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Ticketmaster, Live Nation: Obama’s Antitrust Test

9 minute read
Janet Morrissey

Irving Azoff, chief executive of Ticketmaster Entertainment Inc., doesn’t mince words when he talks about the amplified negative press that’s surrounded his company’s bid to merge with Live Nation Inc. since the deal was announced in February. “It’s really good that some of the press and some of the consumer groups out there that have hated the fact that there’s been service charges on tickets and have hated Ticketmaster for the last 20 years have been able to spin all you people,” he said sarcastically. “But quite honestly it’s a line of bull crap.”

Tell that to the Boss, Mr. A. “The abuse of our fans and our trust by Ticketmaster has made us as furious as it has made many of you,” Bruce Springsteen said after a ticket fiasco in New Jersey in February steered buyers to a secondary market the company owns where tickets were being hawked at up to five times face value. The Boss was so ticked off, he went on to cast his vote against the merger, fearing a music monopoly. (Read a brief history of Ticketmaster.)

Azoff says the critics, whether famous, furious or both, are missing the point of the merger: that it would produce greater efficiencies in the music business, which theoretically would benefit ticket buyers and artists. The proposed megamarriage of Ticketmaster and Live Nation, if approved by regulators, would combine the country’s largest ticketing company with the nation’s biggest concert promoter. Since the $2.5 billion all-stock deal was unveiled in February, a throng of players, ranging from angry independent concert promoters to frustrated music fans, has been drumming the Department of Justice to block the deal, claiming the merger will create a conglomerate that will shut out competition and lead to higher ticket prices. “This is deemed by many to be the first test case in the Obama Administration,” said Marc Schildkraut, a former assistant director with the Federal Trade Commission (FTC) and now a partner at Howrey Simon Arnold & White.

There hasn’t been this much hoopla over an entertainment deal since the Sirius XM Satellite Radio merger in 2007 during the Bush Administration, Schildkraut said. Although the Sirius-XM deal ultimately got approved (and the combined company has muddled along), President Barack Obama vowed to put some spine back in antitrust enforcement. He named Christine Varney, a strong antitrust advocate, to head the Justice Department’s antitrust investigations. “Obama was very vocal during the campaign about reinvigorating the antitrust laws,” concurred Olivier Antoine, an attorney in Crowell & Moring’s antitrust group, who represented Sirius in the Sirius XM merger.

The new merger will combine Ticketmaster’s ticketing and artist-management business with Live Nation’s concert promotion, network of concert halls and fan-club operations under one roof. As a combined company, the new entity is expected to enjoy about $40 million in annual cost savings and have greater bargaining power to woo artists and sell out concert halls more efficiently. “Forty percent of the tickets to music events go unsold,” said Azoff, whose Front Line artist-management group within Ticketmaster represents such artists as the Eagles and Guns N’ Roses. “The goal of this [combined] company is to better market and bring third parties to help us fill some of those unsold seats.” (See the top 10 songs of 2008.)

Michael Rapino, chief executive of Live Nation, said this is no time to be getting in the way of business. “Every day, we are watching great American companies fail,” he said. ” These economic times require bold, fast action to innovate and grow.”

What’s there to like about this merger? The combined company will effectively cut out middlemen, such as independent concert promoters, business managers, lawyers, agents and venue owners who want a piece of the pie, and allow artists to deliver services “quicker, faster, better and cheaper” to its fans, said Luke Froeb, associate professor at Vanderbilt University’s Owen Graduate School of Management and a former senior economist with the FTC and Justice Department. From a stock perspective, Citigroup analyst Mark Mahaney sees significantly bigger growth than Ticketmaster would enjoy on its own.

The antitrust concerns are twofold. First, there’s the so-called horizontal impact, which refers to when a company buys out a rival to eliminate competition. In this case, the merger will stop Live Nation’s recently launched ticketing company from cutting in on Ticketmaster’s turf. Live Nation dumped its ticketing contract with Ticketmaster in January after signing a 10-year contract to license ticketing software from Europe’s CTS Eventim to run its own ticketing business. The move took a toll on Ticketmaster, which saw its profits dive 78% in the first quarter, partly due to the lost Live Nation business.

Second, there’s the vertical impact, which refers to the company’s expansion into all parts of the live-music industry, from managing artists to selling beer and hot dogs at venues. Rivals worry that the merged company’s far-reaching and powerful tentacles will favor the company’s own acts, venues and promotion company and shut out competing concert halls, managers and promoters. “They’ll be the concert promoter, the ticketing company, the merchandise company, the agent, the manager — they’ll be everything,” said Jerry Mickelson, co-owner of concert promoter Jam Productions. “It would be one-stop shopping. What’s an act need me for?”

A promising musician, for example, would find the options limited. “A young artist coming up who wanted to play in the buildings owned and managed by Live Nation could be told they need to use Live Nation’s management company. What would be the restriction on that?” asked Jon Landau, Bruce Springsteen’s manager. “It puts too much power into the hands of too few people in our profession.”

It didn’t help Ticketmaster’s merger prospects when it found itself in hot water over the Springsteen ticketing controversy in February. Basically, fans were told that tickets were sold out minutes after they went on sale and were automatically diverted to Ticketmaster’s resale company, TicketsNow, where they were forced to pay scalper prices for the tickets. “That was just an outrageous event,” said Landau. The Boss himself rallied fans against the Ticketmaster merger. “The one thing that would make the current ticket situation even worse for the fan than it is now would be Ticketmaster and Live Nation coming up with a single system, thereby returning us to a near monopoly situation in music ticketing,” he said in an online post.

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Ticketmaster chairman Barry Diller ultimately apologized and blamed computer glitches for the ticketing mishap. But industry heavyweights snickered. “That stuff has gone on all the time. When he said it was a computer glitch — ha-ha — I nearly fell off my chair,” said Randy Phillips, CEO of AEG Live, the country’s second largest concert promoter. “I could not believe it. I mean, these are sophisticated businessmen — my God, a computer glitch?” Not surprisingly, Phillips opposes the merger and has even suggested he may cancel his seven-year contract with Ticketmaster if the deal goes through.

All of this puts a cloud over Ticketmaster’s merger plans. “I think [the merger] would be a catastrophe for the entertainment business,” said Representative Bill Pascrell, a New Jersey Democrat who demanded congressional hearings into the matter. “Given Ticketmaster’s recent mishandling of Bruce Springsteen’s tour and other shows, it is clear that this company’s questionable business practices warrant sharper scrutiny.” Earlier this week, the Congressman introduced a bill, named the Boss Act, that calls for ticketing companies to disclose how many tickets are being withheld in primary public ticket sales and a 48-hour waiting period before tickets can be sold in the secondary market, among other things.

Azoff said he supports efforts to clean up the ticket-reselling business, which he calls “the Wild, Wild West of the business” and hints that Ticketmaster may sell its TicketsNow resale entity if the merger goes through. “The furor about the secondary market really has nothing to do with this merger,” he said. Azoff said he would ultimately like to see the merged entity offer dynamic pricing, whereby front-row seats are offered in the primary market at prices well above the average — possibly up to $1,000 — while nosebleed seats are sold below the average price for as little as $20 a pop.

Aside from Springsteen, most artists are reluctant to bad-mouth the merger. Experts speculate artists fear retaliation and recall the losing battle Pearl Jam fought against Ticketmaster in the mid-1990s. But Ticketmaster has its fans — Smashing Pumpkins’ Billy Corgan sent Congress a letter gushing support for the proposed merger. The letter was an about-face for Corgan, who in the past was critical of Ticketmaster’s system and opted to use Jam Productions instead of Live Nation for some of his tours. However, Corgan is now a client of Azoff’s Front Line artist-management company within Ticketmaster.

Can the merger result in lower ticket prices for the public? Phillips said Live Nation has a history of being “aggressive” with pricing. “We walked away from bidding on Fleetwood Mac because we thought the guarantee was too high and what we’d have to charge the public would be too much,” he said. Mickelson noted that Live Nation’s new ticketing company introduced service fees that were even higher than Ticketmaster’s: “A Coldplay ticket at a Ticketmaster building had a $15 service charge, and the same Coldplay ticket at a Live Nation ticketing venue had a $21 service charge.”

Still, vertical mergers historically tend to benefit consumers, according to Antoine. “Anytime you have a vertical merger, it creates efficiencies,” he said. “Whether this is helpful to the artist or consumer or ticket buyers is another debate.”

“Putting all that power together may be good in some way for the companies in the long run,” said Landau. But “I don’t believe it’s going to be good for the artist and I don’t believe it’s going to be good for the public.”

Azoff, who has been in the business for 43 years, believes the merger is necessary for the future of the music industry. “I’ve spent most of my life in this business. My son, daughter and son-in-law work in this business. It is our family passion,” he said when addressing a congressional committee. “I want it to thrive for generations to come.”

A decision by the Justice Department is expected by the end of the summer.

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