I'm incredibly surprised by all the criticism and doomsday predictions concerning Live Nation Entertainment, the company that would be created by the proposed Live Nation and Ticketmaster merger. Everybody has an opinion, music critics are now prescient business analysts, and almost all of them are wrong. If there are problems with the merger, they stem from a vertical integration that may limit competition and fail to receive the blessings of the Department of Justice (which has already said it will launch an investigation).
As for complaining about higher ticket prices, those arguments are filled with holes. Ticket prices probably won't change any more than they would have in the absence of a merger. (Everybody knows why ticket prices are increasing. If people agreed not to illegally download MP3s and buy albums instead of tracks, ticket prices would probably go down. Fat chance, right?) Maybe the face values will change (both up and down) but actual ticket prices paid by the final ticketholder are not likely to change. Ticketmaster owns secondary ticketing company TicketsNow. What is to prevent Live Nation Entertainment from putting more tickets on its own secondary ticketing system and making more money? Unsold inventory, that's what. And that would be a disaster given the amount of revenue the company makes from ticket-related sources such as parking, food, drinks, merchandise and products bundled with ticket sales (fan club memberships, music, etc). The marketplace holds checks and balances that will keep a fair percentage of tickets at lower prices.
Some would agree that dynamic pricing -- which would capture the maximum amount of value the market places on the tickets -- would be a good thing for ticketing. Prices vary with demand. Low demand means lower price. High demand means a higher price. (That's already the case. The most in-demand concerts tend to cost the most. Want a cheap concert? There are plenty of small clubs that charge $10 to see a good touring band.)
In fact, the existing secondary market -- online sellers, ticket brokers, scalpers on the street, people on Craigslist -- already creates something of a dynamic pricing system. Buyers have an inventory that sells either above or below face value (usually above). The difference is who collects the demand in excess of face value. Currently, much of that extra value is distributed throughout the marketplace. Post-merger, Live Nation Entertainment stands to realize more of that extra value. The end results are pretty much the same, but critics don't want one company, Live Nation Entertainment, to make all that money. They want the company to sell tickets at face value and let others -- other companies, private citizens -- capture the amount above face value that some people place on tickets.
Yet at the same time, people have for years lived with the exact same pricing system in the airline industry. People fly during the holidays when rates go up, they take vacations in the higher-priced summer months and they find bargains throughout the year. Airlines collect all that revenue -- the cheap ticket, the moderately expensive ticket and the extremely expensive first-class ticket. Is it fair that nobody on the plane paid the same price, or that some paid three times as much as the person in the next seat? It doesn't matter.
What the airlines know is exactly what Live Nation Entertainment knows and what many today are ignoring: You cannot maximize profits by raising all prices to all people all of the time. Perhaps Senator Schumer should ask the FTC to investigate why I have to pay so much to fly home to California in late December, or why it costs so much to buy a plane ticket the day before departure.
Not hardly. Senator Schumer understands very well that a flat-rate ticket price is inefficient and leaves unrealized value on the table. There is no reason to sell tickets based on ability to get in line first. Tickets, like other finite goods, should be priced according to willingness to pay. And Schumer has a lot of nerve to tell an entertainment company facing a recession that it must cede secondary ticketing revenue to others in the marketplace because it doesn't meet his definition of fairness.
The public, though vocal right now, has allowed this to happen. States have changed ticket scalping laws to allow for the new secondary market. No outcry. Sports teams now have official secondary ticketing partners. Again, no outcry. At the same time, blocks of concerts tickets are regularly obtained by artists and their managers. They are sold on the secondary market, and they are sold to fan club members (a segment in which both Live Nation and Ticketmaster operate). Again, no major outcry from the public even though many ticket buyers have long paid more than face value.
Competitors in the music industry may say they are merely sticking to anti-trust ideals and trying to protect consumers, but their criticism is the business equivalent of jealousy because Live Nation and Ticketmaster figured out a way to keep more of their tickets' value.
More valid criticism is pointed away from ticket prices and toward possible effects of vertical integration. There are concerns that Live Nation will have unfair influence over other venues (which do business with Ticketmaster) and artists (which want to play Live Nation venues). This is where the Department of Justice tends to get involved. It is concerned about competition.
People are fearing worse-case and, I believe, unlikely scenarios. If Live Nation Entertainment truly wants to stay away from antitrust regulators, if it desires to return value to its shareholders, it will happily make money from selling its ticketing services to its competitors. Better to keep its competitors close than to force them to act in competition (by, for example, creating their own competing ticketing system). The same argument applies for feared favoritism to Front Line artists. Nothing should make a company so happy as to generate ticketing and related revenues from artists managed by other companies. There aren't enough Front Line clients to support the concert industry. Live Nation Entertainment's success will be greatly determined by the successes of acts managed by others.

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