Huber Research Partners Managing Director Douglas Arthur examines the pressures Live Nation and Ticketmaster are facing from regulators, in addition to the live event company's sway on the ticketing service space.

Video Transcript

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- Doug, it's great to see you. So we just heard the latest here from [? Ali, ?] Live Nation facing accusations of exorbitant fees, which we knew, flawed customer service, anti-competitive practices. What stuck out to you in today's hearing?

DOUGLAS ARTHUR: Well, I think the Senate hearing, and that was a pretty good summary of the big points there, but it told us everything we already know, which is that Live Nation dominates ticketing, they dominate venues, and they dominate the artists. And according to the Justice Department, they occasionally take advantage of that and use their muscle to get artists into venues, or not into venues that are not using all three of their services.

So I thought it was a good lay out of the issues. The question, as your spokesperson said, is what do you do about it? And the Senate acknowledge that they can only present the facts of the industry dynamics and what's broken. It's up to the DOJ to do something about it. And obviously, Live Nation is operating under an extended consent decree, which the DOJ is overseeing. So everybody knows the facts. The question is, what do you do about it?

- Yeah, I mean, Live Nation-Ticketmaster controls 70% of the primary ticketing and live event venue market, which is astounding. I know you're not an attorney, but your guess is, do you think the government will act here?

DOUGLAS ARTHUR: I mean, I think-- listen, I mean, when you rise to the level of a Senate hearing, and those are pretty senior senators, there's heat. And whether the DOJ responds to that or not, there will be heat to do so. So look, I think it's highly unlikely that Ticketmaster is divested from Live Nation. Live Nation would be a shell of itself without Ticketmaster in my view because that's where they get all the data on consumers that powers the rest of their business.

And the point I thought was interesting, we made that the concert business, which is a 1% margin business, maybe a little higher recently, is a loss leader, and that Live Nation gets the ax to sell the ticketing and the sponsorship and advertising. That's where they make their money. Without Ticketmaster in the center of that cog, or that machine, the parts wouldn't hold together as well.

- So, Doug, what does this mean then from an investor perspective? You're an analyst covering the stock. Taking a look at shares, at least today, they're still moving to the upside despite all of these concerns.

DOUGLAS ARTHUR: Listen, I mean, it's an interesting situation from an investment point of view. Obviously, the stock is down from 125 got down to, I don't know, below 70 recently. You have to look at the Live Nation outlook going into 2023, and you look at who's announced they're going out in the road, whether it's Taylor Swift or Bruce Springsteen. I mean, there is a tsunami of big acts that want to get in on this reopening surge. So what we saw in 2022 was record profits at Live Nation.

I think we're going to see that again in 2023. Not a lot of companies looking at the vagaries of the economy right now, you can say that about. They did have to lever up a lot to survive the lockdown. They doubled their debt. So I think my underweight is somewhat of a valuation story. But you have to acknowledge that underlying numbers are very strong.

- Doug, you point out this is a 12-month period in which Americans, largely speaking, shifted their spending from goods to services and experience like concerts. They were eager to get out there. You just mentioned the incredible lineup. Why are shares down 29% over the last 12 months?

DOUGLAS ARTHUR: Well, number one, I think it's valuation, and they're heavily indebted, which they just did something about with a billion-dollar convertible equity offering, convertible bond into equity. I think the uncertainty over the future of Ticketmaster, which led up to this hearing, is another overhang on the stock, and it's probably a buy-on-the-news event where there was worry going into the hearing. The hearing's over. I think people kind of walked away and said, "Gee, good explanation of the issues, no immediate solution. Maybe the DOJ will do something, maybe it won't." Life probably goes on here. And so there's a relief rally in the name.

- Certainly seems to be the case, at least today. Douglas Arthur, great to have you. Thanks so much for joining us.