Live Nation Vs. Ticketmaster

THIS IS A PAPER I WROTE IN MY SOPHOMORE YEAR ABOUT THE STATE OF THE TICKETING INDUSTRY IN LATE 2006. SINCE THEN, LOTS HAS CHANGED. LIVENATION DID NOT RENEW ITS CONTRACT WITH TICKETMASTER; INSTEAD LIVENATION HAS DECIDED TO DO THEIR OWN TICKETING.

Music fans have been complaining about high concert ticket prices for what seems like forever. Specifically, nationwide computerized ticket distribution service Ticketmaster has been targeted as the root of the problem, due to their additional service charges and order processing fees. In fact, in 1994, alternative rock band Pearl Jam publicly testified before a House subcommittee that Ticketmaster’s service fees had made it virtually impossible for them to keep their tickets under $20. Now, in 2006, talk of increasing ticket prices is being reignited, but this time emanating from Live Nation Chief Executive Michael Rapino. In a recent LA Times interview, Rapino states, “Seventy percent of people didn’t go to a concert last year, and even the average concert fan only attends about two shows a year.” The only way to enhance the industry, he says, is “by lowering prices.”

With this pronounced platform, Live Nation must wrestle some power from Ticketmaster, which has built a massive empire through developing exclusive contracts with numerous venues and promoters. Actually, Live Nation’s own contract with Ticketmaster expires in 2008. Therefore, two courses of action are possible. Either Live Nation will use its leverage to put pressure on Ticketmaster to reduce its service fees, while it renegotiates its terms with the ticketing agency or perhaps Live Nation will strip itself of Ticketmaster and rely solely on its own ticketing service, which is already well established and user-friendly. The short term consequences of either course of action will be a change in ticket prices, while the long term effect will be a shift in the entire structure of the concert industry.

A change in pricing is very necessary, with the average face-value ticket for a popular act summing to $57 per ticket, according to Rapino. For example, two American Idol concert tickets were selling for 35 dollars each, but after Ticketmaster fees, the cost amounted to nearly $100. Additionally, one rock fan bought six tickets to the Killers’ concert and paid $210 for tickets and an additional $90 of service charges. These numbers are alarming, especially when year after year, Ticketmaster alters its justification for its service charges. In 1994, in response to the Pearl Jam testimony, then-Chief Executive, Fred Rosen, insisted that Ticketmaster made an average profit of only 14 cents a ticket, and added that Ticketmaster was also an information service and that customers were being charged for this information. In 2001, Larry Solters, a spokesperson for Ticketmaster at the time, claimed service charges went towards research and development of new technology, specifically technology towards the web site, bar-code scanners in the buildings, and anti-counterfeiting measures. More recently, the money garnered is said to go to the venues; in an NPR podcast a representative for Ticketmaster reiterates that the only way for Ticketmaster to make money is through these fees. The dubiousness of these fees in uncomforting, especially considering that Ticketmaster reaped nearly $1 billion in fees in 2005.

If Live Nation extends its contract with Ticketmaster, under the conditions that service charges be lowered, there will be a change in the quantity of tickets sold, but there will not be an extreme structural change within the industry; Live Nation will continue its hold over the concert industry and Ticketmaster will persist its control over the ticketing distribution sector of the industry. Though, it does seem strange for Rapino to put pressure on Ticketmaster to lower its service charges, if in fact some of the fees are distributed back to the venues—of which Live Nation owns, operates, or has booking rights for 153 worldwide. Industry insiders note that Live Nation pockets 50% of the fees Ticketmaster collects, and if Rapino really wanted to lower ticketing costs, he could rebate those funds back to concertgoers.

If in fact, Live Nation decides to break relations from Ticketmaster after 2008 and rely on its own ticketing service, there will be tremendous changes within the industry. Analysts say, “Ticketmaster would lose more than $130 million a year—or about 14% of its revenue—if it doesn’t sign a new deal.” In previous years, consumers have bought from Ticketmaster because of the convenience; promoters have opted for Ticketmaster because of their reliability and the network they’ve established. Pollstar editor Gary Bongiovani comments, “As a tour you have to play Ticketmaster buildings, especially if you want to play the arenas.” That entire landscape will change if Live Nation puts its own ticketing agency into full force. Though, Rapino is promising for lower prices, it is not too far-reaching to suspect that once Live Nation has the ownership of both venues and ticketing, the consumer market is vulnerable to any whim of a ticket price. And it is evident from Live Nation’s recent history that Monopoly is not only its favorite board game. Live Nation’s purchase of the majority of venues makes it extremely challenging for the indie venues to convince acts to work with them, not being able to compete with Live Nation’s glorious offerings. Additionally, the acquiring of venues hasn’t stopped in the slightest; House of Blues Entertainment, Live Nation’s biggest rival, was bought for $350 million in July of 2006. One top executive close to the deal explains that the move was more than the expansion of venues, but that it was “also a major play towards Ticketmaster.” House of Blues has been a leader in incorporating online business in its concert operations; last year, more than 50% of its tickets were through Hob.com. As if that weren’t enough, Live Nation also moved into the music merchandising sector, purchasing a majority stake in Trunk LTD, a high-end licensing and merchandise firm. Though concern over Ticketmaster’s contract with Live Nation ending in two years may seem like a minor issue, in actuality its consequences affect the entire landscape of the concert industry. While Live Nation continues this vertical integration approach, what’s at stake is the survival of the remaining indie chuck of the concert industry. But it’s not only the industry people that this affects. Live Nation’s potential takeover of the ticketing sector of the concert industry is a threat to concertgoers—the music fans—who might be subjected to even higher ticket prices once Live Nation has full control over both ticketing and venues nationwide. For all we know, a decade from now, we may look back at 2006 ticket prices and nostalgically speculate, “Whatever happened to the good ol’ days?”