[Corp. Watch] Entertainment duopoly to become monopoly

[Corporation Watch]

Ticketmaster, Live Nation: Obama's Anti-Trust Test

  By Janet Morrissey

(Time magazine, June 10) -- Irving Azoff, chief executive of  
Ticketmaster 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 Bruce "The Boss" Springsteen, Mr. Azoff. "The abuse of  
our fans and our trust by Ticketmaster has made us as furious as it  
has made many of you," the Boss 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.

	Springsteen was so ticked off, he went on to cast his vote against  
the merger, fearing a music monopoly. 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 mega-marriage 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 anti-trust  
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 anti- 
trust 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. The new entity is expected to  
save about $40 million in annual costs 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."

	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 anti-trust concerns are two-fold. 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.  
Fans were told that tickets had sold out minutes after they went on  
sale, and were automatically diverted to Ticketmaster's re-sale  
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.

	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, 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," Phillips said. "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 Rep. 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," Pascrell said, "it is clear that this company's  
questionable business practices warrant sharper scrutiny."

	Earlier this week, Rep. Pascrell 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.