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Live Nation-Ticketmaster merger promotes competition in primary ticket sales market

John C. Rodney [Partner, Thorp Reed & Armstrong, LLP]: "When I first heard about the proposed Live Nation-Ticketmaster merger, in early 2009, my initial reaction was "you have to be kidding." How could the nation's leading concert promoter team up with the nation's leading ticket seller without that foreclosing competition in the live music industry in many geographic markets? Surely the newly installed antitrust regulators in the Obama administration would put a stop to this. But, following an extensive review involving not only the United States but many individual states and other countries as well, and a comprehensive settlement, the deal closed near the end of January 2010.

This transaction illustrates two of the fundamental principles of antitrust law. First, determining whether or not a transaction runs afoul of the law almost always turns on defining the markets. Second, the law protects competition, not competitors.

To a ticket buyer, Ticketmaster always seemed like a monopolist. If it sells tickets to an event, you typically can't buy those tickets from anyone else, so the Ticketmaster "convenience charge" becomes part of the cost of the show. Why isn't that a monopoly? Well, the promoter could have set the ticket price at, say, $35 and then paid Ticketmaster $5 per ticket for selling the tickets, instead of setting the price at $30 and letting Ticketmaster add its own $5 convenience charge (some of which is typically rebated to the promoter or venue anyway). Or, the promoter could sell the tickets itself, which is what Live Nation had started to do before it agreed to buy Ticketmaster. Moreover, in a world where the physical ticket doesn't exist until it is purchased and then printed, having multiple outlets all trying to sell the same tickets simply doesn't work. So, while there may be a superficial appeal to the conclusion that Ticketmaster creates a monopoly at the individual event level, that really isn't the market of concern because the event promoter has a legitimate monopoly over its own tickets and, insofar as this analysis is concerned, can sell the tickets by itself or however it wishes. So, there is no market in which competition is being foreclosed.

So what's the problem? The major problem here related to Live Nation's large market share in major live event promotion and its control over many of the nation's major event venues (over a third) combined with Ticketmaster's over 80% share of the primary ticket reseller market. Could Live Nation limit the events it controls to arenas that use Ticketmaster to sell their tickets? That could certainly tend to foreclose competition in the ticket sales business because unless a venue signed up with Ticketmaster, it couldn't get the hot acts that Live Nation promotes. Could Ticketmaster refuse to sell tickets for an act unless the act agreed to let Live Nation be its promoter? For a company with over 80% of the market, that could be a big concern. Another important antitrust aspect of the transaction is that, in 2008, Live Nation started its own ticket selling company and offered those services to third parties. Live Nation was starting to get some traction with other venues and promoters. Another problem is that the switching costs for an arena or promoter that doesn't want to do business with its competitor, Live Nation, could be significant, thus further cementing Ticketmaster's position at non-Live Nation venues. In addition, for major acts, the onslaught of ticket buyers in the first few minutes tickets go on sale requires a major investment in IT infrastructure and software, but only Ticketmaster has the volume of business to support that investment.

What did the Department of Justice do about all this? Rather than filing suit to stop the merger, it required Ticketmaster and Live Nation to agree to several divestitures and other changes that would promote competition in the market for primary ticket sales. All of that is explained in the Competitive Impact Statement filed pursuant to the Tunney Act and currently available for public comment. The settlement was designed to create competition in the two key portions of the market - primary ticket reselling at multiple venues, and promoter controlled ticket sales. It did that by mandatory licensing or sale arrangements with two of the nation's largest live entertainment companies. In addition, Ticketmaster and Live Nation agreed not to retaliate against venue owners who get primary ticketing services from third parties or require venues to use Ticketmaster ticketing services in order to book acts promoted by Live Nation. They also have to make customer data available to existing customers who switch ticketing services or to other promoters under certain circumstances.

The bottom line, though, is that the two companies were allowed to merge. So, does this mean that the Obama administration has abandoned its vow to enforce the antitrust laws and we're going to see the Reagan/Bush eras of vanishing antitrust enforcement again? I don't think so. What we have here is exactly what we ought to have, i.e., two private companies being allowed to pursue the merger, but with competition in the market protected. In fact, the settlement itself is structured so that there should be significantly more competition in the market than there would have been had the transaction never happened. Still, we'll have to wait and see just how all this plays out because, as Puff Daddy sang, "It's All About the Benjamins.""

Opinions expressed in JURIST Commentary are the sole responsibility of the author and do not necessarily reflect the views of JURIST's editors, staff, donors or the University of Pittsburgh.

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