‘Grossly Negligent:’ Setting The Record Straight on the 2010 Live Nation-Ticketmaster Merger (Guest Post)
By Dan Wall, EVP, Corporate and Regulatory Affairs, Live Nation Ent.
In a congressional hearing earlier this year, a prominent U.S. Senator called the Department of Justice’s decision to enter into a settlement and not try to block the Live Nation-Ticketmaster merger “grossly negligent.” An advocacy group critical of the merger and the consent decree entitled its white paper “How Antitrust Enforcers Helped Create a Live Events Monster.” The CEO of SeatGeek, a secondary ticket marketplace, blames the merger and the DOJ’s settlement for his company’s limited success, calling — as a competitor would — for “dissolution of the common ownership of Live Nation and Ticketmaster.” Just today, two Senators wrote the Department of Justice to “share evidence” of how “Live Nation and Ticketmaster have wielded monopoly power anticompetitively.” For a certain group of critics, everything that the public does not like about the music industry — not enough tickets to meet demand, ticket prices, service charges, even bots used by scalpers — is somehow the fault of Ticketmaster, its merger with Live Nation and the DOJ’s “failed antitrust policy” that allowed it to happen.
This guest post is intended to set the record straight on the antitrust issues raised by Live Nation-Ticketmaster, how the Consent Decree negotiated, executed, and approved by a federal court in 2010 resolved those issues, and how unprecedented it would be for antitrust enforcers to revisit those issues now.
I have a particular perspective on these issues. I have been an antitrust lawyer for over 40 years. I began my career at the DOJ on the trial team that litigated U.S. v. AT&T and secured the break-up of the Bell System, one of the very few monopolization cases to result in divestitures. I later observed a lot of businesses that were, in fact, monopolies in their markets. And 13 years ago, I began representing Live Nation, first as its antitrust counsel on the Ticketmaster merger. I dealt directly with the DOJ on the settlement, or more accurately the Consent Decree, which allowed the merger to be completed. I represented Live Nation in the DOJ’s four-year investigation into consent decree violations. I have defended private monopolization cases against both Live Nation and Ticketmaster. And, I have been intimately involved in addressing complaints about how Ticketmaster’s technologies for fighting fraud and industrial scale scalping are supposedly anticompetitive. I have a lot to say about the recent claims that the DOJ was “negligent” in declining to prevent the merger altogether and that because of the merger live entertainment markets are monopolized.
Let me begin with the merger, and the arguments that the DOJ was wrong to allow the merger to close subject to the Consent Decree. I have not seen any analysis of that decision that meaningfully addresses the facts, the law, and what the DOJ lawyers reviewing the proposed deal then were faced with. The plain truth is that the DOJ settled that merger investigation with a consent decree rather than going to court to block the merger because that was the most aggressive enforcement decision it could reasonably make given the antitrust issues presented. It wasn’t negligence that drove the decision; it was a hard cold look at the law, the facts, and the lack of economic support for blocking the deal outright. The veteran antitrust lawyers and economists at the Antitrust Division understood that antitrust laws do not give them license to block mergers based on complaints from rivals or public opinion. After spending most of a year reviewing the deal, taking depositions, analyzing its likely economic effects, and pragmatically assessing their chances in court, they made an entirely reasonable decision to resolve the case by a novel and forceful consent decree.
The DOJ’s most plausible argument against the merger, relatively speaking, was with respect to ticketing. Ticketmaster was clearly a dominant firm in primary ticketing in 2009 when the investigation took place. It had no meaningful competition outside of the ticketing segment focused on smaller clubs and theaters, for which there have always been plenty of ticketing options. Live Nation, on the other hand, was not an established ticketing company. It was in the process of attempting to enter the primary ticketing business with a brand-new ticketing system that had been developed for it under contract with a German company, CTS Eventim. That allowed the DOJ to threaten a case that was marginally about existing competition but was mainly about what in antitrust circles is known as “actual potential competition.” That is an extremely difficult case to bring — as the FTC just found out when a district court rejected its attempt to block Meta’s acquisition of Within. The legal standard requires the government to prove (among other things) that the new entrant (Live Nation) would substantially invigorate competition against the dominant firm (Ticketmaster). And the DOJ’s potential competition case against the Live Nation-Ticketmaster merger had a serious flaw: the ticketing system that Live Nation had acquired from CTS Eventim didn’t work very well. In fact, in 2013, an arbitrator released Live Nation from all of its contractual obligations to CTS Eventim on a finding, after a full trial on the merits, that CTS had failed to deliver a ticketing system that met the needs of the North American market.
It was said at the recent Senate hearing that Live Nation had gained a 16% market share in the first year of its participation in the ticketing market. All of that was ticketing Live Nation’s own venues. The DOJ fully understood that the more important issue was whether Live Nation could compete against Ticketmaster for independent venues in what it called the “merchant market.” The fundamental deficiencies in the CTS Eventim ticketing system made it very hard for DOJ to argue that credibly. It is a credit to the agency, not a failing, that it was able to evaluate the evidence and reach a conclusion that effectively anticipated the ruling of that subsequent arbitration: that the ticketing technology Live Nation had invested in was not competitive against Ticketmaster.
That is why the DOJ chose not to litigate: because its best argument for blocking the deal was deeply flawed, and therefore resolving the case through a consent decree would achieved more for the public than any other course. And again to its credit, the DOJ extracted substantial concessions. The DOJ required Ticketmaster to divest source code for its primary concert ticketing system, called the Host, to another company that had the same market positioning Live Nation had because it was simultaneously in concert promotion, venue management and ticketing. That company, AEG, is part of the multi-billion dollar Anschutz Entertainment Group. The DOJ also facilitated AEG’s entry into ticketing by requiring Ticketmaster to provide it a “white label” ticketing service for the first five years after the Decree, which means that AEG could immediately offer a ticketing solution that appeared to be its own technology but was being powered on the back end by Ticketmaster. Finally, the DOJ required Ticketmaster to spin off Paciolan, a ticketing company specializing in college sports that had recently been acquired by Ticketmaster, which it sold to Comcast. These were all strong achievements, particularly considering the grounds for a “potential competition” case were objectively very weak.
What seems now to annoy many competitors of Live Nation is that the DOJ did not bring a “vertical” merger challenge to the combination of the parts of the Live Nation and Ticketmaster businesses that did not compete with one another — namely, concert promotion, ticketing, operating venues, and artist management. Public discussion of the merger, including at the 2009 Senate hearings, overwhelmingly focused on these vertical issues. When I first got involved in the case I was struck by this disconnect: the professional lawyers and economists at DOJ focused on the horizontal potential competition issues in ticketing while the rest of the world focused on the issues of having concert promotion, ticketing, and these other businesses under the same corporate roof. But what explains the disconnect is that the professionals at the DOJ knew that there was no legal basis for objecting to the merger on vertical grounds.
It is not easy to challenge vertical mergers. Antitrust law generally views vertical integration as procompetitive — that is, good for consumers, not bad. And there were many flaws in the vertical arguments that the DOJ might have advanced against the merger. But the heart of it was that the power players in the live entertainment ecosystem are not promoters and ticketing companies but rather artists, sports teams, and other content creators. After all, no one buys tickets because of the venue, the promoter, or the ticketing company; they buy tickets because they want to see their favorite band or team play. This was going to confound a vertical challenge to the merger no matter how it was styled. If the theory was that Live Nation was going to leverage its power as a promoter to favor Ticketmaster, the answer is that Live Nation cannot dictate to artists which venues to play or not play. And if the theory was that Live Nation could use Ticketmaster to make artists choose Live Nation as a promoter, that is just wrong. Promotional services markets are intensely competitive and artists clearly have the most power and upper hand in negotiations. There is no way the combined company could ever tell an artist that it would not let Ticketmaster sell their tickets unless they accepted Live Nation as a promoter. And as far as I know, even today, no one says that the merged Live Nation-Ticketmaster somehow leverages ticketing dominance to gain an unwarranted advantage in the promotion space.
So let’s set the record straight: the DOJ did not bring a vertical challenge to the Live Nation-Ticketmaster merger because it rightly concluded that no such case would hold up based on the facts. To the contrary, the DOJ recognized that vertical integration in live entertainment is efficient, and consumers would be well served by competition from two vertically-integrated firms, Live Nation and AEG, and from non-integrated ticketing companies as well.
Nevertheless, an extraordinary feature of the Consent Decree the DOJ obtained in resolving the case was that even though the DOJ did not have a viable vertical challenge, it demanded and extracted substantial vertical relief. Specifically, the DOJ insisted on there being a prohibition against two practices: requiring customers to take a package of Live Nation and Ticketmaster services when they only wanted to buy one part of the package, and retaliating against customers that chose not to buy one or more of those services by denying them other services or degrading the terms on which other services would be offered. Those came to be known as Conditioning and Retaliation, respectively. Live Nation thought that both terms were unnecessary because it had no intention of forcing anything on customers or retaliating against customers who worked with other firms. But the DOJ was insistent, so to resolve the matter we agreed to put both terms in the Consent Decree executed in January 2010, after which the merger closed.
Then the Consent Decree went through the normal public notice and comment process that applies to all DOJ consent decrees in merger challenges. Predictably, everyone who had opposed the merger on vertical grounds was unhappy that the DOJ had settled and chosen not to litigate on those grounds.
What our competitors and critics seem to forget is that the DOJ answered those criticisms in writing through an initial Competitive Impact Statement and subsequent filings responding to specific complaints by various parties. And in those filings, the DOJ explained that there was no basis for bringing a vertical challenge, largely because “artists would have the ability and incentive to prevent the merged firm from exercising market power.” The DOJ understood that Live Nation could not undertake many of the behaviors critics predicted without damaging its relations with artists. It said: “Artists would … have the ability to turn to a large number of competing concert promoters, including AEG and many regional promoters, who would gladly seize on the opportunity to expand their promotion business at the expense of the merged firm.” At the end of the day, the agency concluded “that entry of the proposed Final Judgment will provide an effective and appropriate remedy for the antitrust violations alleged in the Amended Complaint and is therefore in the public interest.” The federal judge who had to approve the settlement, on the basis of DOJ’s representations, agreed.
As the years passed, Live Nation and Ticketmaster’s competitors made a regular business practice out of complaining to the DOJ that the companies were violating the Decree by linking content to ticketing in one way or another. There are frequent opportunities to complain, because ticketing competitions are happening all the time and Ticketmaster often wins. Furthermore, content issues come up in ticketing competitions for legitimate reasons. Venues frequently ask for content guarantees — i.e., they ask the vertically-integrated firms to promise a certain number of shows in exchange for the ticketing deals. Ticketing systems are also differentiated with respect to overall quality, features, and marketing capabilities, which can matter to artists and promoters. It was very easy for a losing ticketing company to allege that Ticketmaster won because of something that was said about Live Nation content.
Eventually, the DOJ launched an investigation. The investigation started very broad, seeking information about what had happened during practically every ticketing competition in which Ticketmaster had prevailed over AEG. [KH1] . But soon the DOJ team narrowed its concerns to the negotiations surrounding just a handful of venues. Ultimately the DOJ alleged six violations — six out of hundreds of negotiations in the large venue segment DOJ studied. Contrast that with the DOJ’s 2016 enforcement action against ASCAP, alleging 150 prohibited exclusive licensing agreements. Furthermore, strong arguments could be made that the conduct underlying every one of the six incidents did not violate the Consent Decree. From my perspective, the small number of potential violations and the questionable merit to each claim meant that the DOJ had not found evidence that Live Nation had disregarded or ignored its obligations under the Consent Decree. If Live Nation had a habit of breaking the Consent Decree, there would have been many more violations.
Live Nation nevertheless found itself in an impossible position, because there was no way to defend itself against DOJ’s allegations without looking like it wanted to engage in Conditioning and Retaliation, which was (a) not true and (b) a terrible look. For example, consent decrees are contracts subject to ordinary rules of contract interpretation, and most of the DOJ’s allegations depended on dubious contract interpretation arguments. But making arguments about what “Retaliation” means inevitably implies that Live Nation wants to engage in Retaliation and bargained for some ability to do so, which was not true then and is not true now. Live Nation CEO Michael Rapino was very keen to this risk. He did not want the company fighting the DOJ over practices that had no value to Live Nation and violated his and the company’s business ethics. He decided to settle the matter and not fight over the DOJ’s demand to enlarge the Decree to eliminate ambiguities. In fact, Live Nation accepted several new requirements in extending the Decree — establishing internal and external monitors and increasing training — because the company wanted to reduce any chance of such behavior and eliminate any doubt of its intentions.
Ignoring all of that, our competitors and critics now argue that because Live Nation has repeatedly violated the Consent Decree, the DOJ should call it a failure and break up the company. And to that end they quote a DOJ brief saying that Live Nation and Ticketmaster “have repeatedly conditioned and threatened to condition Live Nation’s provision of live concerts on a venue’s purchase of Ticketmaster ticketing services” and that “venues are afraid to leave Ticketmaster lest they risk losing Live Nation concerts.” I strongly disagree with both contentions. But more importantly, I disagree with the notion that alleged violations touching less than one percent of the ticketing negotiations over the relevant period justify tearing up or attempting to re-trade a consent decree that the DOJ has repeatedly told the District Court was in the public interest.
There has never been a case where the DOJ or FTC allowed a merger to proceed pursuant to a consent decree and then later tried to break up the merger. Forced divestitures are extremely rare outside the pre-merger review process. When they happen, they typically involve either mergers that slipped under the DOJ/FTC radar or, as in the AT&T case, where there is genuinely extensive anticompetitive conduct that was enabled by vertical integration. Recycling the vertical arguments against the merger that failed to persuade the Obama DOJ thirteen years ago will not persuade a court to break up Live Nation and Ticketmaster. And were the DOJ to try, it would do grave damage to its ability to resolve future merger investigations by consent decree.
But even putting all of that aside, if you want to look at this transaction from the perspective that U.S. antitrust law mandates, the Live Nation-Ticketmaster merger has been good for consumers. This tactic of saying that everything people don’t like about the live entertainment industry is the fault of the merger is not going to work in litigation. An antitrust court will focus on how being part of the Live Nation family has affected Ticketmaster’s business practices, incentives, and performance. And what that analysis will show is that Ticketmaster is a better, more competitive, and more pro-consumer company than it ever was as a standalone company. Indeed, the merger has been both pro-consumer and pro-artist.
When I hear critics say that the merger made Ticketmaster the company they don’t like, I can’t help but wonder “What earlier version of Ticketmaster are these people thinking of?” Ticketmaster was a deeply unpopular company in 2009, with antiquated technology, and a reputation for anti-consumer business practices which led to multiple artists, most prominently Pearl Jam in the 1990s, protesting against it. Live Nation worked hard to change that. It did so because Live Nation’s business model is focused on serving artists and connecting them to fans, and in that model a ticketing system is not just an e-commerce platform but a way to foster that artist-fan connection and have the concert business — everyone’s concert business — thrive. Live Nation believed that the pre-merger Ticketmaster was failing in that regard. So, as soon as the merger was completed, Live Nation set out to improve Ticketmaster, modernize its many antiquated systems, bring new innovations including anti-fraud technologies, and reorient it around an artist- and consumer-focused business model.
Technologically, and from both a consumer and artist perspective, Ticketmaster is a much better ticketing system today than it was in 2010. It remains the hands-down leader in being able to serve large onsales, but today it also has the best marketing capabilities of any ticketing system, and it is far and away the leader in preventing fraud and getting real tickets into the hands of real fans. Ticketmaster’s market share remains high — although substantially lower than at the time of the merger — because venues, artists and even competing promoters understand that concerts sell better when they are served by Ticketmaster. Garth Brooks, James Dolan and Irving Azoff made this point during this week’s Pollstar Live conference. The founder of Another Planet Entertainment, the top independent promoter operating in the San Francisco Bay Area and Northern California, has put it succinctly: “Ticketmaster for all the abuse they take is the best ticketing company in the world.”
Live Nation’s artist focus also explains why Ticketmaster is the only major ticketing company that fights against fraudulent and speculative practices on secondary ticketing sites. AEG’s AXS has recently started rolling out some similar anti-scalper tools, likely because they are vertically integrated and have a promotion business that drives them to be artist focused. Standalone secondary marketplaces like StubHub and predominately resale-driven companies like SeatGeek depend on high-volume ticket scalping for their survival. Their main customers are ticket brokers — not artists, and not fans selling to other fans — and as a result they elevate the interests of ticket brokers and transaction volume above all else. They permit speculative ticket listings, meaning posting a seat for sale when the seller (almost certainly a large-scale professional reseller) has neither the ticket nor an existing right to acquire it. They permit and facilitate posts for concert tickets before any onsale has occurred, when it is obvious the seller cannot have the ticket. They make no meaningful effort to determine whether sellers have acquired tickets using bots, which is illegal. Ticketmaster prohibits all of this — because Live Nation won’t allow it. It will not sacrifice the interests of the artist and the fan for more ticketing transactions.
This is in fact the source of most of the antitrust noise around Live Nation and Ticketmaster: StubHub and SeatGeek are threatened by Ticketmaster’s technologies for allowing artists and sports teams to restrict ticket transfers and keep bots from acquiring tickets. They can’t be open about that, so instead they hide their pro-scalper agenda in a fog of anti-Ticketmaster rhetoric. It is baseless and it certainly does not advance the interests of consumers. They try to hide behind “fan freedom” slogans, but follow the money and it’s easy to see that scalpers and the secondary sites that cater to them benefit more than anyone.
Fortunately, unsubstantiated allegations are not effective in real antitrust cases. That is why the Obama DOJ Antitrust Division, one of the most aggressive and enforcement-oriented Antitrust Divisions we have ever had, resolved the merger investigation with a scalpel rather than a sledgehammer. To reverse course and have any chance to break up Live Nation and Ticketmaster, today’s DOJ would need to do far more than say that it has changed its mind. Under the law, it would need to prove anticompetitive conduct directly traceable to vertical integration that cannot be remedied other than by breaking up the companies, and that breaking up Live Nation and Ticketmaster would restore competition. What is that case going to be? I cannot think of any argument our critics are making that would meet that standard if proven. Nearly all of the complaints fall entirely on the Ticketmaster side of the company, and therefore do not support separating Ticketmaster from Live Nation. The only complaint that implicates Live Nation is the one addressed by a consent decree that the DOJ has repeatedly said adequately addresses the underlying antitrust concerns and so is in the public interest.
And what would breaking up Live Nation and Ticketmaster do for ticketing competition? If the two companies were separated, Ticketmaster would have exactly the same market position as it has today and 100% of its incentives would be to expand that position and profits without regard to the interests of artists, other content providers, and fans. Ticket prices would not go down – because ticket prices are set by artists, teams and other content owners, not ticketing companies. Ticket fees would not go down – because those are set by venues, who also keep most of the money. And ticket access would not get any easier for fans – there will always be more demand than supply for tickets to the top concerts.
Any effort to unwind the merger would also have to confront the reality that ticketing markets are more competitive today than at the time of the merger. Critics focus on the fact that Ticketmaster maintains a high market share. But antitrust lawyers understand that in a monopoly maintenance case market share trends matter much more than levels, and Ticketmaster has clearly lost market share to AEG’s AXS, SeatGeek, and others since the merger. More importantly, competition for primary ticketing contracts takes place through competitive bidding, a setting in which “backward looking” measures of market power such as shares are less important than evidence that bears on the intensity of current bidding. What an antitrust judge or prosecutor wants to know is not just who won, but whether the alleged monopolist is winning (a) while charging the supracompetitive prices that infer monopoly power, or (b) based on competitive prices that disprove monopoly power. The former tends to show a violation of the antitrust laws; the latter tends to show the opposite.
The world we live in is that latter world. In today’s primary ticketing market, venues are able to organize robust competitive bidding among Ticketmaster, SeatGeek, AXS and others so that if they choose Ticketmaster — the product that a large majority of venues want to buy — they get Ticketmaster at highly competitive prices. Those are simply the facts. And they do not describe a monopolized market.
All the recent talk stirred by our competitors about breaking up Live Nation and Ticketmaster obviously makes for popular commentary. But compare the complaints about Live Nation and Ticketmaster to any case that has actually resulted in court-ordered divestitures. They just don’t stack up. I will encourage people to block out the noise. Look at the law and the facts. We accept there will be further investigation and analysis of these issues, but we know our business well and are confident that so long as antitrust law remains grounded in proven facts and what is good for the consumer, a merger that has benefited artists, other content providers, venues, and fans will not fall prey to attacks from competitors.
Pollstar welcomes a variety of informed perspectives on the many issues impacting the live industry. Please reach out to [email protected] for possible Guest Post submissions.