Live Nation Ticketmaster Merger Approved

Done deal.

And as we discussed, there’s some quid pro quo for both Comcast and AEG.  Specifically, AEG gets to license the Ticketmaster software.  After five years, AEG can either buy it or dump it for somebody else.  In other words, AEG gets to run TM software but pretty much own it.  TM makes some money from this but loses a very significant element of control.

Comcast gets to buy Paciolan, which had been one of the leading competitors to TM before TM bought them a couple years ago.  Presumably, Comcast will replace its own system New Era Tickets with Paciolan, but who knows? 

Rumors of AEG buying buildings from Live Nation seem not to have panned out.

As I see it, this moves the combined Live Nation Entertainment more firmly in the direction of concerts and away from things like sports (Paciolan’s strong suit and the bulk of AEG’s business, which they’ll now be somewhat detached from).  Live Nation already divested its theatre wing a couple years ago, and in combination with Front Line Management (music talent agency) as a lead asset in the new combined company, it strongly suggests that culturally, this new company will be about concerts.

I’ve mostly limited my commentary on this to the technical side of what was possible, likely and made sense.  I know a lot of people are upset about the impact of this merger, and some of them would like me to say that I think this is a ‘Ticket Disaster.’

However, if I’m being totally objective about this, it comes back to the marketplace.  Concert tickets are a good that is price elastic*. That is, unlike, say, gasoline, when the price goes up beyond what it is worth, you buy proportionately fewer tickets.  It’s just too easy to substitute for a concert ticket if the price is wrong.

No amount of market power can change what a Nickelback concert is worth to you.  The fact is that up to now, there has been a market for concerts at the prices that have been charged.  We’ve discussed this a lot here.  The live product has gotten more valuable and artists and promoters have gotten more aggressive about “capturing that value.”

The upward bounds of that limit have been discovered in the last year or so, particularly with people feeling more personal pressure on their finances.

Remember that in the past, concert prices were essentially subsidized by record and CD sales: the concerts were nothing but a marketing tool to sell records to millions.  Now, millions don’t buy records or CDs, but lots of people want the ‘real’ experience of a concert.

Concert promoters deliberately used to price concerts low so that tickets would sell out instantly and everyone who couldn’t go got so jealous that they ran down to the record store.  That system, obviously, is no longer functional and hasn’t been for the better part of a decade.

Meanwhile, in a more and more virtual consumer world, the ‘real’ became more valuable.  As Ethan Stock from Zvents says, “Reality is the ultimate luxury good.”

This simple truth is a very important part of why live entertainment is in good shape, relatively speaking, despite everything.  People want to go out and see the ‘real thing.’ whether it’s live music, theatre, sports, comedy, whatever.  Sure, we’ll consume electronically all day long, but if we had our druthers, we’d want the true experience, and that’s the foundation of the increased price in concerts, opera and every other form of live entertainment over the last generation.

This merger doesn’t change that, but it will change the dynamics of many things in the industry, so it’s worth tracking to see how it goes.

*Technically, tickets have a  price elasticity of lower than -1.  That means that beyond the market clearing price, demand for tickets drops at a higher rate than the accompanying increase in price.  For example, if the true market price of a ticket is $100 and the price goes up to $110, each ticket is worth 10% more if sold, but the units demanded will go down by more than 10%, causing a decrease in overall revenue.  By contrast, if gasoline goes from $3 per gallon to $3.30 per gallon, the price has increased 10% but sales will not drop by 10%, so total revenue goes up.  Price elastic things are ones that can easily be substituted for or avoided altogether.  Things, like gasoline or milk, that are price inelastic are generally necessities or can’t easily be replaced by other things.