Superfans Drive Entertainment Industry Growth, Bernstein Says

Investment bank Bernstein has identified "superfans" as a critical driver for the growth and profitability of the entertainment industry. These superfans, such as the Beyhive for Beyoncé, Swifties for Taylor Swift, and the Ferrari fanbase, are essential for the industry's next phase of expansion. Ian Moore, an analyst at Bernstein, emphasized that the ability to effectively attract and monetize superfans will be a key differentiator in the industry's growth and profitability.

Moore, who recently began covering the entertainment sector, has given "outperform" ratings to several companies, including Live Nation Entertainment, Spotify Technology, TKO Group Holdings, DraftKings, and Warner Music. He has rated Liberty Formula One and Flutter Entertainment as "market perform."

Since the end of the pandemic, the demand for live events and other experiences has been driven by the "FOMO" (fear of missing out) and "YOLO" (you only live once) mindsets. A series of events held last summer in Europe, including Taylor Swift's "Eras" world tour, has led Bernstein to predict that hotel groups and travel agencies will benefit significantly.

Superfans are typically high-income or affluent individuals who are less sensitive to price increases and maintain stable consumption habits even during economic downturns. While focusing on superfans may slow the growth of ordinary fans, Moore predicts that companies leading in attracting superfans will see a significant boost in profitability.

Moore noted that superfans manifest differently across various sub-sectors, including live experiences, music, online sports betting, and iGaming. He expects that growth driven by superfans will continue for several years. Live Nation Entertainment has been identified as the top pick by Moore. The company's stock has rebounded from its April lows, outperforming the S&P 500 index.

Moore has set a target price of 185 dollars for Live Nation, the highest among analysts. He believes that Ticketmaster, the ticketing giant under Live Nation Entertainment, has room for growth in ticket sales, sponsorship revenue, and concert profitability. Moore also downplayed public and political criticism of Live Nation and Ticketmaster, stating that the likelihood of an unfavorable ruling in the U.S. Department of Justice's antitrust case is low. He does not expect the UK's Competition and Markets Authority's investigation into dynamic pricing to have a significant impact on Live Nation.

Moore also highlighted that recent industry shifts, such as the move towards "all-in pricing" and the Trump administration's executive order on "BOT attacks," indicate a regulatory focus shift from the primary ticketing market to the secondary market. Additionally, Moore has set a target price of 825 dollars for Spotify, the highest on Wall Street. He believes that Spotify's pricing power is underestimated and that its upcoming superfan subscription service will be a significant growth catalyst. Once launched, the superfan subscription service is expected to quickly gain adoption among existing and potential new users, driving Spotify's gross margin to the upper 20% range in the short term and above 40% in the long term.