Ticketmaster, Live Nation: Obama's Antitrust Test

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Paul Sakuma / AP

Ticketmaster tickets and gift cards at a box office in San Jose, Calif.

Irving Azoff, chief executive of Ticketmaster Entertainment 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 the Boss, Mr. A. "The abuse of our fans and our trust by Ticketmaster has made us as furious as it has made many of you," Bruce Springsteen 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. The Boss was so ticked off, he went on to cast his vote against the merger, fearing a music monopoly. (Read a brief history of Ticketmaster.)

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 megamarriage 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 antitrust 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 antitrust 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 under one roof. As a combined company, the new entity is expected to enjoy about $40 million in annual cost savings 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." (See the top 10 songs of 2008.)

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 antitrust concerns are twofold. 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. Basically, fans were told that tickets were sold out minutes after they went on sale and were automatically diverted to Ticketmaster's resale 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.

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