The stock market doesn’t necessarily reflect a company’s value and potential, but the live music business’ outlook is clearly bleak and the concert business is now in uncharted waters with the possibility of a protracted fight against the virus throughout North America and Europe. Cities throughout the U.S. have banned large gatherings, some to as few as 10 people, and required people stay at home with shelter in place orders in San Francisco and likely more coming.
Estimates of the virus’ time horizon were expanded last week when U.S. government officials warned the pandemic “will last 18 months or longer and could include multiple waves of illness.” In Europe, cities such as Paris and Madrid are on lock-down in an attempt to prevent Italy’s alarming levels of infections and deaths.
Deep declines in stock prices affect a company’s ability to raise capital or make stock-based acquisitions and take years to return to previous highs. The Dow needed about four years to claw back a 57% decline during the Great Recession crash of 2008, according to analysis by CNBC and Goldman Sachs. A typical bear market -- a 20% decline from the previous all-time high -- has lasted 14.5 months and needed two years to recover. On Wednesday, the Dow closed 48.6% off its 52-week high.
Other concert promoters have also lost market value as investors forecast bleak conditions for live events. Shares of The Madison Square Garden Company fell as much as 10.1% on Wednesday, off 42.3% from its 52-week high on February 20th. German promoter and ticketing company CTS Eventim fell 5.9% on Wednesday, 61.8% off its 52-week high on January 24th.
The stock market was down across the board on Wednesday, with the Dow 30 index closing down 6.3% after falling as much as 8.8% earlier. The S&P 500 and Nasdaq ended the day down 5.2% and 4.7% respectively. The Russell 2000, an index of small-cap stocks, fared even worse by sinking 10.4%.
Much has changed in the three weeks since Live Nation executives first attempted to calm investors’ nerves. In the company’s 2019 earnings call, CEO Michael Rapino and president Joe Berchtold offered a simple message: Live Nation is geographically diverse and has little exposure to China, the source of the virus, and Italy. “We’re headed for a record 2020,” said Rapino during the earnings call. Until late February, the concert business was primed for a banner year of superstars playing stadiums and fans flocking to festivals. But no more.
The financial picture worsened on March 12 when Live Nation announced it would postpone current touring arena shows through the month. If that’s all it lasts, the impact will be relatively light since the first quarter is touring’s slow season: in 2019, just 15% of concert revenue came from the first quarter. Nevertheless, “fixed costs [are] swallowing up what little gross profit remains,” wrote Huber Research analyst Doug Arthur in a March 13 note to investors that lowered his price target from $56 to $35. And the concert cessation could extend well into the second quarter, the company’s second-most valuable quarter. Arthur assumed the attendance decline will deepen from 17% in the first quarter to 30% next quarter.
Live Nation shares had appreciated steadily and consistently since the Great Recession in 2009 temporarily depressed the live music market. But through acquisitions, mainly concert promoters and a business model built on concert attendances, Live Nation has gone from the largest promoter in the U.S. to an increasingly global powerhouse. Throughout the 2010s, promoters, ticketing companies, touring artists enjoyed higher ticket prices and, in some cases, healthy margins on the secondary market.
The coronavirus has upset the balance between supply and demand. Rapino and Berchtold have emphasized that artists “see touring as a fundamental part of what they do and how they earn their livings.” Some artists have streamed ad-hoc performances after shows and tours were postponed or cancelled outright, but -- for the time being at least -- that won’t help Live Nation and other promoters’ bottom lines.