Jul 9, 2009 12:06 PM

Congressman Asks Justice Department to Block Live Nation/Ticketmaster Merger

The proposed merger between live music titans Live Nation and Ticketmaster is a horrible idea, according to Rep. Bill Pascrell (D-New Jersey, pictured), because it would give the combined company an unfair competitive advantage in the music marketplace while driving ticket prices even higher than they already are. “This merger violates both horizontal and vertical […]

"This merger violates both horizontal and vertical anti-trust principles, and will undoubtedly lead to higher ticket prices for the average fan," wrote Pascrell. "Under the proposed merger, the combined company would have control over nearly every aspect of the live music business: artist management, record sales, promotion, licensing, venue control, parking, ticket sales and resales, all the way down to the hot dogs and beer."

That's exactly the idea, according to Live Nation and Ticketmaster, who say the proposed merger will allow them to grow the live music pie by marketing additional offerings to concertgoers (for example, if you attended a Fleetwood Mac show, you might want an upcoming Stevie Nicks album, or a Lindsay Buckingham T-shirt).

Together, these companies say they'll be able to fill more seats. But according to Pascrell, the merger is all about filling their pockets at the expense of music fans -- some of whom already shell out well over $100 to attend top-flight tours.

Whereas the previous administration may have approved such a merger, Obama's antitrust head, Christine A. Varney, is a tougher customer, especially when it comes to vertical mergers that fuse companies from different parts of the same market (as opposed to horizontal mergers, which join like companies). Live Nation and Ticketmaster each own venues and a ticketing service, so this merger would be both vertical and horizontal.

According to Marc Schildkraut, a former assistant director at the Federal Trade Commission and current partner at Howrey, LLP, Varney "was very interested in cases where she thought vertical mergers could have an anti-competitive effect" when she worked at the FTC during the '90s.

Live Nation and Ticketmaster already had their work cut out for them, even before this latest objection from Pascrell.

"Under the Bush Administration, the Justice Department’s enforcement of our country’s antitrust laws was almost nonexistent. The Antitrust Divison brought zero cases against dominant firms for violating our country’s anti-monopoly law, to the detriment of consumers and small businesses everywhere," continued Pascrell. "Thankfully, the Obama Administration has announced that they plan to reverse this policy and once again vigorously enforce our country's antitrust laws."

Live Nation and Ticketmaster, which claim the merger will benefit consumers by connecting them with their favorite artists on a variety of fronts, are unlikely to down without a fight. Pascrell says the two companies have assembled "a strong team of expensive lobbyists" to get the merger approved by the Justice Department, which confirmed that it is investigating the matter in February after Ticketmaster faced heavy scrutiny for directing Bruce Springsteen fans to its own secondary (scalping) ticket market.

"Live Nation Entertainment," as the combined company would be called, is problematic in three ways, according to Pascrell. First, it would horizontally create a single ticketing agency that would be "over five times more powerful than their next eight rivals combined" -- many of whom rely on Ticketmaster software to sell tickets. Second, it would prevent Live Nation from running its own separate ticketing agency, which some had hoped would bring competition to the music ticketing market. Finally, it would represent the vertical creation of a company with control over most areas of the music business (ticketing, music sales, promotion, venue ownership, secondary ticketing, merchandising and parking). In order for a new company to enter the market, it would also have to control all of those elements, according to Pascrell, which represents an unfair advantage to Live Nation Entertainment.

Meanwhile, he says, neither company has offered a compelling argument in favor of the merger.

Here's the text of Pascrell's letter to his fellow US Representatives (via Knowledge Ecology Notes):

July 8, 2009
Dear Colleague:
Please join me in sending the attached letter to the Department of Justice opposing the merger between Ticketmaster Entertainment, Inc. and Live Nation, Inc.
In February, Ticketmaster Entertainment, the industry’s number one ticket seller and its largest provider of talent management services and Live Nation, the industry’s largest promoter of live entertainment events and its second largest ticket seller, announced plans to merge. I have grave concerns that this merger will have far reaching negative consequences for artists, fans, promoters, and the music industry as a whole. This merger violates both horizontal and vertical anti-trust principles, and will undoubtedly lead to higher ticket prices for the average fan.
Under the proposed merger, the combined company would have control over nearly every aspect of the live music business: artist management, record sales, promotion, licensing, venue control, parking, ticket sales and resales, all the way down to the hot dogs and beer. According to James Hurwitz of the American Antitrust Institute:
“If the combination is permitted, [the merged company] will have a powerful or dominant position in virtually all of the industry’s markets. Viewed in combination, the merger will give Live Nation Entertainment unarguable control of most competition within the industry.”
Under the Bush Administration, the Justice Department’s enforcement of our country’s antitrust laws was almost nonexistent. The Antitrust Davison brought zero cases against dominant firms for violating our country’s antimonopoly law, to the detriment of consumers and small businesses everywhere. Thankfully, the Obama Administration has announced that they plan to reverse this policy and once again vigorously enforce our country’s antitrust laws. This case represents a high profile opportunity to prove that they mean business, and that our country will put a healthy marketplace and consumer welfare ahead of corporate and entrenched business interests.
Live Nation and Ticketmaster have assembled a strong team of expensive lobbyists, law firms and publicists to push for their goal of merger. It is the job of those of us in the Congress to represent the people and fight for what is in their best interest. We must ensure that the concert industry returns to a business model that puts the fans, artists and music first. Urging the Justice Department to reject this merger will be a significant first step in that direction. Please contact me for more information or to sign the letter.
Sincerely,
/s
Bill Pascrell, Jr.
Member of Congress.

And here's the attached letter, which he wants House members to send to Christine A. Varney, head of the Department of Justice's antitrust division:

July XX, 2009
The Honorable Christine A. Varney
Assistant Attorney General for Antitrust
United States Department of Justice
950 Pennsylvania Avenue, NW
Washington, DC 20530
Dear Assistant Attorney General Varney:
As Members of Congress, we wish to express our concern regarding the proposed merger between Ticketmaster Entertainment, Inc., and Live Nation, Inc. We urge the Justice Department to analyze this proposed transaction closely and with great skepticism. Such scrutiny is critical to ensure that consumers are not harmed by the creation, entrenchment, extension, or undue exploitation of market power in an industry that affects every state, and virtually every congressional district, in the country.
Ticketmaster Entertainment is the industry’s overwhelmingly dominant ticket seller, its largest provider of talent management services, and its second largest reseller of tickets. Live Nation is the industry’s largest promoter of live entertainment events, the second largest ticket seller, and the second largest owner/manager of entertainment venues. The transaction therefore would create an entity, Live Nation Entertainment, which would enjoy a virtual stranglehold over the live entertainment industry. Together, the two parties sold more than 100 million tickets domestically in 2008, and there are few artists, promoters, venue owners, or concertgoers that would not feel the impact of this merger. In our view, the merger should be prohibited.
From an antitrust perspective, the proposed merger is problematic in three ways. First, the merger would reduce horizontal competition by combining the two leading firms in the market for primary ticket sales. According to the May 30, 2009 rankings by TicketNews.com, the transacting parties, if merged, would be over five times more powerful than their next eight rivals combined. Additionally, some of these rivals are operated by Ticketmaster or rely on software provided a Ticketmaster subsidiary, Paciolan. Tellingly, the parties announced this merger less than three months after Live Nation entered the ticket sales market, suggesting they would prefer to combine rather than compete. This is the essence of anticompetitive behavior.
The transaction would also exacerbate the already significant barriers to entering the ticket sales market. Today, Ticketmaster enjoys long-term, exclusive contracts with most of its clients, typically the venues where the events occur. Permitting Ticketmaster to merge with its most significant competitor effectively abandons any hope for the development of competition in the foreseeable future, and it would subject consumers to any exploitation, including higher ticket prices and fees, that the newly merged firm might wish to make of its monopoly power.
Second, the proposed merger would eliminate the possibility for one of the parties to enter the industry markets in which they don’t presently compete. Fear of entry is often sufficient to curb the exploitation of existing market power. Both are large enough to enter related markets and have a clear history of doing so. For example, Live Nation recently entered the primary sales market on its own. Entry is healthy as it often leads to market deconcentration and heightened rivalry. Although the parties’ future expansion plans are uncertain if the transaction is prohibited, it is certain that the merger, if permitted, will preclude each party from expanding into the industry markets where it currently does not compete.
Third, the proposed merger would create a vertically integrated entity whose power would extend across five of the industry’s six main markets. An entrant or competitor in any of these markets would face the merged firm not only as a market rival, but also as a power in other critically related markets. A new promoter, for example, needs artists willing to perform and venues appropriate for staging the event. A new venue needs artists and promoters willing to book the facility. The vertically integrated firm can withhold these critical inputs, and its rival will suffer. To avoid such problems, an entrant would need to enter the industry on several levels at once, a burden that makes entry far more daunting and costly. The combined entity could therefore use its five-market vertical integration to restrain trade both by chilling entry and disciplining rivals.
We see little to commend this transaction. Ticketmaster Entertainment and Live Nation have offered no plausible efficiency justifications for the merger. To justify an anticompetitive merger such as this one, efficiency benefits must, according to DoJ/FTC Horizontal Merger Guidelines: arise specifically from the merger and not be attainable in other reasonable ways, be verifiable rather than merely speculative, and outweigh the transaction’s competitive injury in every adversely-affected market. Ticketmaster Entertainment and Live Nation can achieve all the benefits they claim without the merger. Regardless, these benefits promise only speculative advantages, at best, and are almost surely insufficient to outweigh the merger’s competitive harm in the ticketing and other industry markets.
Restructuring will not cure this transaction’s competitive flaws. Live Nation could sell its primary ticketing business, but this enterprise is far less likely to be viable in other hands. The merged company could also be prohibited from using its vertical integration to discriminate against entrants or rivals in the marketplace. However, such strictures will be hard to enforce, as the prohibited conduct can easily be accomplished from within corporate walls or through veiled, well-placed hints.
Consumers, business managers, artists, independent promoters, and music fans in every state are likely to suffer if the merger is allowed to occur. We urge you to give this transaction the closest possible scrutiny and provide citizens the antitrust protection they deserve.
Sincerely,
Members of Congress
cc: The Honorable Eric H. Holder Jr., Attorney General of the United States

See Also:

*Top photo courtesy of Rep. Bill Pascrell; Bottom photo by *Rick