Growing up, I read James Allen’s take on crisis: Adversity does not build character; it reveals it.
There is no better business case for adversity than the current situation for companies promoting or ticketing mass events in theaters, arenas, and stadiums. As a result of the Coronavirus pandemic, revenue came to a sudden halt in March of this year and is unlikely to return with vigor before 2021. Much of the income earned from tickets sold beginning in Q3 2019 is at risk of refund as shows sold for future dates cancel or postpone with an option for consumers to request a refund. The return of live events with full venues in the control of governments, medical science, and an unpredictable mutating virus. Given this scenario, what is the best course to steer one of the world’s largest live entertainment companies?
Michael Rapino, CEO of Live Nation, is accelerating his company’s commitments to social causes. I think he’s onto something. When the pandemic lifts and business returns to normal, there will be a new normal. I believe consumers and employees will forever change by their experience through this crisis. As this crisis abates, we will expect more from each other and more from the companies we choose to buy from, work with, or join. Companies who fail to hear the whispers emanating from social media and print press will find themselves losing market share to those who lead the migration.
Given live entertainment essentially shut down in the middle of March this year, let’s discuss Live Nation’s current second quarter compared to Q2 in 2019. Revenue dropped to $74.1 million from $3.16 billion. Operating income was a loss of $588.1 million down from a profit of $171.6 million. The number of tickets sold was 2.38 million refunded down from 106.93 million sold in Q2 last year. That’s what a pandemic will do. For the first time, I thought a CEO might need a Chief Medical Officer’s review before being able to sign off on financial statements and stay with the Sarbanes-Oxley boundaries.
The numbers posted by Live Nation confirmed what we already knew. Events on the schedule this year are all canceling or postponing.
Nobody yet knows when events will return. And, that creates quite a management quandary. What do you do when you have thousands of employees around the globe, no revenue, and no clarity about how long this situation will remain?
The classic business school models will tell you to immediately get small, slash your overhead, control your costs, and live to play another day. Good advice. But what about when your money comes from the relationships you’ve built with your partners and consumers? If you abandon ship, you leave them all vulnerable to being picked off by your competition. What if instead you leaned into the crisis and used it to differentiate your company from its competition? This situation is a top-down decision for leadership. Which path do you take? It’s safer to wait and see at the other end of the crisis, but there’s the risk of losing share to those with courage. Live Nation has chosen to lead out of the crisis by adopting new social justice-based practices now, which better align with the shift in consumer expectations.
The following actions at Live Nation caught my attention:
- CEO Michael Rapino declined to take any salary while other of Live Nation’s executive team’s salaries remain reduced.
- Taking part in the formation of a joint task force of industry leaders.
- Implementing refund policies more favorable than those of the competition.
- Crew Nation, a global relief fund, including a $250,000 personal donation to aid unemployed music crew members.
- Formation of the Women Nation Fund to improve gender equality by investing in female-founded live music businesses.
- Green Nation, a global “green” sustainability drive at events worldwide.
- Maintaining generous employment benefits, including extensive healthcare and paid days off for volunteer work, care for sick family members sabbaticals, and parental leave.
- An ongoing corporate commitment to support vital social causes such as diversity and gender equality.
Rapino’s commitments are broad and earnest. He’s using both his own money and that of his company to take positions aligning it with a more socially conscious philosophy. That makes perfect business sense for a company employing thousands of younger workers and sells to millions more, all of whom fully immerse in social media and trending issues.
This commitment to being socially conscious does not appear to be window dressing or something casually addressed. Look at the position Live Nation asserted during the protests following the death of George Floyd. The company donated to the Equal Justice Institute and published an open letter to its employees promising to continue to support diversity across their global operation: livenation.com/diversity
Similarly, the Women Nation Fund is an early-stage fund Live Nation established to improve gender equity. It exists to provide capital and resources for female entrepreneurs. Rapino commented that “our goal is to work together to find scalable ways to empower the women at our company and across the industry as a whole.” The announcement is here: formation of Women Nation Fund
Rapino also joined forces with other leaders of significant live entertainment companies to form a task force almost concurrent with the global shut down of events. A crisis at this scale requires cooperation where once there was only competition. That group includes the heads of AEG, CAA, WME, Paradigm and UTA all working collectively to solve Covid-19 related impact on live entertainment: Press Statement
Finally, and most telling is the way Live Nation has handled refunds compared with some of its competition. First, in fairness, no one is prepared to refund everything they’ve sold for delivery in the future while simultaneously having their current revenue drop to virtually zero. Live Nation’s Ticketmaster division sells tickets on behalf of artists and promoters who receive the proceeds of those sales less fees collected by Live Nation.
Before any tickets can be refunded, promoters must return to Live Nation the funds they received. Additionally, promoters have to allow the refund rather than merely keeping the sales proceeds and postponing the show to a post-pandemic time when it can go forward.
Often, Live Nation itself is the promoter, which makes the recovery of funds a bookkeeping matter rather than one of collection. In the midst of chaos, their teams worked to bring back funds and created refund protocols which appear to be working better than almost any other ticket provider. Refunds have been made available for canceled shows and for many postponed shows. That’s very different from companies like StubHub who face ongoing consumer complaints and litigation because they refuse to refund any money. Instead these companies have chosen to hold onto sales proceeds while only offering a voucher for future use.
There are many stakeholders in the live entertainment ecosystem, all of whom have agendas.
This pandemic will have after-effects affecting promotion and ticketing for years. Ultimately though, it all comes down to consumer demand to attend mass events. I expect demand to remain high and fear to abate as venues reopen. The question then is which choice consumers make as it is they who vote with their wallets when deciding how and where to spend money. I believe that as live event consuming patrons return to buy tickets, the companies they select to purchase tickets will align their corporate values with the core values of the fans. Live Nation is making a smart bet to establish themselves in front of this change.
Leadership is more than making just decisions. It is understanding when risk mandates one choice even when the result is not assured. Doing the right thing always is what defines character. Doing it in difficult times is what sets up the prospect of accelerating growth during the recovery. Investing precious capital during a crisis to help your company be better improves both the company and its customers. It is an act requiring courage. Courage and character combined are the foundational stones for prosperity.
I think Live Nation will stay steady and focus on social justice and the needs of their partners and customers. Threading that path will result in growth in value and reputation for the entire enterprise. It’s a choice which comports with how this Beatles lyric from Abbey Road summarizes much of life: and in the end, the love you take is equal to the love you make. There, in fifteen words is the roadmap. Follow it. Then, follow me. I’ll write more about leadership and strategy at the companies affected by the pandemic and that of the artists whose ability to perform has been paused.