The Music Industry: Competition Law in the Case of Live Nation Entertainment - Research Paper Example

?The Music Industry: Competition Law in the Case of Live Nation Entertainment [ID The connection between record labels, artists, concert and entertainment promoters and hosts, radio distribution, consumers and record stores has always been a tug-of-war. Everything from software piracy and bootlegging to payola have been caused by this tension. The Live Nation Entertainment merger and the Justice Department conditions imposed thereof will have complex ramifications throughout the industry. The merger began after years of virtually utter dominance of the concert ticket industry by Ticketmaster (US v. TicketMaster and Live Nation Inc, p.5). Ticketmaster's fee charges are added to the cost of the ticket for the consumer, though it does share some of the fee moneys with venues. This means that Ticketmaster's effect on the industry was generally slightly beneficial for venues but harmful to consumers because the cost of a Ticketmaster ticket is much higher than other tickets. Ticketmaster had 80% of the market venue share and an 85% contract renewal rate, meaning that for the foreseeable future at the time of the court ruling, it had monopoly power in the ticket industry. Its monopoly power was vertical: Ticketmaster had almost no sources of revenue or influence in any other market besides ticketing (US v. TicketMaster and Live Nation Inc, p.5). Live Nation, by far the largest concert promoter in the nation, decided to enter the ticket industry directly (Collyer, 2010). LN was actually a potential challenger to Ticketmaster. They had the ability to make their promotion and organization services contingent on purchasing their ticketing services, or raise their normal promotion services and provide such a high discount for also using the ticketing services that no concert organizer would ever get the unvarnished promotion deal. If LN entered the marketplace, there was a substantial risk of severe competition with Ticketmaster or a new monopoly. The impacts of this would have been complex. LN's ticketing service would have been cheaper: Unlike Ticketmaster, they had an “ass in seats” incentive to get consumers to not only purchase a ticket but come to the show and thus build the reputation of a concert and a band. Concerts have ancillary sources of profit such as merchandise and food beyond the ticket, so LN had multiple reasons to charge consumers less; in contract, Ticketmaster's sole source of profit was ticket sales and the fees they charged, which meant that they could charge as high as the market would bear,in this case quite high due to their monopoly status. Initially, Ticketmaster would likely compete with LN by lowering prices, which would be good; however, if LN emerged dominant, it would have monopolized horizontally, taking control of a new industry which would give LN unprecedented control. Ticketmaster and LN decided to head off what would have been a grueling market fight and merge. This initially looked like the worst of both worlds: LNE, the new company created by the merger, would immediately have access to Ticketmaster's contracts and therefore its monopoly power, and now would draw a higher portion of revenue from tickets, meaning that they would have even more ability to raise ticket prices. “The merger... will create a goliath with hands in every pocket of the music business. The newly formed Live Nation Entertainment would have the ability to book concerts, sell tickets and merchandise, and manage artists all under one roof” (Fritz et al, 2010). The Justice Department, in the first major case under Obama, moved to intervene and created a bizarre version of Solomon's deal: LNE could have its monopoly in most other areas, but when it came to ticketing, it had to compete with itself (Fritz et al, 2010). Under the deal, Ticketmaster not only provides services immediately to Anschutz Entertainment Group (AEG), giving them Ticketmaster's proprietary software, but it would also create a subsidiary whose entire purpose is to sell the software Ticketmaster uses to other companies like Comcast (Fritz et al, 2010). LNE cannot retaliate against venue owners that switch to newly formed competitors; it cannot share information between the software subsidiary and the other parts of LNE in order to gain a knowledge of what competitors are doing or which competitors are entering the market; and the software division must make good faith efforts to be competitive (e.g. LNE can't just scuttle the division). This is virtually unprecedented in anti-trust law. Note that, under this deal, LNE is creating not only a competitor to itself, but also furnishing the ability to its rivals to compete. The initial, unmodified merger would likely have been a disaster for the record industry's consumers. Recall that the music industry is already highly consolidated, with big labels, artists and promoters having immense power and the RIAA acting as a cartel to coordinate interests (Palast, 2004). Further consolidation at the concert and ticketing level would make the industry even less competitive. There was one short-circuiting factor. Recall that LiveNation initially had an interest in reducing ticket prices to subsidize other elements of their operation. This may still have been true in the post-merger world, but certainly prices would never have fallen as much as a bona fide competition between the two. LNE also without regulation would have been free to make its services contingent on each other, such as the ticketing service requiring LiveNation's promotion services and vice versa. The deal has stopped that. Aside from Comcast and AEG, who have a chance to compete with the titan (though it frankly does seem like a small one due to being late to the party in terms of access and contacts, concert venues, smaller concert promoters, and other businesses benefit directly by having choices for ticketing and promotion options. LNE is clearly disadvantaged by the deal compared to no deal whatsoever, where monopoly power would have increased their profits. But the software subsidiary could give them another source of income while not meaningfully threatening their bottom line. The deal was primarily about avoiding horizontal monopoly: The fear was not that LNE would have more ticket control or more concert control, but that they would have both and therefore be unassailable. Record labels are likely to benefit in two ways. First: LNE is a more comprehensive service, allowing them to more easily coordinate a concert and coordinate with their artists. Second: By having alternatives to LNE for promotion and ticketing, they can extract more concessions out of LNE. Works Cited Collyer, Rosemary M. Case: 1:10-cv-00139. January 25, 2010. Complaint. Fritz, Ben, Lewis, Randy and Dawn C. Chrnielewski. “Ticketmaster-Live Nation merger gets Justice Department approval”, Los Angeles Times, January 26, 2010. Palast, Greg. The Best Democracy Money Can Buy, Penguin Books, 2004. United States of America, et al. v. Ticketmaster Entertainment, Inc. and Live Nation, Inc. United States District Court of Columbia. Proposed judgment. 2011. Read More