Feb. 12 (Bloomberg) -- The U.S. Justice Department will scour the proposed merger of Live Nation Inc. and Ticketmaster Entertainment Inc. for its competitive impact on live events, ticketing and promotion.

“There is overlap in ticketing, there is overlap in venue- control and there is overlap in talent management,” said Robert Doyle, a Washington antitrust attorney and former Federal Trade Commission member.

The antitrust investigation, announced yesterday, is the first test of the Obama administration’s stance on mergers and market consolidation. Lawyers said they’ll study how Christine Varney, the former FTC member chosen by President Barack Obama to lead the Justice Department’s antitrust division, handles the merger probe to size up future cases.

A central question is whether Varney, 53, settles the case by requiring the new company to sell pieces of its business, or whether she challenges the combination because it creates barriers to competition through vertical integration of artist- management, concert promotion, venue control and ticketing.

That “will certainly tell us what the next several years are going to look like at the Justice Department,” Marc Schildkraut, a former assistant director of the FTC’s competition bureau, said in an interview.

Vertical Integration

Varney, who has represented EBay Inc. and News Corp.’s MySpace.com, was receptive to arguments challenging vertical integration as a member of the FTC in the Clinton administration, both lawyers said. She was nominated by Obama last month and is awaiting Senate confirmation.

At the FTC, Varney voted to accuse Toys ‘R’ Us Inc. of pressuring manufacturers to keep popular toys out of discount stores, and to pursue consumer-protection claims against R.J. Reynolds Tobacco Co. for its “Joe Camel” advertising campaign.

The Justice Department promises “vigorous enforcement” of antitrust laws and a “thorough investigation,” spokeswoman Gina Talamona said yesterday.

Sporting events will be looked at separately from musical performances in the probe, and the government will distinguish between “live events at big venues and live events at smaller, more intimate ones,” Doyle said.

The House Judiciary subcommittee on competition scheduled a Feb. 26 hearing on the proposed merger.

Ticketmaster Chairman Barry Diller and Chief Executive Officer Irving Azoff, and Live Nation CEO Michael Rapino have defended the deal, saying consumers will benefit and ticket prices won’t rise.

‘Company of the Future’

The goal of combining management, promotion, venue operations and ticketing is to “evolve the model” of the music industry, said Rapino, who will be CEO of the new company. If consumers’ demands aren’t met, they will stay home, he said.

“Combined we can start tomorrow being that company of the future that can answer and solve their pricing problems, their transparency problems, their access problems,” Rapino said in an interview this week.

The combination has sparked an outcry among lawmakers, fans and competitors who say the deal will consolidate too much control in live entertainment, leading to higher ticket prices and less competition.

Ticketmaster, based in West Hollywood, California, owns the world’s largest ticket-selling network and the biggest artist- management firm. Beverly Hills, California-based Live Nation, the largest concert promoter, owns the most venues and has exclusive deals with Madonna, U2 and Jay-Z.

‘Control of Every Step’

The two companies would control 80 percent of concert ticket sales, said U.S. Senator Charles Schumer, a New York Democrat, who opposes the merger.

“The merged company would have control of every step of the process, from fans to artists,” Schumer told reporters yesterday. “This would have a tremendous downside for consumers.”

The Justice Department inquiry isn’t Ticketmaster’s first. In 1994, rock band Pearl Jam complained to federal authorities that Ticketmaster refused to lower fees and that it couldn’t do a tour without the company’s involvement.

The band testified before Congress, and the dispute ended in 1995 when Attorney General Janet Reno called off the probe because of insufficient evidence.

Springsteen Controversy

The company faced a new controversy last week when some people were unable to buy tickets to Bruce Springsteen’s North American tour through Ticketmaster. Fans were redirected to the company’s TicketsNow reseller Web site, which charged many times the original prices. Springsteen criticized the merger as a “near monopoly.”

Erasing the negative perception was a factor in leaving Ticketmaster out of the name of the new company, Rapino said.

Live Nation rose 6 cents, or 1.5 percent, to $4.05 at 9:40 a.m. in New York Stock Exchange composite trading. The shares dropped 62 percent in the past year through yesterday. Ticketmaster advanced 12 cents, or 2.4 percent, to $5.13 in Nasdaq Stock Market trading.

Ticketmaster investors will receive 1.384 shares of Live Nation for each they now own. Based on yesterday’s closing prices, the deal is worth $6.67 a share to Ticketmaster holders, or $316 million.

One factor likely to draw attention from regulators is Live Nation’s recent entry into the ticketing business. Before opening its own service last year, the company was Ticketmaster’s largest customer, representing about 17 percent of 2007 sales.

Antitrust enforcers will have to examine questions of actual and potential competition, said Doyle, the former FTC official.

“It’s a serous matter, and it’s going to be looked at carefully,” Doyle said.

To contact the reporters on this story: James Rowley at jarowley@bloomberg.net; Adam Satariano in San Francisco at asatariano1@bloomberg.net

Last Updated: February 12, 2009 09:50 EST