By Jim McCarthy Feb 5, 2009 0 comments

The Merger: Why?

Forbes.com has a particularly interesting look at the motivations for the merger, but here’s a key snippet:


“The $200 million Live Nation spent on those [360 degree] deals [such as the ones with U2 and Madonna], which give it a slice of each artist’s concert, album and merchandise revenue, may be the catalyst for it to seek a merger. A larger combined company without any additional debt may be better able to handle Live Nation’s deals with talent, said Alan Gould, an analyst at Natixis Bleichroeder in New York.

“We have watched the two sides playing a game of mutually assured destruction over the last year, with both stocks seemingly going down with each move,” he said.”

I mentioned the Mutually Assured Destruction thing the other day, and it’s true that having two companies pouring so many resources into duplicate capabilities is silly.  On the other hand, that’s competition, so it does keep everyone honest.

But the more compelling story, and the one I’m hearing everyone talk about is what does it mean to the ticket buyer.

Let me start by saying that this merger will certainly not lower prices on anything.  That’s pretty straightforward.

On the other hand, these companies were never planning to compete on price.  Why?  Because demand for live events is strong, even now, and prices reflect that strength.

Live Nation promotes its own shows, so it sets those prices, but the great majority of shows Ticketmaster sells are not its own, and that will still be the case post-merger.

Will the merger give them the opportunity to take advantage of that and drive ticket prices and/or service fees up?  I don’t think so.  Don’t get me wrong.  They’re going to push the prices as far as the market will allow.  That’s not surprising nor is it different from what all businesses try to do in a way.

Consumers immediately begin to worry about prices, but I don’t think this is going to affect that much one way or the other because that was never part of the competitive landscape between these two companies and because there actually is a robust market that’s going to drive prices.

What I do worry about is innovations that benefit the customer. In a competitive situation, these companies have and would have continued to develop things to benefit the ticket buyer.  TM was flirting with a ‘no service fee’ system, and we’ll see if that continues.  Live Nation was developing a next-gen ticketing system, with potentially some interesting new ways to buy, but do they have an incentive to do that now?  It’s expensive and difficult, and not being in a death match with TM anymore, LN is likely to walk away from it.

But the good news is that industry overall is still going to keep innovating and pushing this combined company to keep up.  Before the Internet, they could resist change by ignoring it, but there are simply too many ways to reach consumers, and that means they’ll ignore the market at their own peril.

So don’t worry, or at least worry a little less.  It’s not 1989, it’s 2009, and there’s a big world outside the LN-TM axis.

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