TicketMaster-Live Nation: An Obama LayupJon Fine
When you're in the midst of a successful run for President, every day brings ample gifts: adoring crowds, rock-star receptions, and, above all, the pure buzz of promise minus the nasty bit of actually having to get things done.
When you become President, much of this goes to hell. That's why President Barack Obama should crank up the thank-you machine, because the proposed merger of TicketMaster Entertainment (the world's largest ticket seller) and Live Nation (the world's largest concert promoter, which also manages many blue-chip acts) is his Administration's equivalent of finding a pony by the tree on Christmas morning. A nascent Presidency that is caught in the muck—as I write this, at least—of the legislative process as it grunts out something resembling a stimulus package can now go back, if only for a moment, to the clean and lofty ideals of the campaign. And pretty simply. All it would take is for the new Administration's Justice Dept.—which, by one Beltway insider's account, is staffing up especially quickly—to kill this deal.
If there is a political downside to doing so, neither I nor anyone I talked to can discern it. Here you have not one but two companies that are despised, be it for high ticketing fees or tight control of what was once an exquisitely local business, by a large portion of their key customers. (That group includes a sizable contingent of youngish music fans who likely skew Obama-ward in their politics, to boot.) How despised are these companies? One is commonly referred to as TicketBastard, as a simple Web search shows. Historically, this is possibly the one that was hated less. Live Nation changed its name from Clear Channel Entertainment in 2005, when that name was provoking frothing at the mouth. (It's telling that the combined entity would be called Live Nation Entertainment; representatives declined to make Michael Rapino, the CEO of Live Nation who would maintain that role in the proposed new company, available for comment.)
An individual familiar with the companies' calculus regarding regulatory concerns argues that the entities are "overwhelmingly complementary"—as opposed to competitive—and few such mergers have been challenged. And that consumers and performers would still have other options. The companies will begin making this case to Justice next week.
The Boss Is Angry
But TicketMaster (TKTM) and Live Nation (LYV) remain the kinds of companies that are magnets for ire, and at least one of them keeps finding ways to be charbroiled by the public, press, and pols. Bruce Springsteen is outraged that ticketmaster.com redirected fans to pricier seats at its resale site, TicketsNow.com. (In a conference call, Barry Diller, chairman of TicketMaster and nonexecutive chairman of the proposed company, blamed a technical glitch.) Politicians are piggybacking on Springsteen—as they've done, or tried to do, for a quarter-century—and demanding investigations. It takes a special company to infuriate a key business partner who, when not busy with his day job, serves as one of America's secular saints. Nice going, guys.
Perhaps when pressed by the feds, Live Nation and TicketMaster will claim that, as entities dependent on the music industry, they're under great stress. (Their stocks certainly are, having declined 67.8% and 70.9%, respectively, in the six months before the merger moves.) And no matter how antitrust-minded Obama's Justice Dept. might turn out to be, it's likely to relent when it comes to companies attempting resuscitation via merger. Does anyone think this Justice Dept. would kill a Chrysler-General Motors (GM) merger?
But these companies aren't drowning in losses. Yes, the concert industry has thin profit margins. Yet at a time when practically every other media business was eroding fast, Live Nation posted revenue and operating profit gains in the third quarter of last year, the most recent period for which either company reported results. While TicketMaster's operating profits fell, revenues rose 16%. More tellingly, for the first nine months of 2008 the average revenue TicketMaster netted from each ticket sale rose by over 7%.
Obviously, that won't last forever, and executives have discussed the need to fill unsold seats, even at a discount. But that stat shows that, unlike much of the media world, these businesses still have pricing power. The music industry has been file-shared into oblivion. Live events can't be. There is great power in controlling the last bastions of scarcity, as anyone who has marveled at the "convenience" fees tacked onto a simple ticket purchase on the Web knows. TicketMaster and Live Nation have built formidable franchises on these advantages. Live Nation's position in the venue ecosystem allowed it to offer nine-figure deals that include recording rights to the likes of Madonna and Jay-Z.
But if one is to judge by sore consumers, perhaps the companies played those cards too well. Merging would increase scarcity and boost the companies' control. (Live Nation entered the ticketing business last month; so much for that plausible and powerful competitor.) Consumer benefits? Let me keep staring at this. Perhaps something will come to mind. Mr. President, enjoy this layup. You may not get another like it for a very long time.