In this segment from Industry Focus: Consumer Goods, host Vincent Shen and Motley Fool contributor Nick Sciple break down Live Nation's (LYV 0.93%) position relative to its competitors and give their final takeaways for investors looking to invest in the live events industry.
A full transcript follows the video.
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Vincent Shen: With competition, too, related to that, there are a few other established players that operate and promote events for these kind of megavenues or major venues. Two that came up in our search were the Madison Square Garden Company, ticker MSG; and then Anschutz Entertainment Group, AEG, which is private. How do they square up here against Live Nation? Just off the bat, we know, market share-wise, not even close. But, in terms of business models and their place in the industry, what do you think?
Nick Sciple: When you're looking at Madison Square Garden as a business, they're primarily a venue operator. I believe they own stakes in the New York Knicks and things like that, but they're primarily a venue operator. They own, of course, obviously, Madison Square Garden, Radio City Music Hall, the Beacon Theater. Some very large, well-known venues across the United States.
When it comes to competition with Live Nation, however, Live Nation provides the ticketing services for all those venues for Madison Square Garden. So, I don't view them as a major competitive obstacle to Live Nation. Live Nation already has their most profitable business --
Shen: They've already established that relationship.
Sciple: Right. And AEG, from a similar perspective, I would say that they're the No. 2 live event promoter in the world behind Live Nation. They're much more of a venue operator, have some presences in Europe. They operate the Coachella Music Festival. They operate some significant aspects. But their ticketing service, AXS, is nowhere near the size of Ticketmaster's network. They're just really not in a position to overtake Live Nation because Ticketmaster is such a large network and so ingrained.
From my perspective, Live Nation seems to be in a league of its own.
Shen: Maybe that speaks to my next question for you. We have a minute or two left. I'm ultimately curious where you stand. You've had a chance to dig into this stock, into this company. Are you sold? Is this something that you would consider adding to your portfolio?
Sciple: Yes, I would. I think just looking at the company, the way all of its segments operate together, it really creates a virtuous cycle. They're the largest player in the industry, so they can pay the largest incentives to the largest artists and bring in most dominant artists in the industry. They can drive those artists, like we discussed earlier, to the other portions of their business to drive more profits, which creates more profits, which allows them to pay even more to acquire the best artists. It just creates a virtuous cycle that I don't see anyone else the industry displacing without some activity from regulatory perspective.
They're in a growing industry, as we spoke about. Millennials, people in our generation, are much more inclined to attend live events than, maybe, previous generations might have been. And they're trading at 20X free cash flow vs. a market average in the 30s. There's a lot to like here, and there's really not a lot of major competitive obstacles. So, from my perspective, I think it's a wonderful business.
Shen: You mentioned this, and we talked about the bigger-picture tailwinds when we talked about Eventbrite. In general, growth of live event attendance. Given that tailwind, whether you're someone looking for the 800-pound gorilla, which is Live Nation here, or you prefer the broad creator base and the diversity of events that Eventbrite serves, I think there is just a lot to like in the long-term prospects for this industry overall, and the different players here.
For the Eventbrite IPO, our recommendation, going back to that, remains, wait and see for a few quarters. But, to the company's credit, now that we've had a chance to dig into both companies I'm actually a little bit more convinced that the middle market lane that Eventbrite occupies can thrive with less risk of intrusion from Live Nation, just based on the scale that Live Nation tends to operate at. It's harder to see the case for them to get into events where -- what was the average attendee count? 70 or something?
Sciple: The mid-60s for Eventbrite.
Shen: We're talking about thousands of people at these venues, usually, where Live Nation has established its foothold. This middle market lane for Eventbrite, I'm seeing as something that's much more sustainable. But, before we sign off, anything else you'd like to add for the industry or anything?
Sciple: I would agree with you, Vince. The area that Eventbrite operates in is a nice middle market away from the dangers of Live Nation and those big players. The analogy that I would give is, college football just started this weekend. We'll have the NFL coming up next week. Eventbrite is college football. That's a big business. There's a lot of opportunities to make money in that space. Live Nation is the NFL. There's a lot of chances to make money there, as well. So, whichever you would like, I think both businesses really have good opportunities to thrive and grow and resonate with customers going forward.