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Live Nation Reports Small Profit In Third Quarter Of 2011, As Consumers Hold Back

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In this exclusive interview, Live Nation CEO Michael Rapino and Chairman Irving Azoff discuss the company's strategy for delivering growth in a tough economy.

Rapino acknowledges that "2010 was a tough year for the industry, and in 2011 we didn't think was going to have any wind at our back." However, Azoff says that because of streaming services like Spotify "there's more interest than ever in music.. and that's going to bode well for the live side of the business."

He also discussed the company's partnerships with Groupon and Wal Mart. "If you know Walmart, they have this captured 110 million people that come in their stores and they aren't necessarily the people that have traditionally come to concerts."

Watch the full interview above.

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In flush economic times, Live Nation Entertainment would seem to enjoy an enviable position as a magnet for cash in the entertainment business. The company is the nation's largest source of concert tickets. It is the dominant promoter of many shows, boasting relationships with a deep stable of stars, from Christina Aguilera and Madonna to Jay-Z and the Eagles -- artists capable of packing stadiums full of people willing to shell out hundreds of dollars per ticket.

But these are hardly flush times, and Live Nation finds itself an involuntary barometer of the nation's willingness to spend for non-essential items in an era of elevated unemployment and economic anxiety. The indicator is now pointing toward greater thrift, with Live Nation's fortunes underscoring a general pullback in the American economy.

"2010 was a tough year for the industry, and 2011 we didn't think was going to have any wind at our back," Michael Rapino, Live Nation's chief executive, told HuffPost.

Live Nation -- which owns the ticket-selling giant Ticketmaster -- showed a modest profit of $25.3 million between July and September, the company announced Thursday afternoon. That was better than the same period the year before, when the company lost $92.3 million amid disappointing sales and canceled tours. Overall, ticket revenue rose 18 percent during the first nine months of the year compared to the same period the year before.

Still, those numbers did not dislodge a sense of diminished fortunes. The company told investors that it expected to see overall ticket sales decline modestly when the books are closed on 2011. Part of the anticipated drop stems from the ongoing lockout in the NBA, which has already wiped out scheduled games through November. But much of the decline reflects a generally weak economy. The company's stock price has dropped from more than $12 a share in July to $9.57 on Thursday, a decline of more than 20 percent.

For a company whose contractual ties with superstars and whose dominant grip on the ticket market once seemed like a license to print money, the new atmosphere has occasioned an altered approach. Rather than steadily raising ticket prices as it has done in the past, Live Nation has instead been seeking to secure sales among a wider range of bargain-conscious consumers. It has been expanding its reach through social media, while providing discounts through online venues such as Groupon.

"If we can get a better way to reach them, let them know that Van Halen's playing in L.A. in October, we know that we can drive purchase," Rapino said.

Not that Live Nation has abandoned its focus on wealthy people willing to pay what it costs to get themselves close to the stage. The company has been raising prices for the best seats, while offering a more intimate concert experience, such as opportunities to meet with musicians backstage.

With a famous band such as the Eagles, said Irving Azoff, executive chairman of Live Nation, "we love the idea that people that never saw us get to see us now for $25, and that's basically only happening because the front rows are able to make up for what we lose in the lower seats."

But while the top-income customers continue to pay for the privilege of sitting closer to stars, the rest of the audience has shown an inclination toward spending less money. During the summer months -- traditionally the top-grossing period for the company -- Live Nation concert attendance declined, with the gate down 6 percent between July and September compared to the same months in the previous year. More broadly, Live Nation's concert ticket sales -- which includes shows it does not promote -- declined 1 percent compared to the same period the year before.

Live Nation has been striving to enhance its visibility among concert fans who are now wary of spending yet are potentially willing to splurge when the tickets seem like a sufficient bargain. The company recently partnered with Groupon on a new service called Groupon Live, has begun selling tickets at kiosks installed at Walmart stores, and has sought to reach potential concert-goers through its Facebook page.

"If you know Walmart, they have this captured 110 million people that come in their stores and they aren't necessarily the people that have traditionally come to concerts," Azoff said.

Live Nation and Ticketmaster have also been seeking to reach potential customers who are most receptive to offers by tapping a burgeoning database of customers, with some 200 million names and counting.

"We know who they are," Rapino said of frequent concert-goers, referring to them as an "untapped asset" he would like to monetize and engage by using them to "spread the word" about concerts and offering them special deals.

As it rolls out its new, bargain-accented initiatives, Live Nation is operating on the assumption that thriftier times are far from a momentary phenomenon, and more likely an entrenched reality with staying power.

"We're building our plans based on it being a tough slog and us having to fight for the consumers," said Joe Berchtold, the company's chief operating officer for North America.

Unlike many businesses, Live Nation has been partially shielded from the recession by dint of its near-monopoly grip on the concert ticket market, allowing it to charge premium prices. Ticketmaster last year sold more than three out of every four tickets for concerts, sporting events, theater shows and a variety of other events sold online around the world. Live Nation has had such a dominant hold on the concert promotion market that it handles shows with more concert attendants than the next 10 concert promoters combined.

That dominance has been reflected in what it costs to see a headline act, analysts say. Between 1996 and 2010, the average price of a ticket for a top 100 tour spiked from $25.81 to $61.74, according to Pollstar, a concert industry trade publication. The company's commanding market share has prompted class action lawsuits that have accused it of tacking on excessive fees.

In some sense, Live Nation is grappling with two fundamental challenges at once, as the new era of thrift unfolds just as the music business grapples with changes to its basic business model. Two decades ago, bands still sold concert tickets cheaply in an effort to attract big audiences and promote sales of new albums -- their major profit center. But as the value of record labels has declined amid the proliferation of file-sharing services and other new ways of exchanging music, musicians have become increasingly reliant on tours to make money. Yet young people today generally evince less loyalty to particular bands than in eras past, since they can easily buy singles through iTunes (as opposed to full albums), and they can sample multiple artists via online radio services such as Pandora.

Musicians now derive 60 to 80 percent of their revenues from concerts, while 12 years ago they drew a similar slice of their revenues from record sales, according to David Joyce, an analyst at the trading firm Miller Tabak.

"They got to make their money on the road now," Azoff said.

In essence, Live Nation is trying to figure out how to persuade consumers contending with constant pressures to cut back to nonetheless hand over large sums of money to watch highly compensated musicians perform. To accomplish that mission, the company is seeking to exploit one asset that cannot be replicated: the live musical experience.

"The new streaming services, like Spotify and others, have created more interest in music," Azoff said Thursday. "So there's more interest than ever in music, and basic recorded music is cheaper, if not free ... and that's going to bode well for the live side of the business because sharing this music with people gets them excited. When 13.5 million people tune in to watch 'X Factor' last night, that's going to create interest for when we put that tour out."

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