Live Nation Entertainment: Savior of the Music Industry?
Live Nation and Ticketmaster announced their intent to merge early in February 2009. Many questions have been raised about the legality and the effects of the merger. Public hearings and professional panel discussions have been followed. A Senate Judiciary Subcommittee led by Honorables Herb Kohl and Charles Schumer first investigated the proposed union. More recently, at Berklee , the Envisioning Touring panel brought together leading executives of the live music industry to weigh in on the topic, while in a separate event students of the Music Law Group debated the issue. Everyone has questions, but are there any clear answers?
I begin with everyone’s favorite part: the cons of the proposed merger. Live Nation Entertainment (LNE), which would be the name of the new conglomerate, would undoubtedly be a near monopoly, if not an actual one. The combined organization would have control over “everything before, during and after a concert [that] takes place over the course of an entire tour”– a “pretty sizable” influence according to Billboard’s Ray Waddell. It would include much of the show promotion, the ticketing, and the ownership of venues around the country and abroad. I would ask anyone to try and book a major music tour without playing a venue that currently is under contract with either Live Nation or Ticketmaster or both.
Ticketmaster sold over 141 million tickets in 2007, valued at over $8.3 billion, and controls the ticket sales for over 80% of the venues in the country. Live Nation, the world’s biggest concert promotion company, produced 28,000 events in 2007 that were attended by 64 million fans. They were spun off from Clear Channel Entertainment, the same company that rolled up radio stations and concert promoters with SFX Entertainment. According to Live Nation CEO, Michael Rapino, the company’s market share in major cities is only around 14%. This number seems shockingly low, most likely because the counting total includes shows at the very-small club level.
LNE would sell the majority of tickets in the country through contracts with 11,000 venues across 20 countries. They would also manage a large number of major acts through Live Nation’s 360 deals and Frontline management, own most of the country’s amphitheatres and a large number of clubs, own two major ticket resellers (TicketExchange and TicketsNow), and have access to various sources of competitive data through the sale of competing promoters tickets. Jerry Mickelson, Chairman and Executive VP of promoter Jam Productions, called this “vertical integration on steroids” during his witness testimony at the Senate hearing.
A conflict of interest seems to arise when noticing the number of artists that are managed directly under this new company. Will these artists be required to deal with LNE if they are under Frontline management? Will they get better deals than artists who are not under the LNE name? Irving Azoff, after all, is renowned for getting his artists the best deals.
A focal point of the discussions of this merger revolves around how it will affect the consumers. LNE claims to become a more efficient organization that will bring about better ticket prices and innovation in ticketing. This speculative statement seems highly unlikely. Every time Ticketmaster has acquired a new company since buying out Ticketron in the early ‘90s, ticket prices have continued to rise much faster than the rate of inflation. A dominant market share and reduced competition rarely leads to lower prices and innovation in any market. While artists can set prices for their tickets, the offers come from the promoters who should know their region and demographics. Let us not forget that when oil companies complained about being in trouble in the 1990s, the Exxon/Mobil merger was allowed to go through. Since then oil prices skyrocketed and the company has raked high profits.
Even those in the secondary ticketing market have something to say about the merger. LiveStub CEO, Michael Hershfield, will lose a lot of business against LNE. He, along with others, claims that the new company could possibly bypass the primary ticketing market altogether and release tickets immediately to its secondary ticketing sites. Fans would be forced to bid off of each other for tickets. The secondary market has certainly revealed that there is a large market to pay enormous premiums for concert tickets. This would also benefit LNE because ticketing companies make their money off of the fees and service charges, not the face value of a ticket.
Ticketmaster has already alarmed many with the Bruce Springsteen incident of directing consumers to its TicketsNow site with ticket prices that were marked up, even when there were still tickets available on the primary site. The company has also become involved in lawsuits from plaintiffs claiming similar incidents in the NCAA and in Canada.
During his testimony, Michael Rapino also mentioned that competition in the live music industry is healthy. All of the pent-up talk during 2008 about Live Nation pioneering its own ticketing system once it broke away from Ticketmaster was banished when the merger was announced. If a firm with an industry clout like Live Nation decides to forgo its plans to run a ticketing site only a couple months into business, who else would want to enter that market? It is not the technology that prevents companies from competing in this market, but the exclusive contracts that Ticketmaster has with the majority of venues in the country.
Because of this, competing independent concert promoters will most likely have to use the company as a ticketing system for their shows. By using the LNE system, they are giving up valuable information to their main competitor. LNE would have access to the release dates, prices, demographics, contacts, and other private information of its competitors. These independent promoters would be putting money directly in the pocket of their biggest opponent.
There are also antitrust issues per se. The merger certainly goes against promoting competition, and vertical integration, which occurs when a supplier buys a reseller or vice versa, is a bone of contention. Ticketmaster supplied the tickets for the shows that Live Nation was promoting and both were recently direct competitors in the ticketing market.
However, there have generally been a number of points made in support of the merger.
First, it is said that both the ticket seller and the promoter have no motivation to keep ticket prices high because their main interest is to fill the venue, as profits are rarely made on the ticket price itself.
Second, as and industry leader, LNE might help pool resources and could help innovate ticketing technology as well. Live Nation, for instance, was a tour producer as well as promoter, and needed more funding to pay for shows, which became harder for them as tours got bigger.
Third, both companies reported major losses in the 4th quarter of 2008. This could mean trouble for each one, and the possibility of cutbacks. Other organizations like Apple and AT&T have become involved in the music industry through digital music. If they made any move into the live music industry, who would be able to compete with their financial leverage? An industry leader such as LNE would be the only viable competitor. For example, Live Nation representatives present at the Envisioning Touring Panel at Berklee discussed how the consolidation of the live music trade helped major level artists. Tours and artists had never played bigger shows or been as successful before.
In summary: Will the merger create a monopolistic giant, or is this perhaps a new model of efficiency that can lead the industry into a hopeful future where live music earnings are better monetized?
To me, the freshest ideas have historically come from the ground up, not the top down, and personally I do not feel as if LNE has the system in place to foster the young talent of tomorrow, even though they claim that is a mission of theirs. This reservation, in addition to any unethical and anti-competitive biases inherent in the merger, gives me pause for thought.
I refer the reader as well to the most public forum for this discussion so far, which is the link HYPERLINK “http://judiciary.senate.gov/hearings/hearing.cfm?id=3674″http://judiciary.senate.gov/hearings/hearing.cfm?id=3674.
