Recap: The Merger & Congress

Both committees put Live Nation CEO Michael Rapino and Ticketmaster Entertainment chief Irving Azoff on the hot seats, starting with the Feb. 24 Senate panel. Chuck Schumer (D-NY) in particular landed rhetorical blows to both, with IMP’s Seth Hurwitz and Mickelson passing ammunition.

The House committee met two days later, sans Mickelson and Hurwitz and adding Comcast-Spectacor’s Peter Luukko to the witness list, before a decidedly more friendly group of congressional inquisitors.

At the Senate hearing, Rapino cited an “irreparably broken music industry” as a reason for proposing the merger, saying the “business model is obsolete as an eight-track tape” and acknowledging the need to create value for shareholders.

“Our stock has declined by nearly two-thirds. Our real estate holdings have been gutted. Our hard work is not producing the rewards it should. We face the very real possibility that if we don’t find a solution, we could ultimately be bought by a foreign-owned entertainment conglomerate like the majority of the major record labels.”

Rapino told the panel that more than 40 percent of all concert tickets go unsold, and scalpers are to the concert industry what illegal downloaders are to the recording biz.
Azoff told the committee his history of loyalty to his artists and their fans, and explained his job will be to continue benefiting them as well as shareholders.

“I’ve been an agent, a personal manager, a concert promoter, a movie producer, an independent record label owner, a merchandiser, a music publisher, a record company CEO and, at times, a babysitter and a bail bondsman. I’m a founding member of the Recording Artists’ Coalition and staunch supporter of artists’ rights,” Azoff said.

“In 2005, I returned to my first love – the management of artists – at Front Line Management. While I’m honored to be here, if I wasn’t doing this right now, I’d be in the Rayburn Building with the musicFIRST coalition and all the artists who are seeking congressional support for the performance rights bill.”

He also raised the specter of the recent Bruce Springsteen ticketing snafu, blaming the problem on a computer “glitch” which seemed to rankle the senators. Schumer was already loaded for bear on that subject, even addressing it in his opening remarks.

Schumer blasted Ticketmaster for the Springsteen onsale fiasco and called for the company to, at the very least, sell off its TicketsNow division.

In sharp questioning about TM’s acquisition of TicketsNow, Schumer elicited a somewhat surprising admission from Azoff. Had he been with TM at the time, he would not have made the deal, he said.

“I don’t think there should be a secondary market at all,” Azoff said. “I think it should be illegal. I’ve spoken with senior members of the company, members of the board, about why they even bought it.”

By the time Azoff appeared at the House subcommittee’s hearing two days later, he’d expanded on that statement to say he would recommend that his board sell TicketsNow if an appropriate offer was made.

Hurwitz was the first to bring up what is likely the biggest concern for competing promoters when he said the merger would make it possible for the combined company to have access to his confidential sales and contract data. He took a swipe at Live Nation for following a “model of control” started by Robert Sillerman’s rollup of SFX.

“When is enough control too much? You can’t blame Live Nation any more than you can blame a shark for eating people,” Hurwitz said. “I’ve never had a problem with Ticketmaster that I couldn’t work out. But if this merger goes through, my biggest competitor will have access to all my ticket counts, onsale dates, contracts and history.”

Mickelson was even more emphatic, saying that in some cases his new rival would be able to financially profit from fees on Jam’s shows, as well as obtain data while not sharing theirs with him.

“If this merger is allowed, this entity will have the power to suppress competition and become a rival to not only promoters but venue managers, agents, merchandisers, apparel companies, licensees and sponsorships. It is vertical integration on steroids and … the poster child to show why this country needs antitrust laws.”

Under questioning by chairman Herb Kohl (D-Wis.), Rapino concurred with his independent promoter rivals that data integrity is a legitimate concern.

“I would agree that is a concern on their part,” Rapino said. “We would make sure both divisions are separately run.” He stammered a bit when Kohl asked Rapino if he were willing to put up a “firewall” between companies to protect data.

“In theory, yes,” Rapino responded. “In terms of the data, the concert division should have no information about what Seth or Jam do.”

It wasn’t clear if Hurwitz or Mickelson bought that, but it was clear they didn’t buy the claim that Live Nation has a market share of only 38 percent, as Rapino testified.

“That’s not true,” Mickelson said, holding up a sheet of paper and citing Pollstar box office statistics. “If he’s talking 38 percent, he may be including small clubs, but they control outdoor amphitheatres. They own 90 percent of the amphitheatres, and all the House of Blues and control other theatres. We won’t be able to compete.

“When you look at Ticketmaster, they have control of 90 percent of the Top 100 buildings. With 80-90 percent of the major arenas, can other ticketing businesses enter? I don’t think so. What could happen is Ticketmaster/Live Nation could say, ‘If you want my concerts, you have to use my tickets. If you don’t use my tickets, you can’t have my artist.’ That’s a huge concern.”

Hurwitz later questioned Rapino’s assertion that Live Nation is in financial straits and in danger of being acquired by foreign interests unless the merger is finalized.

“It’s interesting to see the rest of the world figure out how ridiculous our business is,” he told Pollstar after the hearing. “You’ve got companies crying poormouth here, while they tout every earnings release as great news. Which is it? I can’t wait to see how they decide to spin next week’s numbers.”

At the House hearing, no independent promoters, artists or other industry opponents were among the witnesses.

“I can’t tell you how many calls and e-mails I got from people who hate this and are afraid to talk. And isn’t that perfectly telling? Seriously, maybe they ought to set up an anonymous hotline,” Hurwitz said.

By the second hearing of the week, Rapino and Azoff seemed to have fine-tuned their testimony from the Senate committee’s grilling. Rapino took aim at rival AEG during his opening statement.

Rapino said that Live Nation has a market cap of $250 million and $700 million in debt, and a margin of 4 percent. Then, he said, compare that to AEG, a privately held company, “owned by a multi-billionaire,” an obvious reference to AEG principal Philip Anschutz, “the 31st richest man in America.”

He claimed that the AEG-owned Staples Center in Los Angeles alone is worth more than Live Nation and Ticketmaster combined.

He continued to paint AEG as at least as powerful as Live Nation, saying it promoted five of the Top 10 concert tours last year while LN promoted just four. “They are the true vertically integrated company.”

Comcast-Spectacor President / COO Peter Luukko was a supportive witness before the House subcommittee, initially chaired by Rep. Hank Johnson (D-Ga.). The last half of the hearing was chaired by Rep. Brad Sherman (D-Calif.), who took the gavel when Johnson was called away to another meeting.

“I have come to understand the benefits of having a vertically integrated live entertainment business,” Luukko said in a prepared statement. “I believe that the merger of Ticketmaster and Live Nation is an exciting combination that has the potential to reinvigorate the industry at a time when change of direction is drastically needed.”

Luukko also works closely with professional sports teams and leagues, which have not been a core business for Live Nation, but with which Ticketmaster has contracts. Some sports entities, including several Major League Baseball teams, have contracts with other ticketing agents including Tickets.com and Veritix.

Vertical integration of MLB as well as other pro sports leagues was discussed, although it should be noted that baseball famously has a congressional antitrust exemption.

But Luukko came to the hearing from a position of experience in dealing with vertical integration, including F&B with Comcast-Spectacor-owned Ovations and its own attempt to bring ticketing in-house with the acquisition of Paciolan.

“I think the merger will bring welcome change,” Luukko continued. “If together Ticketmaster and Live Nation can sell more tickets, and thereby provide more content to venues and consumers, this will be a huge improvement over the status quo. I also believe that this type of strategic combination will encourage other competitors (like myself) to be more creative in their offerings and to compete more effectively overall.”

Luukko dismissed fears of anti-competitive behavior from a merged Live Nation Entertainment.

“I certainly don’t have any reason to believe that the combination will in any way stifle competition. There are a lot of ticketing companies (our own included), promoters, venues and artist managers out there eager to do business. Nor do I think that my buildings will be less likely to attract or secure the same level of concert talent that Live Nation and many others have offered us before.”

“At the end of the day, the artist has the ultimate control over where he or she wants to play,” Luukko concluded.