Ticketmaster and Live Nation merger is a raw deal
At first blush, it looked like a slam-dunk antitrust case for the government.
Ticketmaster, a company that came to dominate the live-music ticketing business by buying up seven of its rivals, was suddenly facing a challenge to its 83 percent market share. Its largest customer, Live Nation, a big venue manager and concert promoter, had decided to launch its own ticketing subsidiary and quickly grabbed 16 percent of the market. Ticketmaster responded in kind by purchasing Front Line Management, which manages tours for 200 of the country's top music artists.
By early 2009, Ticketmaster vs. Live Nation was turning into one of those price-reducing, service-improving rivalries that benefit consumers much more than shareholders. So in February, the two companies called a truce and announced they were merging. The Obama administration, eager to demonstrate that the era of no-touch antitrust enforcement was at an end, put the deal on hold, launched a wide-ranging investigation and told company lawyers it was prepared to block the transaction.
Only it didn't. Earlier this week, the Justice Department reached a settlement with the companies. Although the merger will go through, Ticketmaster will be required to license its ticketing software to the Anschutz Entertainment Group, the country's second-largest concert promoter and manager of 30 major concert venues. The aim is to ensure that Ticketmaster/Live Nation will have at least one strong new competitor. Among other concessions, Ticketmaster will be required to sell to Comcast a subsidiary that provides software to smaller venues that want to run their own ticket operations. The settlement also forbids Ticketmaster from retaliating against venues that use another ticketing service or promoters who use other venues.
I have no doubt that antitrust chief Christine Varney and her team at the Justice Department were willing to go to court to block this deal. And it is clear that these conditions, which were strongly resisted by the companies, make the merger significantly less anti-consumer than it would have been. The fact that Varney was willing to settle for something less than full divestiture suggests that there was evidence that Live Nation was losing money from its ticket business and may not have been willing to continue challenging the Ticketmaster monopoly.
Even given those considerations, however, the better option would have been to block the deal.
The gradual retreat from antitrust enforcement over the past 30 years has led corporate executives and their lawyers to believe that there is no merger that cannot win approval if you're willing to make some relatively minor fixes. The Bush administration confirmed that belief when it approved the merger of Sirius and XM Satellite Radio in July 2008, creating a monopoly in the satellite radio business. The only way to restore credibility to competition law is to challenge a few high-profile mergers in court. Some of those challenges will be successful, others will not, but all will require companies to spend time and money to litigate, which will raise the bar generally. Without that, it's only a matter of time before Coke swallows Pepsi.
The Ticketmaster settlement also sets a terrible precedent on so-called "vertical" combinations -- mergers between a company and its suppliers or its customers. Beginning in the 1980s, it became intellectually fashionable to believe that if car companies scooped up their parts suppliers, or oil refineries gobbled up gas stations, they would simply lose customers if they used their newfound market clout to raise prices. But we've learned since then that this isn't necessarily true if one or both of the companies has a dominant share in one segment of the business. That was the case when Microsoft tried to leverage its monopoly in operating software to obtain dominance in office applications and then Web browsers. And it is true of a ticket monopolist seeking to buy the dominant concert promoter and venue operator, which would allow it to bundle its services and force more focused competitors out of the market. This risk is particularly acute in industries where there are significant efficiencies of scale, where business is done through long-term contracts and consumers are captive customers. Live music is just such an industry.
Because the courts have been reluctant to block "vertical" mergers, it's not surprising that Varney might have been willing to settle for a promise from Ticketmaster that it won't retaliate against venues and artists that deal with its competitors. But enforcing such conditions is devilishly difficult because the government must rely on businesses to rat on a key supplier and risk the very retaliation that these provisions are meant to prevent.
Perhaps even more troublesome, however, is that in order to provide sufficient competition to a bigger and more vertically integrated Ticketmaster, the government has put itself in the position of playing midwife to two other vertical mergers -- one involving Anschutz, the other Comcast -- making it even more difficult for small venues and independent promoters to survive.
However clever and well intentioned, this is the kind of industrial policy micromanagement you'd expect in Japan, not the United States. The better approach would have been to keep Ticketmaster and Live Nation as separate companies and leave it to the competitive marketplace to sort things out.