Issues Of The Ticketmaster Live Nation Merger Management Essay
On January 25, 2010, the United States Department of Justice approved a merger of Live Nation, the largest promoter of concerts and live music in the world, and Ticketmaster, the largest ticket seller and distributer in the world. The merger was announced by Ticketmaster and Live Nation in February 2009, almost a year prior to the decision, but was the subject of such intense scrutiny by the Department of Justice and the general public that a year was needed to examine the case and complete the proper antitrust litigation.
At the time, it seemed unlikely that a company that was not only the largest concert promoter in the world, but also the only company that seemed positioned to compete with Ticketmaster for exclusive ticket contracts would be allowed to merge with Ticketmaster. Ticketmaster had once commanded over 80% of the ticket market, but then Live Nation entered in late 2008 and immediately gained a 17% share [See Exhibits 1 and 2]. Despite the merger being between the only two firms with more than a negligible share of the market, the Department of Justice gave the merger the green light as long as the new company met a list of terms and conditions. These terms were substantial and had the potential to alter the entire industry. Ticketmaster and Live Nation readily agreed to the terms and merged the same day, but the merger raised many strategic issues regarding whether Live Nation and Ticketmaster should have accepted the conditions and merged or continued separately and competed for ticket contracts.
An American ticket sales and distribution company with its headquarters in West Hollywood, Ticketmaster was the largest primary ticket outlet in the United States and worldwide. Founded in 1976, Ticketmaster grew to nearly 7,000 employees over three decades. Ticketmaster was dependent on signing exclusive contracts with venues and artists to sell the tickets made available. The venue or artist then handles all of the promotion itself or contracts that to another firm.
Ticketmaster had many strengths at the time of the proposed merger due to its sustained competitive advantages. Ticketmaster had such superior online ticketing software over competitors that it was a major point of concern during the merger antitrust litigation. Furthermore, Ticketmaster had negotiated a number of exclusive contracts with venues, which made them the exclusive provider of tickets for the majority of US events. Most customers were forced to choose Ticketmaster because it was the only way to avoid waiting in line at the box office Â and assure an available ticket before the day of the event. Ticketmaster was able to charge high premiums and fees at every step of the buying process because their contracts excluded all competition. This system gave Ticketmaster all of the bargaining power over buyers because there was no primary ticketing alternative for those who wanted to attend the event. Ticketmaster’s reach was also not limited to the United States. Ticketmaster had a presence in all of North America as well as Australia and much of Europe.
Ticketmaster was dominant in the marketplace but was not without weaknesses. Ticketmaster did not have a great reputation with many current and potential customers often very unclear how many additional charges and fees Ticketmaster would add before the transaction was complete. These charges included “convenience” charges, “building facility” charges, and even charges to print tickets at home. Customers became very discouraged when they eventually paid far more for a ticket than they had anticipated at the beginning of the purchase process.
Ticketmaster had a strong presence selling tickets for sporting events, but was not as strong in the live entertainment arena and was looking to make their presence felt. Due to the easy availability of single songs on the internet, album sales were struggling and live shows had become the most profitable part of the music business. Musical artists were expanding their tour schedules in order to capture this revenue and Ticketmaster had a great opportunity to capitalize on this increase in concerts. Ticketmaster sought to negotiate more contracts with music venues and artists. Relationships with artists who had global audiences would also provide Ticketmaster an even greater opportunity to expand internationally.
Ticketmaster faced a number of threats to their business as they were contemplating a merger with Live Nation. A significant threat to Ticketmaster was the possibility of recession. The majority of concert-goers were young, and young people tended to be without high paying jobs or job security, so they would be the first ones to lose the ability to afford concerts during tough economic times. This meant that Ticketmaster was essentially selling luxury goods to a market demographic that could always afford them. Ticketmaster also faced threats from potential start-ups such as Ticketfly designed to undercut ticket fees, artists who were big enough to offer tickets themselves and collect the fees, and customers taking the initiative to visit the box office in advance in order to avoid Ticketmaster’s exorbitant fees. However, the greatest threat to Ticketmaster was their dependence on and later competition with Live Nation. Before Live Nation entered the ticket selling business at the end of 2008, a significant portion of Ticketmaster’s revenues was dependent on contracts with Live Nation venues. When Live Nation decided to sell tickets themselves, all of this business for Ticketmaster disappeared. Not only that, but as a concert promoter and artist management group, Live Nation had the opportunity to control more than one level of the supply chain.
Ticketmaster now faced a strategic decision: whether they should merge with Live Nation and share the now massive ticket market that they had come to dominate. A merger would ensure that they remained at the top of the market because they would be joining their only substantial competitive threat. Ticket fees could remain high without a price war with Live Nation to force them down. Merging with Live Nation would also be a rather strategic vertical integration that would give the new combined company control over many parts of the supply chain from artist management to concert promotion and ticket sales. However, expensive antitrust litigation would almost certainly follow any attempt to merge with such a big player in the industry. Legal fees would be high and limitations for the merger would almost certainly be imposed if the deal was not rejected altogether.
Live Nation was a concert and live events promoter firm formed in 2005 after Clear Channel Communications split into three separate entities. A concert promoter is responsible for managing and promoting special events and concerts after negotiating a contract to work with an artist. More specifically, they lead the entire marketing and advertising campaign and book the venues for shows and tours. Live Nation also had a strong presence in artist management and had signed several prominent artists including Jay-Z and U2 to exclusive contracts. Live Nation was headquartered in Beverly Hills and had a presence promoting events around the world.
Â Â Â Â Â Â Â Â Â Â At the time of the merger, Live Nation was considered the top concert and live-events promoter in the world and owned and operated more than 140 venues. They also had a large presence in the ticketing segment as they represented 46.1% of all tickets sold by venue operators and were the largest customer of Ticketmaster, representing 17% of TicketmasterÃ¢â€šÂ¬Ã¢â€žÂ¢s revenue in 2007. While Live Nation was the largest promoter of concerts, their biggest weakness was their lack of presence in events outside of the music industry.
Â Â Â Â Â Â Â Â Â Â Opportunities for Live Nation in 2008 included merging with Ticketmaster, signing more artists to a new record label that could rival the Sony, Universal, and Warner Music Groups, or trying to expand and compete with Ticketmaster as a more well-rounded ticket seller. Given TicketmasterÃ¢â€šÂ¬Ã¢â€žÂ¢s dominating presence in the ticketing segment, they were considered an incredibly difficult competitor to overcome. While AEG Live was considered to be the second best option for events promotions, they had made no move into ticketing and were hardly considered a threat.
Â Â Â Â Â Â Â Â Â Â While a merger with Ticketmaster was very attractive option in many ways, Live Nation had reasons not to merge with them. Ticketmaster’s bad reputation was a concern. They charged obscenely high fees in many consumers’ eyes and were considered monopolistic because of their chokehold on the ticketing market. Live Nation had built a strong reputation with their customers that served as a competitive advantage. Another roadblock to a potential merger with Ticketmaster was the expensive antitrust lawsuit that was likely to result, and since Live Nation was already gaining substantial market share and competing with Ticketmaster for third-party contracts, it was debatable whether a merge would actually benefit Live Nation.
Â Â Â Â Â Â Â Â Â Â On the other hand, Ticketmaster would allow Live Nation to expand its customer base and venture into sporting events, which was a segment where Live Nation had no presence. Ticketmaster would also be able to help create more effective marketing and pricing strategies to sell out more shows and keep artists and venues happier. Additionally, ticketmaster would bring its proprietary ticketing software to Live Nation which had been a facet where Live Nation was at a disadvantage. Also, with the two companies being headquartered so close together, functions could be combined to realize large savings on administrative, marketing, and customer service costs. Most importantly, a merger with Ticketmaster would essentially monopolize the market and allow Live Nation to charge the same high prices as Ticketmaster to generate additional revenue.
Â Â Â Â Â Â Â Â Â Â Live Nation was also considering competing head to head with Ticketmaster by growing their own ticket selling business and remaining specialized in concert and live events promotion. They were already off to a strong start and could continue to win third-party contracts away from Ticketmaster. With the pros and cons of this pending decision laid out in front of them, Live Nation had to decide whether having control over nearly the entire ticketing segment would be worth the backlash from the media and its customers.
When the Department of Justice announced their ruling on the merger between Ticketmaster and Live Nation and all of the terms and conditions that would be enforced, the two companies did not even take the night to think about it. They accepted the conditions and merged the very same day the ruling was announced. The decision was easy for the two companies, and it is difficult to criticize their decision, but perhaps it was not as simple as they made it seem. It seemed at the outset that there was no condition that could possibly deter the two largest players in the industry from combining to monopolize the market, but the conditions were extensive and had the potential to dramatically alter the ticket and concert industries. For the merger to occur, seven terms and conditions were mandated for two different purposes: to promote competition and to prevent the newly formed Live Nation Entertainment from acting like the monopolist they would be until their new competitors became viable.
The first three conditions handed down by the Department of Justice were designed to enable other large players in the industry to adequately compete with Live Nation Entertainment. First, Ticketmaster would be required to license its ticketing software to Anschutz Entertainment Group (AEG). AEG was the second largest concert promoter in the world behind Live Nation and the world’s largest owner of sports teams and events. Second, Ticketmaster would also be prohibited from providing service to AEG venues and events in the future. Third, Ticketmaster would be required to sell its subsidiary, Paciolan, to Comcast, another major player in media and events. Paciolan was a developer of software that integrated ticket sales into an event host’s own website.
These three requirements were designed to create two very strong competitors for Live Nation Entertainment. If Ticketmaster had chosen not to merge with Live Nation, they would have faced the threat of only one other competitor: They also would have been able to avoid licensing their superior software to competitors. The DOJ believed that the conditions would create “robust competition” and drive down prices; however, it seemed clear that it would be a number of years before AEG or Comcast would be ready to compete at all. Live Nation Entertainment would have ample time to charge monopoly prices.
The last four conditions from the Department of Justice were designed to limit Live Nation Entertainment’s ability to act like a monopolist and engage in anticompetitive tactics. First, Live Nation Entertainment would not be allowed to retaliate against any venue that chose a rival’s service once their contract with Ticketmaster or Live Nation had expired. Second, the new company would be banned from creating mandatory bundles of their services in order to leverage their power at one point in the supply chain to exclude a competitor at another level. Third, Live Nation would be required to either refrain from using Ticketmaster’s ticketing data in its promotion and management business or give this data to other promoters and managers. Finally, Ticketmaster would be required to provide any client with their venue’s ticketing data upon request in order to reduce switching costs. All of these conditions would be overseen and enforced by the DOJ for 10 years, though it was unclear how tight the DOJ’s grip would be. Regardless, Ticketmaster and Live Nation were making many concessions of their new monopoly power.
In essence, Live Nation and Ticketmaster were agreeing to form a monopoly but not use most of the monopoly power that would surely follow; however, there was one key monopoly power that Live Nation Entertainment would retain: the power to set prices. Michael Rapino, the CEO of Live Nation Entertainment, said the merger created “a more diversified company with a great selling platform for artists and a stronger financial profile that will drive improved shareholder value over the long term.” But in the end, the ability to continue to charging large transaction fees and avoid a price war was strong enough incentive to convince Ticketmaster and Live Nation to merge. Live Nation Entertainment was now a vertically integrated company that had the best technology, the largest portfolio of contracts with artists and venues, and the most resources and experience in the music industry. The Department of Justice gave competitors a fighting chance in the concert market, but it would not be easy for any company to compete with the music industry giant that had just been created.