and beyond the average ticket price, while also giving consumers options to shape their own concert experience. In Live Nation's 2Q23 earnings report, the company pointed to double digit increases in per-fan profitability, fueled by growth in sponsorship and on-site spending across their operated venues. Survey company QuestionPro estimates Taylor Swift's and Beyoncé's shows could generate $4.6bn and $4.5bn in economic activity in North America, respectively, when taking into account stadium capacity as well as spending on merchandise and travel. Estimates of merch spend on Taylor Swift's Eras tour approach $5mn per show. The chief economist for Sweden at Danske Bank has even blamed a higher-than-expected inflation reading on recent Beyoncé shows in Stockholm. The bottom line is consumers have opened their wallets, not just to pay for higher priced tickets, but for travel, merch, and other ancillary items surrounding live music.
Feeling the Vibe(e)
The live music experience doesn't have to be limited by the bounds of the 2-3 hour concert. In April 2023, Live Nation founded Vibee, a new music-led destination experience company that aims to create a range of experiences based around live music. Vibee builds immersive trips for music fans to destinations around the world with multi-day events, as well as bespoke festival and residency packages. One of Vibee's first events is the U2 Experience at the Sphere in Las Vegas this fall. Attendees purchasing a travel package through Vibee for the U2 shows will get two nights at the Venetian, access to a dedicated fan portal, limited-edition merchandise, access to afterparties and more. The launch of Vibee is affirmation of a trend in the live music industry toward destination shows and more premium experiences.
Brands want to be associated with live music
Live music provides a unique opportunity for advertisers to connect their brand to a coveted, generally positive consumer experience. Notably, Live Nation saw record revenue in their Sponsorship & Advertising business in 2022, a 64% increase over the pre-pandemic, annual high. From 2013-2022, Live Nation grew Sponsorship & Advertising revenue at a ~18% CAGR, and Visible Alpha consensus estimates project that business will grow at a ~9% CAGR from 2023-2027 (Exhibit 15). Further, MSGE's management noted that sponsorship and premium hospitality revenue for CY2023 are pacing ahead of CY2019 results - a significant recovery from post pandemic declines. We forecast consistent mid-single digit revenue growth through FY2027 in MSGE's Sponsorship, Signage and Suite business (Exhibit 16).
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Experiential advertising increasing important for brands
Experiential advertising is becoming a more important tool for marketers and its growth is projected to outpace overall US advertising and marketing spend by three to six percentage points from 2022-2026, according to PQ Media (Exhibit 17). Additionally, experiential marketing posted consistent growth for two decades leading into the pandemic, despite strong headwinds negatively impacting other digital and traditional media. Another benefit of experiential marketing is that it helps to reach demographics (Millennials, Gen-Z) which are difficult to reach through traditional advertising methods (e.g. linear TV, radio). From 2019-2022, Live Nation points to a 37% increase in onsite sponsorship per fan driven by enhanced brand integrations at its events.
Dynamic pricing: A balancing act
Dynamic pricing is a tactic used by ticket sellers in an attempt to adjust pricing to match consumer demand. Live Nation designates tickets as "Official Platinum Seats" when using their market-based pricing program, and the company estimates 80%+ of their tours utilize platinum in some capacity. Generally, front of the house seats will be subject to pricing to demand, while the middle and back of the house seats will be priced to optimize attendance and gross. While the promoter provides pricing input, advice and tools, artists and their teams have final say on how their own shows are priced, often taking into consideration image and brand, in addition to price. Artists and their teams typically keep the excess economics on higher ticket prices. Live Nation estimates optimizing sell through and pricing is a $100mn Adjusted Operating Income (AOI) opportunity in their concerts business.
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While many artists may balk at the sticker shock of high primary market prices, the alternative is huge markups in the secondary market and ticket speculators making large profits while artists and their teams are excluded from the economics above face value. The existence of a roughly $5bn secondary market for concert tickets is, in itself, an indication of further opportunity to expand dynamic pricing capabilities. Dynamic pricing creates a difficult conundrum for artists and their teams. Artists have different considerations based on the demographic makeup of their fans. For example, an artist with a younger fan base may want to price tickets under market to help grow fan engagement, while an older artist with a more established fan base and likely more affluent fans, could see more value in pricing tickets to true demand. Recently, this dilemma has played out across the live music landscape, with many of the world's biggest artists attempting to strike a balance between price optimization and fan service.
Bruce Springsteen, in particular, faced fan pushback against his use of dynamic pricing, as some supporters saw it as a betrayal of his working-class roots. Following years of underpricing tickets versus market value, Springsteen allowed Ticketmaster to utilize its dynamic pricing model to sell tickets to his most recent tour. After backlash from fans, Springsteen defended his tickets prices, noting that most were affordable, but he also mentioned that he'd reconsider using dynamic pricing again in the future. The Springsteen controversy underscores the fine line artists need to walk between keeping their fanbases happy and ensuring they are fairly compensated for their work.
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Increasing Regulatory Scrutiny
One of the offsets to having strong consumer demand for live events is that it has created ticketing-related challenges and significant frustration for the fan bases of numerous tours. As such, there is increased risk that new legislation may be passed that impacts the Live Entertainment ecosystem.
Breaking-up is hard to do
In 2010, the Department of Justice (DOJ) approved the merger of Live Nation and Ticketmaster but required the new entity to operate under a consent decree through 2019 (which was subsequently extended to 2025). The rationale behind the consent decree was given Live Nation's vertical integration across the value chain, they could use their market power to pressure venues to direct business toward other Live Nation sub-segments (e.g. Ticketing). Taylor Swift's concert ticket release controversy in late 2022 put the live industry under a microscope. In November 2022, The New York Times reported Live Nation was under investigation to determine whether the company has abused its power over the Live Music industry. Politico has subsequently reported the DOJ is hoping to find a resolution to the matter by the end of 2023.
Breaking up companies based on Section 2 of the Sherman Act is rare. Indeed, the last time a company was broken up by the government due to a successful anti-trust case was in 1982 when AT&T was separated into a long-distance company and seven regional phone companies. In 1999, the Justice Department sued Microsoft and won the original case. However, the decision was overturned on appeal and eventually settled partially due to a transition from the Clinton administration to the Bush administration.
There appears to be a wide range of possible outcomes from this investigation ranging from a forced break up of Live Nation at one extreme to the status quo if the DOJ finds no additional wrongdoing at the other extreme (the DOJ has revealed instances of misconduct previously however they were captured as part of the extension of the Consent Decree). Notably, Live Nation has pointed out that the company has lost share in ticketing since the 2010 merger, while at the same time venues have received a greater share of revenue. Ultimately, this decision will have a significant impact on the live entertainment ecosystem.
We believe our analysis underscores the value of vertical integration within the ecosystem and exposure to each part of the value chain within Live Entertainment. Being vertically integrated provides significant scale and competitive advantages over individual players within each sub-group. The primary disadvantages of not being vertically integrated are: 1) it will be more difficult to expand internationally and 2) ancillary businesses give a competitive advantage in bidding for talent/content with the ability to recoup those economics in other areas of the value chain (e.g. ticketing).
Industry has been pro-active
Legislators have been focused on rising ticket fees and exorbitant secondary market ticket prices. The industry overall appears to be taking a more proactive posture and are proactively engaging with policy makers. In February 2023, Live Nation announced their support of the Fair Ticketing Act which supports artists' ability to decide resale rules, make it illegal to sell speculative tickets, expand the BOTS Act, and mandate all-in pricing.
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An overview of the current live landscape
In the ever-changing landscape of music, live performances remain the lifeblood of an artist's livelihood and relationship with their fans. Live music has seen a major turnaround since the pandemic forced the cancellation of the majority of concerts in 2020 and many more in 2021. The industry saw historic growth in 2022, with the recovery spurred by pent up demand for in person, communal experiences following the pandemic.
2022: A return to normalcy
Final figures for 2022 show global live music revenue of $25.3bn, nearly double 2021, per PwC. Ticket sales recovered to $20.3bn, while live music sponsorships nearly reached $5bn (Exhibit 22). In the US, ticket sales actually surpassed pre-pandemic levels last year (Exhibit 23). Furthermore, average ticket prices across all venue types was higher in 2022 vs 2019, pointing to strong demand trends across live music consumers (Exhibit 20 and Exhibit 21). Strength was most pronounced in stadiums, which is unsurprising given the likely preference for outside venues in the aftermath of the pandemic. New York was the highest grossing market for live music in 2022 with Las Vegas, Los Angeles, Chicago and the Bay Area rounding out the top 5, respectively (Exhibit 24). Allegiant Stadium in Las Vegas was the highest grossing stadium (Exhibit 25) and Madison Square Garden in New York was the highest grossing arena in 2022 (Exhibit 26).
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In 2022, the highest grossing music tour in North America was Bad Bunny, which generated $373.46mn. Elton John, Ed Sheeran, Harry Styles, and Coldplay round out the top 5 highest grossing tours in 2022, respectively (Exhibit 27). Live Nation was the global leader in total gross revenue among promoters with $4.19bn in 2022, while AEG Presents put on the greatest number of shows with 9,257.
2023: Megastars driving a blowout year
Flying in the face of worries over pulled forward demand, the momentum generated in 2022 appears to be extending to 2023. Thus far, 2023 is trending towards being even bigger year than 2022, with Taylor Swift's Eras Tour leading the way with what is shaping up to be the highest grossing tour of all time (estimates currently sit at over $1bn in gross sales). Through the first half of the year, the Eras Tour grossed a little over $300mn (Exhibit 29). Conservative estimates indicate Beyonce's Renaissance world tour could gross between $275-$700mn, while more aggressive forecasts are calling for the tour to outgross Taylor Swift's potential record breaking run. According to VenuesNow and Pollstar data, as of June, the Top 100 North American tours for 2023 are grossing an average of 22% more than 2022 and 51.7% more than 2019. Live Nation indicated in their 2Q23 earnings report that over 117 million tickets have been sold for Live Nation shows year-to-date, an increase of 20% y/y.
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Endeavor Group Holdings, Inc. (EDR)
Our price objective of $32 is based on the sum of current implied value of TKO to EDR shareholders (derived from the current market price of WWE) and roughly 7x Remainco.
Downside risks to our price objective are: (1) meaningful slowdown in content spending growth, (2) lower-than-expected demand for UFC rights in the upcoming renewal, (3) the departure of key talent in the Representation business and UFC, (4) an increase in fighter compensation alongside potential rights increases, (5) execution risks associated with a pivot into sports betting, (6) high leverage in a rising interest rate environment, (7) the proposed WWE/UFC merger does not close and (8) general macro exposure.
iHeartMedia, Inc. (IHRT)
Our $3.50 PO is based on an approximately 5.0x CY24E EV/EBITDA multiple which represents a premium to traditional radio comps trading at approximately 4.5x given its unparalleled scale and differentiated business model.
Upside risks to our PO are better than anticipated revenue growth, macroeconomic improvement, market share gains, margin expansion and free cash flow generation.
Downside risks to our PO are: high leverage and if the recovery in the macro environment does not materialize.
Madison Square Garden Entertainment (MSGE)
To derive our $41 PO, we apply a 13x multiple to our CY24E AOI. The 13x reflects structural live entertainment tailwinds and is in line with peers Endeavor (EDR) and Live Nation (LYV) which trade at 11x-12x, but a discount to World Wrestling Entertainment (WWE) and Formula One (FWONK) which trade at over 20x.
Downside risks: an economic downturn could negatively impact consumer spending, reducing demand for live events and lowering per cap spending at events, inefficient secondary offering from Sphere particularly if Sphere does not attract audiences and needs multiple rounds of funding, a re-emergence of COVID-19 or other type of pandemic, a loss in appeal of Christmas Spectacular, a sharp increase in interest rates prior to MSGE de-levering, a change in Madison Square Garden's tax-advantaged position.
Spotify Technology (SPOT)
Our $185 price objective is based on a DCF valuation, driven by a discount rate of 12.8% and a 9% terminal growth rate. Our valuation accounts for SPOT's positioning within a secular growth area of Media & Entertainment, its ramping profitability, and the premium valuations ascribed to leading subscription streaming media services.
Upside risks to our price objective are faster-than-expected revenue growth, margin expansion, increased market share, increased operating leverage, and traction from new growth initiatives.
Downside risks to our price objective are margin pressure, increased content costs, reduced streaming market share, slower revenue growth and the potential that the Joe Rogan controversy drives an increase in churn or artists pulling their songs from the platform.
Warner Music Group Corporation (WMG)
Our $36 price objective (PO) for WMG shares is based on approximately 16x CY24E OIBDA, Our multiple represents a premium to other media and entertainment company multiples given its better long term growth outlook
Downside risks to our PO are that WMG loses market share to other major labels (Sony or Universal), independent labels or more artists go direct, deal structures with DSPs or artists become less favorable, and the streaming industry does not grow as quickly as anticipated.
Upside risks to our PO are that WMG gains market share, deal structures with DSPs or artists improve, leading to more favorable economics, and the streaming industry grows faster than anticipated, leading to better gross margins.
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We, Jessica Reif Ehrlich and Peter Henderson, hereby certify that the views each of us has expressed in this research report accurately reflect each of our respective personal views about the subject securities and issuers. We also certify that no part of our respective compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in this research report.
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 Important Disclosures
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R1 Issuers that were investment banking clients of BofA Securities or one of its affiliates within the past 12 months. For purposes of this Investment Rating Distribution, the coverage universe includes only stocks. A stock rated Neutral is included as a Hold, and a stock rated Underperform is included as a Sell.
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FUNDAMENTAL EQUITY OPINION KEY: Opinions include a Volatility Risk Rating, an Investment Rating and an Income Rating. VOLATILITY RISK RATINGS, indicators of potential price fluctuation, are: A - Low, B - Medium and C - High. INVESTMENT RATINGS reflect the analyst's assessment of both a stock's absolute total return potential as well as its attractiveness for investment relative to other stocks within its Coverage Cluster (defined below). Our investment ratings are: 1 - Buy stocks are expected to have a total return of at least 10% and are the most attractive stocks in the coverage cluster; 2 - Neutral stocks are expected to remain flat or increase in value and are less attractive than Buy rated stocks and 3 - Underperform stocks are the least attractive stocks in a coverage cluster. An investment rating of 6 (No Rating) indicates that a stock is no longer trading on the basis of fundamentals. Analysts assign investment ratings considering, among other things, the 0-12 month total return expectation for a stock and the firm's guidelines for ratings dispersions (shown in the table below). The current price objective for a stock should be referenced to better understand the total return expectation at any given time. The price objective reflects the analyst's view of the potential price appreciation (depreciation).
INCOME RATINGS, indicators of potential cash dividends, are: 7Â -Â same/higher (dividend considered to be secure), 8Â -Â same/lower (dividend not considered to be secure) and 9Â -Â pays no cash dividend. Coverage Cluster is comprised of stocks covered by a single analyst or two or more analysts sharing a common industry, sector, region or other classification(s). A stock's coverage cluster is included in the most recent BofA Global Research report referencing the stock.Â
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Price Charts for the securities referenced in this research report are available on the Price Charts website, or call 1-800-MERRILL to have them mailed.
One or more analysts contributing to this report owns stock of the covered issuer: MSG Entertainment
One or more analysts responsible for covering the securities in this report owns stock of the covered issuer: MSG Entertainment.
BofAS or one of its affiliates acts as a market maker for the equity securities recommended in the report: Endeavor Group Holdi, iHeartMedia, MSG Entertainment, Spotify, Warner Music.
BofAS or an affiliate was a manager of a public offering of securities of this issuer within the last 12 months: MSG Entertainment.
The issuer is or was, within the last 12 months, an investment banking client of BofAS and/or one or more of its affiliates: MSG Entertainment, Warner Music.
BofAS or an affiliate has received compensation from the issuer for non-investment banking services or products within the past 12 months: Endeavor Group Holdi, iHeartMedia, MSG Entertainment, Warner Music.
The issuer is or was, within the last 12 months, a non-securities business client of BofAS and/or one or more of its affiliates: Endeavor Group Holdi, iHeartMedia, Warner Music.
BofAS or an affiliate has received compensation for investment banking services from this issuer within the past 12 months: MSG Entertainment, Warner Music.
BofAS or one of its affiliates is willing to sell to, or buy from, clients the common equity of the issuer on a principal basis: Endeavor Group Holdi, iHeartMedia, MSG Entertainment, Spotify, Warner Music.
The issuer is or was, within the last 12 months, a securities business client (non-investment banking) of BofAS and/or one or more of its affiliates: Endeavor Group Holdi, iHeartMedia, MSG Entertainment, Warner Music.
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