Live Nation Entertainment Inc. (LYV:US), pursuing growth outside its mature concert and ticket businesses, is seeking to double profit from advertising and sponsorships over five years.
The division’s earnings will grow 10 percent to 15 percent a year through 2017, Chief Executive Officer Michael Rapino said in an interview. Live Nation is seeking as much as 30 percent of the $1 billion marketers spend a year sponsoring U.S. music, along with more ad sales, he said.
“Our ad strategy is the foundation of how we grow this business over time,” Rapino said. “Can I keep growing it 10 to 15 percent each year? Absolutely.”
That suggests faster growth for the unit, where profit gained 7.1 percent through nine months, and would make ads and sponsorships the biggest moneymaker at the Beverly Hills, California-based company. A revamped LiveNation.com website and sponsor-rich music festivals are part of the plan to lift profit from those sources, to as much as $350 million a year based on Rapino’s target.
Ads and sponsorships are already Live Nation’s second biggest (LYV:US)contributor to adjusted operating income -- profit excluding acquisition costs, depreciation, amortization, asset sales and stock-based compensation. Events and ticket sales are low margin, while ads and sponsorships earn 75 cents for every $1 of revenue, Rapino said.
“The more that reflects on the bottom line, the more people will realize we’re not just selling ads at Jones Beach,” Rapino said, referring to the amphitheater on Long Island, New York.
Through nine months of 2012, ads and sponsorship produced profit of $137.8 million on that basis, a 7.1 percent gain from a year earlier. Ben Mogil, an analyst at Stifel Nicolaus & Co. in St. Louis, estimates 2012 profit of $177 million from those businesses and projects $190 million this year.
Only ticket income, which grew 5.8 percent to $226 million through nine months, was bigger.
Live Nation still needs more growth from its core concert and ticket businesses, said Rich Tullo, an analyst at Albert Fried & Co. in New York.
“I don’t doubt they can grow that business,” Tullo said of advertising and sponsorships. “But they need the economy to turn around to make a lot of money.”
The company has a 56 percent share of all U.S. ticket sales and promotes 75 percent of the 100 largest live events tracked by Pollstar, Tullo said.
In October, Live Nation predicted 30 percent to 35 percent growth in total adjusted operating income through 2015, excluding currency changes. About half will come from sponsorships and advertising, Rapino said in the interview.
Live Nation slipped 0.1 percent to $9.88 as of the close in New York. The stock climbed 5.9 percent in 2012, a smaller gain than the 13 percent rise in the Standard & Poor’s 500 Index.
Last year, the company developed a campaign and concert series for Kellogg Co. (K:US)’s Pop Tarts that increased the breakfast pastry’s followers on Facebook Inc. (FB:US) and Twitter Inc., and sparked additional sales, said Dick Podiak, marketing director for Pop Tarts at Battle Creek, Michigan-based Kellogg, without offering specifics.
Live Nation created an online sweepstakes that provided tickets to concerts featuring artists popular with teenagers, Podiak said. The first, in July at the Charter One Pavilion in Chicago, featured Carly Rae Jepsen performing her hit song “Call Me Maybe.” A second show in September at Irving Plaza in New York starred All Star Weekend and Gym Class Heroes. The companies are in talks to renew the partnership, Podiak said.
Advertising and sponsorship opportunities were also behind the May decision to buy the producer of the Creamfields festivals, the creation of mobile apps and the opening of offices in Asia and Russia, Rapino said.
With iPhones able to store tickets, Rapino said about 7 percent of ticket sales ocurred on mobile devices in 2012, creating ad opportunities. That will rise to 10 percent to 14 percent this year, he said.
The company revamped the Live Nation website in December, adding ad-supported videos, photos and concert information, along with Chevrolet Sonic, Citibank and Bud Light as sponsors.
“We’re pointing to the upper deck and saying this is how we will grow this business,” Rapino said.
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