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Ticketmaster, Live Nation announce merger plan

The largest ticket seller and the largest live concert promoter could have vast influence on pricing in the entertainment business. The deal may face antitrust challenges.

February 11, 2009|Dawn C. Chmielewski and Randy Lewis

Live Nation Inc. and Ticketmaster Entertainment Inc. unveiled their merger Tuesday and immediately drew fire for trying to create a live-entertainment behemoth with influence over nearly every aspect of the business -- managing artists, booking concerts, selling tickets and even peddling popcorn at events.

The all-stock deal would bring together the world's largest seller of concert tickets with the largest producer of live performances -- two companies that had started to compete over ticket sales. The new operation would be called Live Nation Entertainment, which would generate revenue of about $6 billion a year.

"I have to pause on this one. This one bothers me," said Stephen Happel, an Arizona State University professor who has studied the economics of ticket scalping. "It looked like Live Nation was going to go its own way and kind of slug it out with Ticketmaster. This to me is further monopolization of the primary market."

Ticketmaster already is a formidable force, selling tickets for more than 80% of major arenas and stadiums in the U.S., tracking firm Pollstar said.

Live Nation Chief Executive Michael Rapino defended the deal, saying the merger would generate great efficiencies, saving about $40 million by consolidating ticketing, marketing, data centers and other back-office functions.

Ticketmaster and Live Nation executives say the merger, valued at $2.5 billion, represents an opportunity to stimulate the concert business, getting more cash into the hands of musicians more efficiently at a time when CD sales and other conventional business lines are collapsing.

For consumers, they said, the combination would mean cheaper tickets and lower service fees, the latter of which has been concert-goers' bane.

"Our industry needs a revolution here," said Rapino, who would take on the same role at the combined company. "The music business needs some innovation on all fronts. . . . This will help get us to the next level quicker."

The announcement follows a dust-up over tickets that went on sale Feb. 2 for Bruce Springsteen concerts. A woman sued Ticketmaster, alleging that the company's website redirected fans to its resale site TicketsNow, where prices were marked up hundreds of dollars over face value.

Springsteen posted an open letter to fans on his website, condemning the practice and saying, "Ticketmaster has made us as furious as it has made many of you." The New Jersey attorney general's office launched an investigation after hundreds of fans contacted its consumer affairs agency.

Under the merger agreement, Ticketmaster shareholders would receive 1.384 shares of Live Nation stock for each of their shares. They would own 50.01% of the new company, while Live Nation shareholders would control 49.99%. Ticketmaster Chairman Barry Diller would become chairman of the merged firm.

For 10 years, the two were partners. Ticketmaster sold tickets for Live Nation's events. In January, Live Nation took sales in-house and struck a deal to sell tickets at about 500 Blockbuster stores.

The first major test of Live Nation's system was an embarrassment. The crush of demand for tickets to the 2009 reunion tour of the band Phish crashed the system and prompted an apology from the band. Rapino said that after the initial "stumble," Live Nation sold more than 250,000 tickets by the end of the day.

Ticketmaster, for its part, had begun to seek the kind of management relationships that Live Nation was among the first to cultivate. Live Nation struck far-reaching rights deals with major artists such as Madonna and Jay-Z that pay millions upfront in exchange for extensive rights, which it refers to as "360 deals."

Analyst Brett Harriss at Gabelli & Co. said Ticketmaster would provide a reliable cash flow for Live Nation. Ticketmaster, meanwhile, would gain access to a vast network of concert promotion expertise and venues -- and a new name that it hopes will jettison 30 years of strong consumer antipathy.

First, however, the combination must clear antitrust scrutiny from federal regulators, lawyers say, because the combined company would control ticketing rights at the concert halls, amphitheaters, sports arenas and other venues where live events are staged.

"The first place the antitrust agencies look is at direct horizontal combination, to see whether the merger would result in higher prices," said Washington antitrust lawyer Marc Schildkraut, who was an assistant director at the Federal Trade Commission's Bureau of Competition.

The government's review would provide early insights into the policies of the Justice Department's antitrust division under Obama nominee Christine Varney, a former FTC member.

Rapino argued that the consolidation sets the stage for fixing what ails the concert industry, where 40% of tickets go unsold on average and many fans are frustrated by their ticket-buying experiences. Inefficiencies result in higher costs, he said, so simplifying the process would reduce ticket prices and increase concert attendance.

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