By Jim McCarthy Apr 1, 2011 0 comments

Live Nation and Warner Music Synergy? Hmmm.

The news is that Live Nation has joined a handful of companies and funds in an attempt to acquire Warner Music.  You might have heard this.

Roughly speaking, the rationale for the acquisition is the same as the Ticketmaster tie-up a couple years ago: the company would be vertically integrating by bringing the label and catalog under the same roof.

Possibly, but I have a couple thoughts about that.

First, it’s not 100% clear that the benefits of the TM-LN merger have materialized, other than merely because of earnings that TM had coming into the deal which now belong to the whole organization.  These kinds of mergers (that is, of un-like companies) are extremely complex.  It’s neither certain nor simple to realize any benefits ever.  It may be wise to see how it plays out for a couple more years before taking on more complexity.

Second, vertical integration is a concept with a very dubious track record.  As I said a while back:

“Ford used to mine and smelt its own iron.  The very idea is absurd now but  the ‘vertical integration’ theory is just the same as it was then: if it’s all in house, think of how much cheaper it will be.

But vertical integration of this kind can have some strange warping effects too.  If you always and for sure get your iron in-house, does anyone ever stop to ask if we could get the iron cheaper, or on a better delivery schedule or lighter?  Typically no, because you’re deeply invested in the iron you’ve got.”

Third, the desire to do this absolutely demonstrates a continued doubling-down on concerts.  This isn’t necessarily a good or bad thing, but there is a very broad scope of live entertainment that isn’t concerts.  In fact, concerts is a rather slight slice of the overall picture, and if they bring this asset in house, it will represent a major part of what the company is and does, which leads me to believe the focus will go even more heavily on the so-called music business. (I say “so-called” because consumers pick and choose from a menu as broad as they would like.  Music, movies, video games, and everything else are in the same mental mix for the buyer, so there’s no distinct “music business” in my view.)

It will be interesting to see how this develops.


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